Employer subsidy on salary conversion: obligation, exceptions and liability
Mikhail Iankovski, M.Sc.
Published in November 2026
Reading time 6 min
When an employee converts part of their salary into a company pension, the employer saves social insurance contributions. For some years now, the employer has had to pass part of that saving on: 15 % of the converted amount, paid as a subsidy straight into the pension. Set up properly, this subsidy is the most visible sign that the business contributes to its staff's retirement provision. Set up wrongly, it is a silent liability risk that grows every month. This article shows what the law requires, where it allows exceptions and which mistakes come up again and again in practice.
What the law requires
The rule is set out in § 1a Abs. 1a BetrAVG and is brief: the employer must pass on 15 % of the converted salary as an additional employer subsidy to the Pensionsfonds, the Pensionskasse or the direct insurance, to the extent that the salary conversion saves it social insurance contributions. This one sentence contains three conditions, all of which matter in practice.
- The subsidy goes into the pension. It is passed on to the pension provider and increases the contribution. Paying it out with the salary does not meet the obligation.
- It applies to three funding routes. The law names direct insurance, the Pensionskasse and the Pensionsfonds. For the Unterstützungskasse and the direct pension promise, the wording of § 1a Abs. 1a imposes no obligation to pass on a subsidy. A voluntary subsidy is of course possible there.
- It depends on the saving. The obligation applies only to the extent that the employer actually saves social insurance contributions. More on this below.
The obligation was introduced for new agreements from 2019. For salary conversions agreed before 1 January 2019, it has applied since 1 January 2022 (§ 26a BetrAVG). Today, therefore, in principle every ongoing salary conversion in the three routes named is covered, including the contract that has run unchanged for fifteen years.
How the subsidy affects the contribution
A simple example: an employee converts 200 euros a month, their salary is below the contribution assessment ceilings, so the employer saves in every branch of social insurance. The mandatory subsidy is 30 euros, and 230 euros go into the pension. The subsidy is intended to pass on part of the saving: the employer's share of pension insurance alone is, in 2026, 9.3 %, half of the 18.6 % contribution rate, plus the employer's shares of health, long-term care and unemployment insurance.
Simplified illustration for direct insurance, a Pensionskasse or a Pensionsfonds with a salary below the contribution assessment ceilings. The contribution of 230 euros is within the 2026 limit free of social insurance contributions of 338 euros a month.
Where the saving ends, the obligation ends
The clause “to the extent that it saves social insurance contributions” is the part of the rule where payroll most often goes wrong. Two limits are decisive.
The limit free of social insurance contributions. Contributions to direct insurance, a Pensionskasse or a Pensionsfonds are tax-free in 2026 up to 676 euros a month (§ 3 Nr. 63 EStG), but free of social insurance contributions only up to 338 euros (§ 1 Abs. 1 Satz 1 Nr. 9 SvEV). Conversion and subsidy share these limits. Anything converted beyond them remains subject to contributions, the employer saves nothing on it, and the mandatory subsidy does not apply to that part.
The contribution assessment ceilings. If the salary remains above the contribution assessment ceiling of an insurance branch even after the conversion, the employer saves nothing in that branch. The saving can then be below 15 %, and on the widely held interpretation the obligation is limited to the actual saving.
Many employers therefore deliberately pay a flat 15 % or more, without an exact calculation. This is permissible because the law only sets a minimum, and it spares payroll the monthly individual calculation. Anyone who calculates exactly should record the method in writing and agree it with the payroll office.
Exceptions: what collective agreements may do
§ 1a is one of the provisions from which collective agreements may deviate (§ 19 Abs. 1 BetrAVG). A collective agreement can therefore regulate the subsidy differently: higher, lower or in another form. For employers not bound by a collective agreement, such a deviation applies only if the application of the relevant collective agreement has been agreed with the employee (§ 19 Abs. 2 BetrAVG).
Outside this opening for collective agreements, the rule is mandatory in one direction: the provisions of the Company Pensions Act may not be departed from to the employee's detriment (§ 19 Abs. 3 BetrAVG). A waiver in the employment contract or the conversion agreement is therefore generally not effective. There is no upper limit, however: a voluntary subsidy above 15 % is possible at any time, and that is exactly where an obligation becomes a retention tool.
Liability: where it gets expensive
The subsidy is a statutory entitlement of the employee. If the employer does not pass it on, or passes on too little, the employee can require the employer to pay the missing amounts into the pension retrospectively. How far back that reaches depends on the regular limitation period of three years (§ 195 BGB) and on any contractual or collectively agreed cut-off periods. With several employees and several years, even small monthly amounts add up. In practice, I mainly come across these mistakes:
- Legacy agreements not updated. Agreements from before 2019 have continued since 2022 without the subsidy because nobody initiated the change.
- Subsidy in the wrong place. The amount is paid out with the salary instead of being passed on to the pension provider.
- Limits ignored. Conversion plus subsidy exceed the limit free of social insurance contributions, and payroll treats the excess incorrectly.
- No documentation. Whether a flat rate or an exact calculation is used, and on what basis, is recorded nowhere. In a dispute, the employer then lacks the evidence.
The review is manageable: record all salary conversions, note the funding route and the date of the agreement for each employee, reconcile the subsidy rules with payroll and document the result in writing. It is a job to sit down and do with the tax advisor and the payroll office, not one to leave in a drawer. Which funding route fits the business in principle is covered in the article Direct insurance or Unterstützungskasse.
Since 2022, for every salary conversion into direct insurance, a Pensionskasse or a Pensionsfonds, the employer must pay an additional 15 % of the converted amount into the pension, to the extent that it saves social insurance contributions. Collective agreements may deviate; employment contracts may not do so to the employee's detriment. Anyone who reviews their arrangements once and documents the rules closes a liability risk and at the same time has the basis for making the subsidy visible as a genuine employer benefit.
Frequently asked questions
Is the 15 percent employer subsidy mandatory?
Yes, for salary conversion into direct insurance, a Pensionskasse or a Pensionsfonds, to the extent that the employer saves social insurance contributions as a result (§ 1a Abs. 1a BetrAVG). Since 1 January 2022 this also applies to agreements concluded before 2019. A collective agreement may contain different rules.
Does the mandatory subsidy also apply to the Unterstützungskasse?
Not according to the wording of § 1a Abs. 1a BetrAVG. The law names only direct insurance, the Pensionskasse and the Pensionsfonds. A voluntary subsidy is nevertheless possible for the Unterstützungskasse and the direct pension promise and is often used deliberately.
What happens if the subsidy was not paid?
The employee can require the employer to pay the missing amounts into the pension retrospectively. How far back that reaches depends on the regular limitation period of three years (§ 195 BGB) and on contractual or collectively agreed cut-off periods. A review of existing arrangements with the tax advisor and payroll office makes sense before the employee asks.
Further reading
- Company pension schemes as an employee retention tool for German SMEs
- Direct insurance or Unterstützungskasse: comparing the funding routes
Want to know whether the salary conversions in your business are set up correctly? In an initial consultation we go through your existing arrangements, funding routes and subsidy rules, as a basis for coordination with your tax advisor and payroll office.
This content is general information and no substitute for individual tax, legal or investment advice. Employment law and tax structuring are carried out in coordination with the client's tax advisor and, where appropriate, employment law counsel. Legal bases: § 1a Abs. 1 and 1a BetrAVG, § 19 BetrAVG, § 26a BetrAVG, § 3 Nr. 63 EStG, § 1 Abs. 1 Satz 1 Nr. 9 SvEV, § 195 BGB; 2026 values per the German Social Insurance Reference Values Ordinance 2026.