The board member entitled to insolvency pay
The Federal Social Court (BSG) has abandoned the definition of “employee” under employment promotion law. With this change, the BSG is reversing its previous case law. It is now possible to distinguish between the role of a board member and that of an employee. Under employment promotion law, this may lead to a board member being classified as an employee when considering the overall circumstances. In a recent case, the court ruled that a board member of a stock corporation, who also worked as a sales employee bound by instructions, successfully claimed insolvency pay. Your tax advisor in Düsseldorf and Oberhausen has summarized for you what has changed regarding insolvency pay and the position of board member.
Definition: Insolvency Pay
Insolvency occurs when employers can no longer meet their payment obligations or can no longer meet them in full. In such cases, the Employment Agency pays a substitute benefit for wages and salaries due upon application by the employees. This substitute benefit is called insolvency pay. It is paid as a one-time payment for the last three months prior to the onset of insolvency.
Insolvency pay is paid at the same rate as the net wage. The payment includes the fixed salary and, if applicable, other salary or wage components. These include commissions, overtime pay, and Christmas bonuses. The upper limit for higher earners varies by state.
Social security contributions are also covered by the Employment Agency if the company is unable to pay. The employee’s health insurance provider submits the application for coverage of social security contributions. If employees submit an application for unemployment benefits for the same period along with their application for insolvency pay, the amount is offset against the insolvency pay. If the insolvency allowance is approved, the unemployment benefits are considered an advance on the insolvency allowance. This does not shorten the duration of entitlement to unemployment benefits.
Employment Promotion Law
The entitlement to insolvency benefits is governed by employment promotion law. This is linked to an insurance relationship. It applies to individuals who are subject to compulsory insurance as employees or for other reasons. Employees are clearly defined by law, which is also relevant for employment promotion. It is established here that employees do not work independently but, in particular, are in an employment relationship. Employment is defined by various factors. Among other things, this involves performing work under the direction of a supervisor and being integrated into the supervisor’s work organization.
According to the Federal Social Court, entitlement to insolvency pay does not depend on whether the work performed constitutes employment subject to social insurance contributions.
Management Function and Employee Status
Under previous case law, an executive position and employee status were incompatible. The Federal Social Court has not previously attached independent significance to employment contracts either. In its decisions, the employer functions associated with an executive position have been decisive up to now.
In its new ruling, the court has changed its approach. The previous legal view must therefore be reconsidered, as it does not sufficiently differentiate between the position on the board and the internal relationship. The court states that, contrary to previous case law, the contractual agreements between the company and the board member are indeed relevant. The formal position on the board does not preclude classification as an employee, the BSG rules. It is recognized that a management role as a board member and a position subject to instructions can coexist.
Your Tax Advisors in Düsseldorf and Oberhausen
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