Along with holiday pay, Christmas bonuses are the most popular form of special financial benefits. It is usually paid out to employees before Christmas, for exampleto help with Christmas shopping. What exactly is meant by Christmas bonus and how high is the special bonus? Is the bonus also taxed? We answer these and other questions that concern both employees and employers in the article.
What does Christmas bonus mean?
TheChristmas bonusis an amount that is paid in addition to the monthly salary. The extra payment is so called because you usually get it before the end-of-year holidays along with your November salary.
The Christmas bonus should not be confused with the 13th month salary. In contrast to the 13th salary, the Christmas bonus is usually not agreed in the contract, but is described as a voluntary special payment or bonus by the employer. The Christmas bonus therefore functions as additional motivation or an additional reward for company loyalty over the course of the year.
Like holiday pay, the right to Christmas bonus is not regulated by law, which means the employer decides for himself. The payment is therefore based on a voluntary commitment and usually depends on the business situation. However, if you are in a collective agreement, the annual special payment may be set there.
A claim to Christmas bonus can still arise due to operational practice. This is the case if the company has made the special payment without reservation for three or more consecutive years. The company exercise is prevented if the employer provides the voluntary commitment with a voluntary reservation every year.
How much is the Christmas bonus?
In GermanyMore than half of employees receive Christmas bonuses. However, the amount of bonuses is not the same for everyone. The employer can either provide a flat-rate payment or set an amount that depends on a percentage of the monthly salary. In the collective agreement, length of service also plays a role in the calculation of special pay.
In 2021, German employees will receive an average of 2,667 euros gross as a Christmas bonus. However, the premium can vary greatly depending on the industry. For example, workers and employees in coking plants, petroleum processing or energy supply receive an average of more than 5,000 euros, with employees in the “employment placement” sector receiving an average of 300 euros gross.
Do I have to pay tax on the Christmas bonus?
Special payments such as Christmas bonuses are taxable. Since the bonus is part of wages but is not paid on an ongoing basis, it is taxable as “other benefits”. What does that mean exactly? Full payroll tax is due on the extra payment in the month the money is transferred. However, the tax is spread over twelve months, the amounts are added up and deducted in the month in which you receive the bonus. This method is cheaper for the employee than if the November salary plus Christmas bonus were taxed.
Do you have to pay back the Christmas bonus when you cancel?
And what applies if the employment relationship is terminated? If you leave the company after your Christmas bonus has been paid out, the question arises as to whether you have to pay the compensation back. This depends on the exact wording in the employment contract, collective agreement or company agreement.
If there is a deadline regulation, then a repayment is necessary if the employment relationship ends on the deadline. However, the deadline for the repayment obligation may not be set later than March 31 of the following year. The decisive factor here is not the date of termination, but rather the fact whether the employee is still working in the company on the effective date.
There are exceptions for small bonuses of less than 200 euros, which do not have to be paid back if you cancel.
What else can you do with the annual bonus?
Since Christmas money is received shortly before the holidays, it is often spent on Christmas presents and other Christmas purchases. However, if you want to do something useful with your extra, you can invest it elsewhere. Here are some ideas:
- ExpensiveRepay loans– Paying off debt would be the best return-wise thing you can do with a larger extra payment. Interest rates on loans are almost always higher than on investments.
- Create a reserve – You can invest the additional money as a liquidity reserve. You should always have one to two months' salary available to finance unforeseeable expenses.
- Pay the annual premium for insurance – Most insurance premiums are due at the beginning of the year. If you use the Christmas bonus to pay these contributions annually, your account will remain in the black.
