New tax breaks introduced to boost employee share plan take-up in Germany

The German government has proposed new tax breaks to boost take up of employee share plans and increased perks for working parents, says Nick Golding

If you read nothing else, read this …

  • The German government has proposed to increase tax breaks to make employee share schemes more lucrative.
  • A declining birth rate has caused the German government to offer all new parents since 1 January 2007, 67% of their previous net pay, capped at £2,375, for 12 months after the birth.
  • The life account programme is a popular benefit in Germany and allows employees to take a reduced salary in order to retire earlier.

The German government is considering new tax breaks around share schemes in an attempt to help close the gap between rich and poor employees, and to motivate those in lower-paid jobs.

The proposal, put forward in November, includes measures to raise the current level of shares which can be offered tax-free through employee share plans. Although no figures have yet been confirmed, the government proposes to double the current limit which permits up to €135-worth of shares to be offered free of tax.

According to the federal association of German industry, 10%-13% of employees currently participate in share plans, which is some way behind other European countries such as the UK and France.

Rolf Misterek, head of flexible benefits at Mercer Germany, explains: "Currently, the situation is that there are very small tax benefits for [staff], and the plan is to allow higher tax breaks which will offer employees greater incentives."

And it is not only share schemes that are being given a fresh lick of paint, as family-friendly and work-life balance policies have been reviewed recently.

A declining birthrate has prompted the government to introduce a parental money programme, called Elterngeld, entitling all new parents from 1 January 2007 to 67% of their net pay during parental leave, capped at £2,375 per month, for the first 12 months after their child’s birth.

Each parent can also choose to take up to three years’ parental leave, during which time they are protected against employment termination, and have the right to work part-time between 15 and 30 hours per week. After the first year, staff are not entitled to their salary while on parental leave.

Another lifestyle benefit that is popular in Germany is its life account scheme that has been made available by some employers for the past two years. This offers employees the opportunity to take reduced wages while working full time, so that they can ultimately take early retirement.

Michael Freisberg, managing principal at Towers Perrin in Germany, explains: "With the life account, you can now work full time but only receive half pay. You then have the option of retiring, say five years early."

Although this offers employees flexibility around their work and may boost job satisfaction, German employers need to be careful that the scheme is implemented within a strict structure.

"At the moment, many employers are putting the programme in place, that’s the easy bit. But they are being left for the employee to steer, which could be dangerous. If we bring people into early retirement, the country will lose a lot of expertise, so there needs to be a balance of older workers and younger workers," says Freisberg.

It is also not unknown for German employers to offer flexible working to staff. Electrical manufacturer Bosch, for example, is a firm believer in flexible working and has made various schemes available to its 110,000 German staff. One-in-four of its female employees in Germany currently take advantage of one of the many schemes. To find the right arrangement for employees and to help staff balance the demands of work and family life, Bosch offers over 100 variations of flexible work, including part-time work, job shares and home working. A spokesperson for Bosch explains: "A key objective of our part-time model is to enable employees to gain a better family and career balance."