Concept and legal background of the compensation levy
Die Compensation levy is a public-law levy that employers in Germany are required to pay under Section 160 of the German Social Code Book IX (SGB IX) if they do not employ the prescribed number of severely disabled persons. The aim of this obligation is to ensure the participation of severely disabled people in working life and to compensate for existing disadvantages. In addition to its financial steering effect, the compensation levy forms part of a comprehensive set of measures for the protection and promotion of severely disabled people as provided under German social law.
Legal framework
Statutory enshrinement
The compensation levy is principally regulated in Sections 154 et seq. SGB IX. The key sections are:
- Section 154 SGB IX – Obligation to employ severely disabled persons
- Section 160 SGB IX – Compensation levy
- Section 161 SGB IX – Graduated scale and amount of the levy
- Section 162 SGB IX – Use of the levy
- Section 163 SGB IX – Control and monitoring
Additional relevant provisions are found in SGB IX as well as in numerous administrative guidelines and implementing regulations.
Obligated employers
According to Section 154 (1) SGB IX, all private and public employers with at least 20 jobs are required to fill at least five percent of their positions with severely disabled people.
Definition of employment relationships
According to Section 156 SGB IX, jobs include all full-time or part-time employment relationships, provided they involve employment of more than eight weeks and are not merely temporary.
Exceptions
Smaller companies below the 20-employee threshold are exempt from this obligation. Further exceptions and special regulations are provided in Section 154 (2) et seq. SGB IX.
Assessment and payment of the compensation levy
Amount of the compensation levy
The amount of the compensation levy depends on the number of unfilled mandatory positions and is tiered according to Section 160 (2) SGB IX. The gradation is as follows:
- Category I (Job share 3 to under 5 percent): 140 euros per month for each unfilled mandatory position
- Category II (Job share 2 to under 3 percent): 245 euros per month for each unfilled mandatory position
- Category III (Job share less than 2 percent): 360 euros per month for each unfilled mandatory position
(All amounts as of 2024; they are legally subject to adjustment.)
Special rules for smaller companies
Companies with fewer than 40 and fewer than 60 jobs are subject to reduced employment obligations and corresponding tiered levies (Section 160 (3) SGB IX).
Calculation
The reporting period is the calendar year. Employers determine annually the number of mandatory positions and the actual number of severely disabled employees. The difference equals the number of unfilled mandatory positions. This must be reported to the relevant employment agency no later than March 31 of the following year.
Due date and payment
The compensation levy is paid retroactively and must be paid by March 31 of the following year to the competent employment agency (Section 160 (5) SGB IX).
Use of the compensation levy
The proceeds from the compensation levy are available exclusively to the compensation fund, which is managed by the Federal Employment Agency. The resources are primarily used for:
- Measures to improve the participation of severely disabled people in working life
- Promotion of integration projects and workshops for people with disabilities
- Investments to create accessible workplaces
- Consultation and information services for employers and severely disabled people
Improper use is legally prohibited (Section 162 SGB IX).
Reporting and documentation requirements
Employer notification
Employers are required to report fulfilment of the employment obligation to the relevant employment agency annually by submitting the prescribed notification (Section 163 (2) SGB IX). The notification must be transmitted electronically, using the REHADAT-Elan software or comparable systems.
Monitoring and sanctions
The employment agency checks reports on a random basis and is entitled to request information and documents from the employer. If reporting obligations are breached or the compensation levy is not paid or paid late, substantial fines and additional payments can be imposed (Section 238 SGB IX).
Legal consequences of non-compliance
Administrative offences and sanctions
Failure to pay or late payment of the compensation levy, as well as failure to report the required positions, constitute administrative offences and can be punished with fines pursuant to Section 238 SGB IX.
Subsequent payment of the levy
The employment agency may demand subsequent payment of compensation levies if the employment obligation was not properly fulfilled. This applies retroactively for several years in cases of deliberate circumvention.
Relationship to the employment and evidence obligations
The compensation levy does not replace, but merely compensates for, the failure to fulfil the statutory employment obligation. Employers are still required to actively seek to fill open positions with severely disabled people (Section 164 SGB IX). Repeated payment of the compensation levy does not relieve them of this obligation, and proven lack of effort can lead to further sanctions.
Exemptions and special provisions
Offsetting of sheltered workshop employment
Employers can have contracts awarded to recognised workshops for people with disabilities offset against their employment quota (Section 156 SGB IX). Up to 50 percent of the value added attributable to one job can be credited.
Exemptions
In special cases, employers may apply for temporary exemption from the levy obligation, especially if structural reasons make employment of severely disabled people impossible (e.g. in areas involving heavy physical work or special requirements).
Tax treatment
The compensation levy is deductible as a business expense and therefore reduces the tax burden as part of profit determination. However, it does not replace wage costs.
European legal context and development
The German model of the compensation levy is noted throughout Europe; comparable regulations exist in several EU Member States. The obligation to promote the participation of severely disabled people is also supported by the UN Convention on the Rights of Persons with Disabilities and EU anti-discrimination directives.
Criticism and considerations for reform
While the compensation levy is regarded as an important instrument for promoting inclusion, it is sometimes criticized that financially strong companies prefer paying the levy over actually employing severely disabled people. Reforms aimed at raising the employment quota, adjusting the assessment, and providing stronger incentives for company-level inclusion concepts are therefore regularly subject to political and legal debate.
Literature and further sources
- Social Code (SGB) Book IX – Rehabilitation and Participation of People with Disabilities
- Federal Employment Agency, “REHADAT-Elan” and information portals on the compensation levy
- German Bundestag: Printed matters and legislative proposals on the development of the compensation levy
Note: The information provided on the compensation levy is based on regulations as of 2024. Legislative changes and adjustments to levy rates are possible. For currently applicable provisions, it is recommended to consult the statutory foundations.
Frequently asked questions
When must the compensation levy be paid?
Employers in Germany who maintain at least 20 jobs on average per year are legally required to employ severely disabled people in at least 5 percent of these positions (Section 154 SGB IX). If this employment quota is not achieved, the so-called compensation levy must be paid. The obligation to pay arises at the end of each calendar year, when the annual notification reveals that the required number of severely disabled people has not been employed. The assessment basis for the determination is the actual average number of jobs over the course of the year, with certain exceptions to be taken into account (e.g. seasonal jobs, part-time work, fixed-term employment). Payment is not made monthly but annually in the context of submitting the notification about the employment of severely disabled people to the competent employment agency. The compensation levy must then be paid to the integration office within the prescribed deadlines.
How is the amount of the compensation levy determined?
The amount of the compensation levy is graduated and depends on the extent to which the employment obligation has not been fulfilled (Section 160 SGB IX). For each unfilled mandatory position, a fixed amount must be paid, scaled according to the employer’s fulfilment rate: with less than 2 percent fulfilled, the levy per unfilled mandatory position is 360 euros per month; with 2 to under 3 percent, 245 euros; and with 3 to 5 percent, 140 euros (as of 2024). Deviating rules apply for small companies. In the calculation, part-time workplaces are also taken into account proportionally, as well as eligible measures, e.g. training of severely disabled people beyond the minimum quota. The assessment basis is chosen to ensure that the actual employment gap is subject to financial sanction and that a financial incentive for meeting the employment obligation is created.
What evidence must be provided for the compensation levy?
Every year, employers must submit a notification of fulfilment of the employment obligation to the competent employment agency by 31 March of the following year (Section 163 SGB IX). This must be submitted electronically using the “Notification on the employment of severely disabled people” form. Exact information must be provided on the number of jobs, the employment of severely disabled and equivalent disabled people, and on any exemptions or credits (e.g. for contracts awarded to workshops for people with disabilities or integration projects). For verification, a cross-check with personnel records may be required, and, if applicable, with certificates stating the degree of disability. The employment agency examines the notification for correctness; if errors or incompleteness are found, queries may arise or fines may be imposed for incorrect information.
What sanctions are imposed for non-payment or non-compliance?
If an employer fails to meet his reporting obligation or does not do so in time, this constitutes an administrative offence under Section 238 SGB IX. The employment agency may impose a fine of up to 10,000 euros per violation. In addition, the integration office can enforce payment of the due compensation levy plus late payment surcharges; enforcement measures such as account or receivables seizures may be used. If the employment quota is not maintained on an ongoing basis, further audits and sanctions by the authorities may follow, such as the imposition of remedial measures. In addition, failure to meet the quota may negatively affect the employer’s public image, especially in connection with funding measures or public contracts.
Are there any options for offsets or exemption from the compensation levy?
Under certain conditions, employers may apply for complete or partial exemption from the compensation levy (Section 161 SGB IX). Exceptions are, for example, possible if an employer can demonstrate that fulfilling the employment obligation was objectively impossible despite intensive efforts (e.g. due to lack of applicants or structural circumstances). Substitute measures such as awarding contracts to recognised workshops for disabled people, workshops for the blind, or integration firms can also be offset proportionately against the compensation levy (Section 223 SGB IX). The employment of severely disabled trainees or interns may also have a relieving effect. Offsets and exemptions must generally be well substantiated and confirmed by the competent authorities.
How does the compensation levy differ legally from a fine?
The compensation levy is not a penalty, but a public-law payment intended to generate financial resources to promote the participation of severely disabled people in the workforce. It arises by law when the employment obligation is not fulfilled. By contrast, a fine is a sanction for wrongful conduct, e.g. late reporting or providing false information. Even though the terms are often used interchangeably in everyday language, it is legally important to distinguish between the compensation levy (financial performance obligation to enforce compliance) and a fine as the sanction of an administrative offence. While the compensation levy serves to provide resources and compensation, a fine is aimed at both general and specific deterrence.
To what extent are public employers affected by the compensation levy?
The obligations under Book IX of the Social Code regarding the employment of severely disabled persons—and thus also the potential payment of a compensatory levy—apply to both private and public employers. Generally, there are no special privileges for the latter; they are equally required to submit an annual report and pay the levy if they do not meet the minimum employment quota. However, public employers are particularly called upon to promote the participation of severely disabled individuals in working life and, in individual cases, are subject to specific state regulations and control mechanisms, such as personnel councils or integration offices. The compensatory levies collected are partially used to fund special integration measures and public sector projects.
