Inflation compensation premium: a worthy successor to the Corona Bonus?

A one-off payment proposed by the government

Everyone is talking about the inflation compensation premium. Well hidden in the law for the temporary reduction of the VAT rate for the supply of gas via the natural gas grid, it has sparked the interest of employees – quiet understandably considering that the year on year inflation rate is already over 10%: Employers can provide subsidies or benefits in kind up to EUR 3,000 until the end of 2024 to mitigate increased consumer prices.

No legal entitlement to the inflation compensation premium

The good news from the perspective of potential recipients: the premium is an additional benefit. It is therefore a real increase and not a reallocation of current benefits. The payment is exempt from tax and social security contributions, which means: gross = net.

The bad news is that it is voluntary for the time being and there is no entitlement to it. SMEs and manufacturing companies in particular, which are suffering from the horrendous energy prices, may not be able to shoulder this financial burden, so a large part of the workforce could go without.

Inflation compensation premium as an alternative to linear wage increases

However, with the upcoming and ongoing wage negotiations in many sectors, the inflation adjustment premium is a real alternative to linear wage increases, especially for employers. Initially, the (one-time) financial burden of up to EUR 3,000/employee may seem daunting.

However, this is not the case considering the hidden benefits in addition to the obvious gift: No impact on collectively agreed allowances (such as premiums for working at night or on public holidays), no consequences for any salary-linked special annual payments - to name just a few wage-linked consequential costs. Or to put it briefly: the dreaded so-called “wage-price-spiral” is avoided/circumvented.

Inflation compensation premium in (mandatory) co-determination

In any case, social partners on every level must adhere to the established rules of the game within the framework of the collective agreements or company agreements to be concluded: the principle of equal treatment must be upheld (factual differentiations, for example, tied to particularly impaired wage groups), reasons for pro rata reductions must be defined and the payment date(s) must be fixed.

By the way, there are no minimum amounts and no maximum number of instalments, only a time limit until 31 December 2024. It would therefore be possible to divide the total allocated amount monthly, quarterly or semi-annually. For the employer, the bureaucratic burden is deliberately kept to a minimum: they only have to make it clear in some way when granting the benefit that it is related to inflation (for example, by including a comment to this effect in the salary statement).

In France, there is a premium similar to the inflation compensation premium to preserve purchasing power which allows employers to grant benefits up to EUR 6,000.

On a side note: In France, the possibility of granting a premium to maintain purchasing power "La prime exceptionnelle de pouvoir d'achat - or the "Prime Macron" - was already established this past summer. Employers can pay their employees up to EUR 6,000 exempt from tax and social security contributions, as long as the gross monthly income is less than three times the statutory minimum wage. Otherwise, the limit is EUR 3,000.