Legal changes in the field of payroll accounting are on the agenda again in July 2019. Here you can find out which changes there are and what you need to watch out for:
Changes to the sliding scale zone / midi-job:
The sliding scale zone was introduced by the “Second Act for Modern Services on the Labour Market” on 1 April 2003. The act relieves employees who earn only slightly above the “marginal earnings threshold”.
Within the sliding scale zone the employee pays reduced social security contributions. The employer's share, by contrast, is calculated from the actual pay; the employee's share results from the difference between the reduced total contribution and the unreduced employer's share. For the employer, therefore, whether the sliding scale zone applies makes no difference.
Between 01/2013 and 06/2019 the monthly earnings limit for employees in the sliding scale zone is 850.00 euros. With earnings between 450.01 euros and 850.00 euros the employee is fully liable for social security contributions, and the sliding scale rule must be applied when calculating the employee's share of social security.
What changes on 1 July 2019?
Under the “Pension Insurance Benefit Improvement and Stabilisation Act” the monthly earnings limit is raised to 1,300.00 euros on 1 July 2019. In addition, from 07/2019 the employee's reduced pension insurance contributions no longer lead to reduced pension entitlements.
With this act the terminology changes: what was previously the “sliding scale zone” becomes a “transitional area”. In everyday language the term “midi-job” has meanwhile become established.
The midi-job rule may not be applied if the person
- is in vocational training
- is in irregular employment
- is completing a voluntary social or ecological year
- is performing federal voluntary service
- regularly earns more than 1,300.00 euros as an employee liable for social insurance and whose pay only falls into the transitional area because of interruptions, for example short-time work or bad weather in the construction industry
Midi-job calculation for partial retirement too
In a judgment of 15 August 2018 the Federal Social Court ruled that the midi-job calculation must be applied for employees whose pay falls within the transitional area because of partial retirement. As the umbrella organisations of the social insurance institutions are adopting this rule with effect from 1 July 2019, payroll for partial retirement in combination with a midi-job will be possible in the LODAS and Lohn und Gehalt payroll programs from that date, including retroactively back to the recalculation depth of January 2018.
Increase in the attachment exemption thresholds on 1 July 2019
The attachment exemption thresholds (§ 850c (1) and (2) sentence 2 of the German Code of Civil Procedure) increase on 1 July 2019. The following thresholds are taken into account automatically for payroll runs from July 2019:
- Attachment-exempt amount 1,178.59 EUR
- For the first dependent person 443.57 EUR
- For the second to fifth dependent person 247.12 EUR each
If the net pay exceeds 3,613.08 euros, the excess amount is fully attachable.
New method for calculating attachable income
In a judgment of 17 April 2013 (case number 10 AZR 59/12) the Federal Labour Court decided, contrary to the previous view, in favour of the so-called net method for calculating attachable income (previously: gross method).
This is a landmark decision of principle which, when applied in cases where non-attachable payments under § 850a of the Code of Civil Procedure are made, leads to higher attachment amounts in favour of creditors.
Particularly when non-attachable components of income are paid (e.g. holiday pay), this results in attachment amounts that are in some cases considerably higher than under the so-called gross method.
Effects on payroll
As the net method increases attachment amounts, we assume that attachment creditors will ask employers to apply it as quickly as possible.
In the case of an attachment the employer is liable as garnishee. In that case the employer is obliged to calculate the attachable amount and pay it to the creditor.
- If the employer has calculated too high an attachment amount, the employer is liable towards the employee.
- If the attachment amount has been calculated too low, the employer is liable towards the creditor.
The decision of principle has created clarity about the method of calculating attachment. There is, however, no statutory basis or further authoritative statement as to when the net method has to be applied. That decision lies in the hands of the creditor and the employer.
Please note: retroactive application of the net method (recalculating months already processed) can, because of the higher attachment amounts, mean that the employee is not left with enough net income to live on. Attachment protection provides, however, that even when their earnings are attached, debtors can secure their subsistence minimum and meet their statutory maintenance obligations. From 1 July 2019 the monthly non-attachable basic amount is 1,178.59 euros. This amount increases by 443.57 euros per month for the first person and by a further 247.12 euros each for the second to fifth person. Make sure that a recalculation does not cause the amount paid out to fall below the attachment exemption threshold.
All in all there are two significant areas in payroll that change on 1 July 2019. We hope this information has been helpful. If you have any further questions, please feel free to contact us at any time.