Background information

The instrument was created with a view to cover outstanding payments resulting from the termination of business activities following the opening of insolvency proceedings. All workers employed with private employers are entitled to avail of this compensation, including trainees or apprentices and home office workers.The Federal Employment Agency administers the scheme and pays insolvency compensation to affected workers.

Content of measure

In case of outstanding payments resulting from the termination of business activities, workers are entitled to three months of financial compensation prior to the opening of insolvency proceedings or the rejection of insolvency proceedings (if the employment ended before that, for the three months before the termination of the employment contract). In 2020, the allowance is provided for monthly wages that do not exceed €6,900 in Western Germany and €6,450 in Eastern Germany.

Workers are informed by the works council (covered by the Works Constitution Act in case of insolvency) and the employer representative as well as the insolvency manager. The compensation comprises net wages including holiday remuneration, payment in case of illness, remuneration for overtime, travel costs and so on, within certain maximum limits; income from a new employment contract or from self-employment during the insolvency income period will be deducted.

The compensation is covered by a central public fund set up for covering potential claims of workers in case of insolvency. The fund is financed by monthly contributions from private employers (0.06% of payroll in 2020) paid alongside with social security contributions to statutory health insurers. Public employers and public agencies/bodies do not have to contribute to the fund. The compensation is paid by the Federal Employment Agency.

Application for insolvency income must be filed with the public employment service within two months after the agency has attested the termination of business or the insolvency case, otherwise employees lose their entitlement. An employer is also considered insolvent if the company is definitely closed down or if there is a high probability that payment obligations cannot be settled at due date or if assets are not sufficient to cover debts.

Use of measure

The Federal Employment Agency provides statistics on the claimants of insolvency compensation. In 2019 this number rose for the first time since 2013 to 63,421 accepted claims. In 2011, the claims of 130,649 workers were satisfied, some 8,075 were rejected.

The number of workers' claimants accepted decreased over the past years (114,608 in 2012; 119,437 in 2013; 93,152 in 2014; 83,680 in 2015;  69,493 in 2016; 67,357 in 2017; 62,430 in 2018).

Some 7,000 (2012), 6,300 (2013), 6,800 (2014), 6,671 (2015), 5,864 (2016), 5,899 (2017), 5,636 (2018) and 5,243 (2019) of workers' claims were rejected.

The Federal Employment Agency spent over €842 million on insolvency compensation and related social security contributions in 2019 (BA, 2019). 

As the Federal Employment Agency's statistics also shows, the number of workers applying for insolvency compensation continued to decrease with 77,903 applications being filed in 2020 and 46,859 in 2021. Out of these, only 4,796 applications were rejected in 2020 and 3,957 in 2021.

Target groups

Workers	Businesses	Citizens
Employees in standard employment	Applies to all businesses	Does not apply to citizens

Actors and funding

Actors	Funding
National government Public employment service	Companies

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	Unknown	Unknown
Form	Not applicable	Not applicable

Social partners' role in the implementation, monitoring and assessment phase:

• Unknown
• Main level of involvement: Unknown

Involvement

Unknown

Views and reactions

Unknown

Sources

• 24 March 1997: Social security code III (www.gesetze-im-internet.de)
• 11 May 2010: Eurofound, EMCC support of restructuring (www.eurofound.europa.eu)
• 10 October 2017: Wage guarantee in case of insolvency (www.eurofound.europa.eu)
• 13 March 2020: Annual report of the Federal Employment Agency 2019 (www.arbeitsagentur.de)
• 01 April 2021: Information leaflet on insolvency compensation (www.arbeitsagentur.de)
• 01 January 2022: New income thresholds (Neue Beitragsbemessungsgrenze) (www.bundesregierung.de)