Paid Holiday Bonus in Germany

What is the paid holiday bonus?

It is not the salary paid during holidays (Urlaubsentgelt), but an additional payment often granted on the occasion of annual vacations.

No legal entitlement

In Germany, there is no legal entitlement to this bonus. It is paid only if provided for:

• By an individual employment contract
• By a collective agreement
• Or by company practice (repeated for at least 3 consecutive years without objection)

Tax and social security treatment: what to remember

Like regular salary, the paid holiday bonus is fully subject to:

• Income tax
• Solidarity surcharge
• Church tax (if applicable)
• Social security contributions: pension, health, unemployment, nursing care insurance

As a result, the net amount received is often much lower than the gross amount shown on the pay slip.

Payment conditions: special cases to know

During parental leave
The right to the bonus depends on its purpose:

• If it rewards professional activity, it is not due during parental leave
• If it rewards loyalty or has a mixed nature (performance + loyalty), it remains due during parental leave

In case of long-term illness
If an employee remains on sick leave the whole year, they keep their right to holidays and, in some cases, to the bonus. However, it is only due when the holiday is actually taken.

Equal treatment

The principle of equal treatment prohibits the employer from paying this bonus to some employees only without objective justification.

Can automatic rights be prevented?

Yes. To avoid establishing a company practice, the employer must explicitly state the voluntary and non-recurring nature of the bonus with each payment.

Example: a letter accompanying the payment indicating it is “an exceptional bonus, paid purely voluntarily, without recognition of future entitlement.”

Reduction or cancellation of the bonus

• The bonus can be cancelled for the future by collective agreement, respecting fundamental employee rights
• It can be reduced in case of mid-year departure or long absence.

Bonus or tax advantage? The alternative “rest allowance”

An interesting alternative is the rest allowance (Erholungsbeihilfe):
Also voluntary, it is partially exempt from taxes and contributions if certain ceilings are respected:

• €156 for the employee
• €104 for the spouse
• €52 per child

It must be directly linked to the vacation period.
Unlike the paid holiday bonus, it allows the company to reduce its costs while offering a net financial benefit to the employee.

In case of leaving the company

Leaving during the year

• If the bonus is considered additional remuneration, it can be paid pro-rata
• If considered a gratuity, it may be fully due regardless of the departure date
• If bonus paid before departure

The employer can require reimbursement only if:

• A clear repayment clause is in the contract
• The clause is reasonable regarding amount and required commitment duration
• It does not apply if dismissal is initiated by the employer

Bonus and minimum wage

• A paid holiday bonus can be counted in minimum wage calculation only if paid monthly at 1/12 of the annual amount
• An employer cannot transform an annual payment into 12 monthly installments to circumvent minimum wage law

Recommendations

For employees:

• Plan the use of the bonus wisely: it is taxable but remains valuable
• Know your rights, especially during parental leave or sick leave

For employers:

• Be clear and transparent about the voluntary or contractual nature of the bonus
• Use it as a strategic HR lever to attract and retain talent
• Consider tax optimization via rest allowances