Germany: Payment for reduction in working hours similar to redundancy payment

Posted on 3rd January, 2010

Estimated reading time 2 minutes

A payment by an employer to an employee as compensation for a reduction in the employee’s weekly working hours, for an indefinite period, is classed as a redundancy payment and therefore afforded favourable tax treatment

A change of weekly working hours for an indefinite period is treated by the courts as a dismissal with the option of an amendment to the conditions of employment, provided the change is imposed by the employer.  For any such payment from the employer to the employee to qualify as a redundancy type payment, it must be higher than the pre-existing salary entitlement, such that it has a compensatory element to it.


A special calculation is undertaken for redundancy payments called "Fünftelregelung" to determine the applicable tax rate. In many situations, the result is that such a payment is charged to tax at a lower rate than if it were normal salary.

Employers should be aware of the beneficial tax treatment afforded to such payments when they are considering the restructuring of employment relationships in these circumstances.


German Federal Finance Court: Decision dated 25.08.2009 (IX R 3/09)

For further information or to discuss any of the issues raised, please contact Joachim Menz ( on +49 89 24 22 30 0.

This article was produced by, and re-produced with kind permission of, our correspondent firm in Germany, Keller Menz Rechtsanwälte.

Keller Menz