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Payroll in insolvency – what it has to deliver

Published · updated · 9 min read

When a company becomes insolvent, payroll turns from a routine task into a pivotal one. Whether employees receive their money, whether deadlines are met and whether the insolvency administrator can work at all depends on it. The pressure is high, the mistakes are expensive, and some of them cannot be repaired afterwards.

This article sets out what actually has to be delivered in that situation – and names the legal basis for every statement, so that you can look it up. The provisions are German ones; they apply to employment in Germany.

Key points

  • Insolvenzgeld covers three months retrospectively – counted from the insolvency event, not from the application to open proceedings.
  • The application deadline is a cut-off period of two months. Miss it and the entitlement is gone – unlike most deadlines in German social law.
  • The certificate is owed by the insolvency administrator, not by the HR department. Your data is needed for it all the same.
  • Opening the proceedings splits the claims. What arose before is an insolvency claim; what arises after is an estate liability – and is treated differently.
  • Reporting and contribution duties continue. Insolvency does not suspend them; withholding employees’ contributions remains a criminal offence.
  • Salary conversion is the quietest trap. Amounts not passed on to the pension provider belong expressly in the certificate.

1. The insolvency event – and why it is not the application

Entitlement to Insolvenzgeld – the German state benefit that steps in for unpaid wages – does not attach to the application to open proceedings but to an insolvency event. § 165 (1) SGB III knows three of them:

  • the opening of insolvency proceedings over the employer’s assets,
  • dismissal of the application for lack of assets,
  • the complete cessation of business activity in Germany, where no application has been made and proceedings are plainly out of the question for lack of assets.

The third case is regularly overlooked. It applies where a business simply stops – no court, no administrator. For employees that is the most dangerous case, because nobody sets the procedure in motion for them.

Covered are the pay claims of the preceding three months of the employment relationship. Payment is made at the level of net pay; the Federal Employment Agency pays the social security contributions separately.

2. Two months – and the entitlement is gone

This is the point at which most accounts fall short. For Insolvenzgeld, § 324 (3) SGB III sets a cut-off period of two months after the insolvency event.

A cut-off period means the entitlement has lapsed, not merely that the application is late. Only those who missed the deadline for reasons they are not responsible for can catch up, within two months of the obstacle falling away.

For the HR department that creates a clear task: the workforce has to know that they must apply themselves – and by when. A company that fails to tell its people loses no money of its own, but it loses their trust for good.

3. The certificate: who owes it and what belongs in it

Under § 314 SGB III, the insolvency administrator certifies – at the request of the Federal Employment Agency – for every person who may be entitled:

  • the amount of pay for the last three months before the opening,
  • the amount of statutory deductions and of payments already made,
  • and expressly also those parts of pay which were converted under the company pensions act but not passed on to the pension provider – stating whether they were invested in a pension fund, a pension scheme or a direct insurance.

So the duty lies with the administrator. The data lies in payroll. Whoever keeps master and transaction data clean delivers it in hours; whoever has it scattered across folders and inboxes blocks the procedure for the entire workforce.

The third point is the quietest trap in the whole subject: salary conversion goes unnoticed as long as it runs. A gap only appears once contributions stop being passed on – and it does not show on the payslip, only in the difference between the payroll run and what actually reached the pension provider.

4. Before and after the opening: two different claims

With the opening, pay claims fall into two classes, and payroll has to reflect that cut:

  • Claims that arose before the opening are insolvency claims under § 38 InsO. They are filed with the schedule of claims and met from the quota – as a rule, therefore, only in part. For the last three months, Insolvenzgeld takes their place.
  • Claims arising after the opening are estate liabilities under § 55 InsO where the administrator makes use of the work performed. They are met from the estate ahead of others.

There is also a special rule on ending the relationship: § 113 InsO permits termination regardless of an agreed contract term or an exclusion of ordinary termination, with a period of three months to the end of the month, unless a shorter period applies. Longer periods from a collective agreement or contract are capped in this way – for payroll that means new leaving dates, new reports and new final settlements.

If even the estate is insufficient, the administrator gives notice of insufficiency of the estate under § 208 InsO. The order in which payments are made then changes again.

5. Reporting and contributions continue

A widespread misconception is that insolvency suspends the employer’s duties. It does not.

The reporting duties under § 28a SGB IV apply unchanged: registrations, deregistrations, interruptions, annual reports. Employees’ pension accounts are built from them – and in an insolvency, that is the trace which remains once the business itself has long gone.

Under § 28e (1) SGB IV, the employer remains the debtor of the total social security contribution. And withholding employees’ contributions remains a criminal offence under § 266a StGB – a personal responsibility of the people acting, which insolvency does not lift. Anyone holding back contributions in a crisis to stretch liquidity creates a second problem for themselves.

6. The insolvency benefit levy: who pays it, and why we name no figure

Insolvenzgeld is financed through a levy on employers. § 358 SGB III sets that out: the funds are raised through a monthly levy on all employers subject to it, collected together with the total social security contribution. It is paid by businesses that never become insolvent – that is what a levy is.

On the rate: § 360 SGB III names 0.15 per cent. That figure is not necessarily the one that applies, because § 361 SGB III empowers the Federal Ministry of Labour and Social Affairs to set a different rate for a calendar year by statutory instrument – to balance surpluses or shortfalls. That is exactly what happened in the years 2022 to 2024.

That is why no percentage appears here as the applicable value. The rate relevant for your payroll year follows from § 360 SGB III together with the instrument for the calendar year in question, and belongs looked up rather than remembered.

7. Company pensions: a protection route of their own

Entitlements from a company pension have their own protection. § 7 BetrAVG governs insolvency protection; it is carried by the Pensions-Sicherungs-Verein, a mutual insurance association to which employers subject to insolvency protection pay contributions.

For payroll that means: company pensions are not covered by Insolvenzgeld and follow their own rules. Which implementation routes are protected and which are not is decided case by case – it is worth reading the pension commitment before giving employees any information.

Conclusion

Payroll in an insolvency is not a reduced payroll but an extended one. The running duties remain in full, and on top of them lies a second procedure with its own deadlines, its own classes of claim and its own evidence.

Three things decide how it turns out. First the state of the data: whoever keeps master and transaction data clean delivers in hours what otherwise takes weeks. Second the deadline: two months after the insolvency event and the entitlement to Insolvenzgeld has lapsed – that cannot be repaired later. Third the communication: employees have to know that they must apply themselves.

If you need support in that situation – with payroll, with the statutory reporting or with supplying the administrator – talk to us.

Sources

All references are official works and were checked in the original wording. They are German statutes; there is no English equivalent that designates the same provision.

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