Inflation compensation premium for overtime compensation

Since the introduction of the inflation compensation premium in October 2022, some employers have taken advantage of the option to provide their employees with a tax- and duty-free payment of up to €3,000 to mitigate the impact of increased consumer prices. The inflation compensation premium is also part of some current collective bargaining negotiations.

The inflation compensation premium is a voluntary payment by employers to which employees have no legal entitlement. Rather, employers can decide for themselves whether and in what amount they pay an inflation compensation premium to employees. Employers can also decide whether an inflation compensation premium is paid in full once or in any number of installments.

The decisive factor for the permissibility of the tax and contribution exemption of the premium payment is the inflation reference, i.e. the purpose of the premium must be to compensate for the increase in consumer prices, as well as the granting of the premium in addition to the remuneration owed in any case. It is therefore not possible to reallocate another special benefit that is owed in any case under the employment contract, such as an annual vacation or Christmas bonus. Nor can another - in any case owed - remuneration component, such as overtime pay, be converted into a tax- and duty-free payment of an inflation compensation bonus.

If, on the other hand, the employee has no entitlement to overtime pay and overtime is merely "celebrated" in the company by granting time off, it is possible to pay a tax- and duty-free inflation compensation premium in return for waiving the time off compensation or reducing the overtime. This is because in this case the bonus is granted in addition to the wages owed anyway. The employee's waiver of time off in lieu or reduction of overtime may also constitute an objective reason in the differentiation in the payment amount of the bonus.

PBC legal takeaways: Although the inflation compensation bonus cannot replace the vacation or Christmas bonus that is owed anyway, the employee's waiver of compensatory time off or the reduction of overtime in exchange for the payment of an inflation compensation bonus offers employers the opportunity to reduce high overtime accounts and provide employees with a tax- and duty-free payment. We will be happy to advise and support you in the implementation and practical handling.