The long-term account agreement: build-up, purpose and insurance during leave

An engineering firm in Kassel releases a project manager earning €4,200 a month for five months and keeps paying her salary out of her flexitime account, where years of overtime have piled up. There is no written Wertguthaben agreement. The rule that keeps such accounts insured during time off only reaches releases of up to three months. A five-month break falls outside it.

Two accounts that look alike

Many businesses keep working-time accounts. Hours worked beyond the contractual schedule are booked there and later offset with days off. German social security law distinguishes two kinds of such accounts, and only one of them is a Wertguthaben, a long-term value account, within the meaning of SGB IV ss. 7b to 7f.

The first kind serves day-to-day flexibility. Flexitime accounts, annual hours accounts and accounts for order peaks smooth out fluctuations. The statute speaks of agreements on the flexible arrangement of daily or weekly working time or on balancing operational production and working-time cycles. In practice they are usually called flexi accounts.

The second kind has a different aim. Employees save pay or time so that they can later be released, fully or partly, for a longer stretch, for instance before retirement, for a care phase or for further training. Saving up for a later release is the core of the Wertguthaben.

The difference is not a formality. On it hang insurance cover during the leave, the duty to protect against insolvency, the investment rules, taking the credit to a new employer and the contribution consequences of misuse. A wrongly classified account therefore misses several rules at once, and this usually only surfaces in the payroll audit.

Working-time limits themselves are governed by another statute. How many hours may be worked per day and which rest periods apply is set by the Working Hours Act, explained in the course on employment contracts. A Wertguthaben does not allow those limits to be exceeded. It only changes when earned pay is paid out.

Five features under SGB IV s. 7b

SGB IV s. 7b lists five conditions that must all be met. If one is missing, the account is not a Wertguthaben in the legal sense, whatever the business and its staff call it internally. The label long-term account or lifetime working account decides nothing; only the features count.

The first feature requires writing, and it requires it for the build-up. An oral understanding or a mere company custom is not enough. Anyone introducing a long-term account should therefore have the signed agreement in the personnel file before the first hour or the first euro is credited.

The second feature draws the line. An account whose purpose is to balance fluctuations stays a flexi account, even if hundreds of hours accumulate there over the years. The wording looks at the aim of the agreement, not at the size of the balance. A high balance does not turn a flexitime account into a Wertguthaben.

The third and fourth features describe the mechanism. In the saving phase the employee works and is paid less than he earns; the rest flows into the credit. During the leave he works less or not at all and receives pay out of the credit. The statute also allows the reverse order.

This reversal follows from item 4: the pay due may be earned with work performed before or after the release. A period of leave may therefore come first and be worked off later. For that case s. 7(1a) contains its own comparison rule, which follows further below.

The fifth feature sets a floor. The pay due during the release must, overall, exceed the marginal-employment threshold. There is an exception if the job was already marginal before the leave. Section 7b itself states no amount; how the threshold is derived from the minimum wage is shown in the minijob course.

What the credit may be used for

SGB IV s. 7c defines what a Wertguthaben may be drawn for and sets a time limit: withdrawals are possible until the end of the calendar month in which the employee reaches the standard pension age. A release funded by the credit beyond that month is not provided for.

The first group consists of releases and reductions of working time regulated by statute. Examples given are care leave under the Care Leave Act, family care leave, parental leave during which the employee personally looks after and raises a child, and part-time work under s. 8 or s. 9a of the Part-Time and Fixed-Term Employment Act.

For part-time work under TzBfG s. 8, s. 7c adds a special feature. The reduction of working time may be limited to the period of withdrawal from the credit. Someone who goes half-time for a year and fills the gap from the credit can therefore return to the previous hours afterwards.

The second group are releases agreed by contract. The provision gives two examples: the period immediately before drawing an old-age pension, even beyond it up to the end of the month of the standard pension age, and taking part in vocational training. The word in particular shows that other leaves such as a sabbatical are possible too.

The parties may narrow the purposes. Section 7c(2) allows the agreement to state that the credit may only be used for specific purposes, for instance solely for a gradual transition into retirement. Such a restriction affects how the credit may be invested, as the second module shows.

• care leave under PflegeZG s. 3 and family care leave under FPfZG s. 2
• parental leave under BEEG s. 15
• part-time work under TzBfG s. 8 or s. 9a, limitable to the withdrawal period
• release before the old-age pension, at the latest up to the month of the standard pension age
• taking part in vocational training measures
• other contractually agreed leaves, provided the agreement does not restrict the purposes

Staying insured during the release

Compulsory insurance presupposes employment for pay. Someone who does not work for months does not, at first sight, exercise any employment. Without a special rule it would therefore be unclear whether a long leave interrupts cover in health, long-term care, pension and unemployment insurance, even though pay continues.

SGB IV s. 7(1a) closes that gap. Employment also exists during a release from work of more than one month if two conditions are met. First, pay from a Wertguthaben under s. 7b must fall due during the leave. Second, that pay must not deviate unreasonably from earlier pay.

The benchmark is set by statute: the monthly pay due during the leave is compared with pay for the preceding twelve calendar months in which pay was received. Months without pay, such as unpaid parental leave, are left out. The statutory text states no percentage for what counts as reasonable.

This matters in practice. Leaflets circulate bands within which a deviation is said to be reasonable. They are not in s. 7(1a) and have not been checked in this course. Anyone planning release pay well below or above the earlier level should settle the question with the collecting agency in advance.

The third figure concerns the flexi account. A leave can also be funded from a flexitime or annual hours account, and employment then continues too, but only for a release of up to three months. A longer break therefore needs a genuine Wertguthaben agreement, as the engineering firm in the opening found out.

If an employment relationship starts with a release, there are no earlier months to look at. The statute then takes the later working phase as the yardstick. Monthly pay during the leave must not deviate unreasonably from pay for the period of work with which it is to be earned later.

A further rule protects against the unforeseen. If the job ends early and the work with which the leave was still to be earned can no longer be done, the release nevertheless remains paid employment. The condition is that this ending could not be foreseen when the agreement was concluded.

Finally, s. 7(1a) allows another use to be fixed at the outset, but only for three cases: the end of employment due to reduced earning capacity, due to reaching an age limit for an old-age pension, or due to death. For other events, such as a dismissal, no such substitute purpose can be agreed in advance.

For the general rule under which employment without a pay entitlement continues for only one month, this course refers to the course on social security notifications. That rule covers unpaid interruptions. With a Wertguthaben, by contrast, pay is being paid, and so the specific rule in subsection 1a applies.

Contributions when due, wage tax when received

In social security, contributions on a Wertguthaben follow the moment pay falls due. SGB IV s. 23b(1) provides that for the working phase and for the leave, the pay due in the period concerned is decisive in each case. The part flowing into the credit is therefore not charged to contributions while it is saved.

In practice: if an employee earns 4,000 euros and 500 euros flow into the credit, contributions in the working phase are levied on 3,500 euros. If 2,800 euros a month are later paid from the credit during the leave, those 2,800 euros are the contributable income for each such month.

For one-off payments, s. 23b(1) sentence 2 contains an addition that is only touched on here. For the pro-rata contribution ceiling under s. 23a, pay due replaces pay earned during a release. Anyone placing a Christmas bonus into a period of leave should check this rule with the payroll software.

In tax law, wage tax is linked to receipt. Under EStG s. 38a(1) the annual wage tax is measured by the wages the employee receives in the calendar year, and under EStG s. 11 income counts as received in the year it accrues to the taxpayer. Under EStG s. 38(3) tax is withheld with each wage payment.

This is the basic idea of the tax deferral: pay is taxed when it is paid out during the leave, as employment income under EStG s. 19. Whether a mere credit entry already counts as receipt is not expressly answered by the provisions read here. The tax authorities have their own instructions on this, which this course does not analyse.

Anyone introducing a scheme whose tax treatment is unclear can request a binding wage-tax ruling from the permanent-establishment tax office under EStG s. 42e. The office then states whether and to what extent the wage tax rules apply in the individual case. The withholding is thus settled before the first credit is booked.

For monthly payroll, a Wertguthaben changes nothing in the procedure. The tax withheld is reported and paid as usual, from the paid-out part during the saving phase and from the pay drawn from the credit during the leave. Deadlines and filing periods are shown by the wage-tax return calculator.