Earnings

Concept and legal basis of employment income

The term employment income has a central meaning in German law and is applied in various areas of law. In principle, employment income encompasses all income received by a person from gainful employment. Typical areas of application are found particularly in social security law, maintenance law, and tax law. The exact legal structure and definition of employment income depends on the respective legal context.

Definition and distinction of employment income

General definition

Employment income includes all income received by a natural person as remuneration for the exercise of gainful employment. This particularly includes:

• Wages for non-self-employed activities,
• income from self-employment,
• recurring or one-time special payments (e.g. Christmas bonus, vacation allowance),
• benefits in kind (e.g. company car, non-cash benefits).

In legal terminology, employment income is often used as a generic term for all income from gainful employment that is used to determine entitlements or benefits.

Distinction from other income

The following types of income do not normally count as employment income:

• capital gains,
• income from letting and leasing,
• maintenance payments,
• social benefits that are not wage-replacement benefits (e.g. child benefit).

Employment income in social security law

Principle

In social security law, particularly in connection with health, pension, nursing care, and unemployment insurance, employment income serves as the basis for calculating contributions and entitlement to benefits. The term is used in various laws, for example, in Book IV of the Social Code (SGB IV) or in the calculation of unemployment benefits in accordance with Book III of the Social Code (SGB III).

Specific social benefits and employment income

Unemployment benefits and short-time work allowance

The amount of entitlement to unemployment benefits and short-time work allowance is primarily calculated on the basis of the regularly earned gross wage (see § 149 SGB III). The gross wage represents the relevant employment income within the meaning of social security law.

Social assistance and basic security

For benefits such as basic security for job seekers (SGB II, colloquially “Hartz IV”) and social assistance (SGB XII), income is taken into account when calculating needs. Employment income is considered separately and is subject to certain allowances pursuant to §§ 11 ff. SGB II and §§ 82 ff. SGB XII.

Employment income in maintenance law

Significance for maintenance calculation

In maintenance law, employment income plays a central role in determining the ability and obligation to pay maintenance. The net income from gainful employment serves as the basis for calculating child, spousal, and parental support (§ 1603 BGB).

Consideration and calculation

Income relevant for maintenance is determined on the basis of actual, adjusted employment income. Eligible employment income also includes one-time payments, secondary income, and benefits in kind. Certain job-related expenses, such as travel costs, may be deducted.

Employment income in tax law

Tax classification

For tax purposes, employment income consists in particular of income from non-self-employed work (§ 19 EStG) and from self-employed work (§ 18 EStG). In the income tax assessment, employment income forms part of taxable income and is subject to the progressive tax rate.

Tax treatment of special payments

Special payments such as Christmas bonuses, premiums, overtime compensation or other benefits associated with employment are also classified as employment income and are correspondingly taxable.

Special forms and exceptions regarding employment income

Benefits in kind and non-cash advantages

In addition to traditional monetary payments, non-cash benefits provided by the employer (e.g. private use of a company car) also count as employment income. The monetary value is assessed in accordance with § 8 EStG and is subject to contributions to social insurance.

Voluntary work and expense allowances

Remuneration for voluntary activities, insofar as it does not exceed a certain allowance (see §§ 3 No. 26, 3 No. 26a EStG), is not counted as fully creditable employment income.

Employment income in case law

Key decisions

Case law regularly addresses the question of which types of income are to be considered as employment income in the relevant context, especially in disputes concerning maintenance or social benefits. Courts always conduct an individual assessment of the income situation and the nature of the payments. The decisive factor is usually the actual availability and regularity of receipt.

Overview: Employment income in various areas of law

Literature references and further sources

• Commentary on the Social Code (SGB)
• Handbook of Maintenance Law, current case law
• Income Tax Act (EStG) with implementing regulations

Conclusion

employment income constitute a multi-faceted and cross-disciplinary legal term, the specific structure and legal meaning of which is oriented in each case to the purpose of the relevant statutory provisions. Knowledge of the definition as well as the respective exceptions and special regulations is of central importance, especially for the calculation of claims and obligations in the areas of social benefits, maintenance, and taxes.

Frequently asked questions

What types of employment income exist in the legal context?

In the legal context, employment income is generally divided into different types, depending on the basis on which it is paid. The most important include wages arising from an employment relationship within the framework of a private law contractual relationship, as well as income from self-employment or from freelance activities. In addition, there is employment income from marginal employment, from contracts for work or service, as well as special forms such as early retirement benefits, income from multiple employment, or earnings from agricultural and forestry activities. Each of these types of income is subject to specific social security and tax regulations, especially with regard to contribution obligations, reporting procedures, and crediting towards social benefits.

How is employment income considered in social benefits such as citizen’s benefit (Bürgergeld)?

Employment income is generally considered as income when calculating social benefits such as citizen’s benefit (formerly unemployment benefit II) and is therefore offset against the benefit. The legal basis for this can be found in Book II of the Social Code (SGB II). There are certain allowances: for example, income up to a certain amount, depending on gross income, is partly exempt from deduction. In addition, there are special regulations for certain types of income, such as parental allowance or Christmas bonus, which are only partially taken into account. Offsetting is carried out according to the so-called “cash flow principle”, i.e. the decisive factor is the date on which employment income is actually received, not the period in which it was earned.

What are the disclosure obligations regarding employment income vis-à-vis authorities?

According to applicable law, in particular SGB II and SGB XII, persons receiving benefits are obliged to provide full and immediate disclosure of all relevant income, including all types of employment income, to the competent authorities. Failure to fulfil this obligation can lead to serious legal consequences, including repayment claims, sanctions and, if applicable, criminal investigations for benefit fraud. The obligation to provide evidence includes all forms of income received by the applicant or persons living with them in the benefit community. Proof such as payrolls, bank statements or tax assessments are regularly required.

What tax regulations apply to employment income?

Employment income is generally subject to income tax, whereby the amount of tax to be paid depends on the nature of the employment and on individual allowances and deductibility. Wages from dependent employment are withheld and remitted by the employer through payroll tax deduction procedures. Self-employed or freelance employment income must be declared as part of the annual tax return and is taxed following assessment by the responsible tax office. In addition, there is a flat tax rate for certain types of income, such as mini-jobs. The tax treatment is governed by the Income Tax Act (EStG).

To what extent does employment income play a role in maintenance calculation?

Employment income is a central factor in determining the ability to pay maintenance under German family law. The so-called adjusted net income is decisive, including all employment income as well as, if applicable, tax-free allowances and benefits in kind. For fluctuating or irregular income, an annual average calculation is made. The family court assesses employability and the obligation to work and, in the case of willful unemployment, can impute fictitious income. Detailed consideration and assessment follow the guidelines of the respective Higher Regional Court (OLG).

What impact does employment income have on statutory health and pension insurance?

Employment income forms the basis for compulsory contributions to statutory health insurance (GKV) and statutory pension insurance (GRV), provided insurance is mandatory. For employment subject to social insurance, the employer pays the contributions directly, while the self-employed must pay their contributions themselves. The amount of the contribution is determined by the amount of gross earnings and is subject to specified minimum and maximum contribution thresholds. Special rules on flat-rate contributions apply to marginal employment so-called mini-jobs. Certain extraordinary employment income, such as one-off special payments, is also taken into account in the calculation of contributions.

What exceptions and special regulations apply to the offsetting of employment income?

There are numerous statutory exceptions and special provisions regarding the offsetting of employment income. For example, certain types of income—such as maternity benefit, some one-off payments, parts of expense allowances, or study grants—are wholly or partially exempt under certain conditions. Special rules exist regarding social benefits, for example, for voluntary work or for minor types of income. In addition, the net principle is often applied in the offsetting process, whereby certain deductions (such as income-related expenses or social security contributions) may be deducted from gross income. These rules are specified in detail by provisions of SGB II, SGB XII, and other special statutes.