Payroll regulations in Germany
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How Germany Statutory Employer Responsibilities Affect Of Employees In Sick Leave, Maternity Leave, and Insolvency insurance | (U1, U2, and U3)?

Germany is known for its progressive and forward-thinking laws on many issues, including sick leave, maternity leave, and insolvency insurance.

Continued payment of income insurance (sick leave and maternity leave | U1 and U2)

The German Law on the Reimbursement of Employer Expenditures (Aufwandsausgleichsgesetz (AAG) reduces the risk of income loss of the employer due to continued payment of employee compensation to incapacitated employees (sick leave pay | U1) and to expenditures required by the Maternity Protection Act (maternity leave pay | U2). The reimbursement procedure U1 applies to employers who employ no more than 30 people as a rule. Part-time employees will be taken into account according to their regular weekly working hours on a factor of 25% per every 10 hours per week. All employers, regardless of the number of employees, participate in the U2 reimbursement procedure

U1 – reimbursement of sickness expenses (sick leave pay)

Health insurance reimburses employers for the bulk of their expenditures for the statutory continuation of payment of employment compensation to the employee (sick leave pay). The health insurance sets the reimbursement rates individually and varies between 60% and 80% of the gross payment. The funds for the U1 reimbursement procedure are provided in full by a special benefit cost contribution from the participating employers. The amount of the special benefit cost contribution is set by the health insurance individually and varies between 0,9% and 4,1%. The benefit-cost amounts assessed are entered together with the total social insurance contributions in the contribution account statement (contribution group U1) and paid. The reimbursement request must be submitted by electronic data transmission. It is based on the doctor’s certificate provided by the employee.

U2 – reimbursement of maternity expenses (maternity leave pay)

Health insurance reimburses employers regardless of the number of employees for

• the maternity benefit subsidy for the protection periods before and after childbirth (six weeks before and eight weeks after). The subsidy amounts to the employee´s net payment during the protection period.


• the employment compensation paid to compensate for a reduction in earnings that occurred due to the prohibition of employment.

This subsidy amounts to the gross payment plus the employer’s social security contributions. Financing is provided by a particular benefit cost contribution assessment of participating employers. The basis for the U2 assessment is the employment compensation of all employees (male and female) in the company. The assessed amounts for compensation of maternity expenses are also to be documented and paid along with the rest of the social insurance deductions on the contribution account statement (contribution group U2). The reimbursement requests must be submitted by special form. It is based on a doctor’s certificate provided by the employee.

There is no way around this contribution. It has to be paid by every employer in Germany and it doesn't matter if the employee is male or female. On the other hand, the employer can apply for a salary refund in case an employee is on maternity leave (100%).

U3 - Insolvency Payments (Insolvenzgeld)

If an employer is insolvent and employees have received their wages or salaries only in part or not at all, the Employment Agency settles the outstanding payments to the employees concerned under certain circumstances in the form of insolvency payments. An entitlement to insolvency payments exists in case of insolvency for the past three months (period of insolvency payments) of the employment relationship.

Entitled persons

Only employees are entitled to insolvency payments.

This also includes persons working from their homes, employed students and pupils, trainees as well as marginally employed persons.

Hence, the existence of an employment relationship subject to social insurance contributions does not matter.

The employee status of e.g. managing partners, who significantly influence the company, can be subject to questions. In case of doubt, the "Assessment sheet for the evaluation of managing partners of a GmbH pursuant to insurance law" (German only) should be requested from the Employment Agency.

The compensation is covered by a centralized contribution system ('Insolvenzumlage') set up for potential claims of workers in the case of insolvency. The fund rests on monthly contributions by private employers  0,06% in 2023 which are paid alongside with social security contributions to the statutory health insurers. The insurers transfer the contributions to the Federal Employment Agency (Bundesagentur für Arbeit) that governs the funds. Private households, public employers, and public agencies/bodies exempt from the risk of insolvency do not have to contribute to this fund.