Part One: The HR Perspective
Starting with this topic may seem daring, but it reflects my most recent experience and learning — one with valuable insights. It also touches a vast unknown territory and fears many people face in the current global context.
For better clarity, I’ll spread this piece across three separate chapters, each offering a different perspective:
- The HR Specialist: That has to bridge between management and staff, ideally equipped with the knowledge to navigate the processes.
- The Leadership: Bearing the weight of loss and mourning while caring for their team’s future in trying times.
- The Worker: Confronting new challenges in unfamiliar legal landscapes and when an expat like myself is also far from home.
Today, I am going to start with the first point and a confession. As the leader of the HR department, Insolvency dropped onto my desk like a puzzle, and while I have now gained the knowledge to handle such a challenge, I was once in a situation where I learned by doing.
The first piece of the puzzle was to acknowledge the situation. Insolvency doesn’t have to be the end but requires prompt and specific action. Employees need clarity and guidance, and while plenty of resources are out there, in my experience, they could be clearer and more comprehensive.
When a company encounters Insolvency, it isn’t just the financial statements that are affected but also the employees’ lives.
An important first step, and at the same time good news for those affected by Insolvency, is understanding who is eligible for insolvency payments, in Germany. Not only full-time employees but also part-time employees, working students, and trainees are protected.
Should the company be unable to fulfil wage payments due to financial difficulties, employees have the right to seek insolvency payments for up to three months during the active period of their employment contracts.
It is essential to underline that the entitlement to these payments is limited to the three months preceding the formal declaration of Insolvency or the termination of the employment relationship, whichever comes first.
The court proceedings may lead to different outcomes. A judge may declare Insolvency, and with the assistance of the appointed insolvency administrator, the company may seek ways to recover, potentially through restructuring. However, the company can also be declared bankrupt if the judge dismisses the insolvency application due to insufficient assets.
Essential Steps for Employees: Filing for Insolvency Payments
Employees must file for insolvency payments with the Federal Employment Agency (Bundesagentur für Arbeit) within two months following the insolvency event. The application must include:
- An insolvency money certificate (Insolvenzgeldbescheinigung) from the employer or the insolvency administrator.
- The last three payslips.
In order to do so, they must create a profile on the portal of the Federal Employment Agency. The application can be made digitally via the online portal or through traditional mail post.
The Federal Employment Agency also covers outstanding mandatory contributions for health, pension, and care insurance, ensuring that employees’ social security remains intact. It is important to mention that receiving insolvency payments does not impact an employee’s eligibility for unemployment benefits. They can be claimed concurrently, should that be the case, and we will also touch on applying for this benefit in a different post.
Insolvency money (Insolvenzgeld) is disbursed in a single payment and is not taxable, although it must be reported on the tax return.
Another note worth mentioning is that there is a cap for the insolvency money (Beitragsbemessungsgrenze). Essentially, suppose an employee’s salary exceeds the cap, in that case, only the income up to this threshold is considered when calculating the insolvency payments, ensuring that high-income earners do not receive disproportionately large payments. More details about the insolvency money and the latest numbers published by the Federal Agency of Employment can be found here. Nevertheless, for employees with additional insurance policies beyond the mandatory one, verifying that these are included on the latest payslips is crucial. The insolvency money could include the portion that the employer would typically contribute towards these additional insurances. Subsequently, the employee is responsible for transferring this amount to the insurer.
Employer Responsibilities: Facilitating the Insolvency Payment Process
Switching onto employers and the role they play in the process of applying for insolvency money. The employer must fulfil several steps in this process with diligence and promptness to avoid delays.
Firstly, employers are tasked with providing their employees with the document we also mentioned above, known as the certificate for insolvency money (“Insolvenzgeldbescheinigung.”). As mentioned, this insolvency money certificate is a vital piece of the puzzle for employees when they apply for insolvency payments. The employers must issue this without delay, recognising its importance in the application process.
Next, employers must help employees gather the necessary paperwork that accompanies their application. This includes the last three payslips, which serve as proof of the income they’re due. By ensuring that these documents are accurate and available, employers can ease some of the stress and uncertainty their employees may face.
Communication with collecting agencies is another important role that falls to employers. They must liaise with these agencies to sort out any outstanding social insurance contributions for their employees. This step is crucial in making sure that employees’ social insurance rights are maintained during the insolvency period.
While it’s true that the responsibility of submitting the application for insolvency payments lies with the employee, employers can provide support throughout this process.
Finally, and perhaps most importantly, employers must ensure that all their actions, especially terminations and notices, comply with legal requirements. Any hiccups in legal compliance could delay the process and potentially deprive employees of their ability to claim the insolvency payments they’re entitled to.
These steps, along with fulfilling all legal requirements, are a matter of compliance and maintaining trust and integrity within the workplace.
As we conclude this, it’s important to consider the broader implications beyond these procedural steps. Insolvency is not only legally complex but also emotionally heavy.
In my opinion, going through the insolvency process is a shared journey between the employer and employees and successful navigation not only involves following these steps but also requires clear communication and resilience. For instance, in a recent case I experienced, both parties’ proactive and transparent approaches significantly eased the process, and in the following articles, I will touch on and develop this.
Lastly, while the road through Insolvency can be challenging, it’s a journey that tests employees’ and employers’ strength and adaptability. By staying informed, prepared, and supportive, we can turn these challenging times into opportunities for learning and growth, reinforcing the power and solidarity that emerge in the face of adversity.