Working time accounts

Working hours in German companies have become much more flexible since the mid-1990s. Today, only a fraction of employees are working the traditional 5 days a week full-time with rigid working hours. Maintaining working time accounts, enables employees to waive remuneration for additional hours and to use the time saved for a subsequent release phase.

The employee acquires a right to leisure time in the future. The credit balance on the working time account is free of tax and social security charges until the start of the release phase and only then taxed and included in the social security system.The grounds for the release phase could be early retirement, further training or increasingly, economic fluctuations in the company. The aim of the working time accounts is not additional capital accumulation as is the case with occupational pensions, but a release phase in the future.

Only when certain conditions mean that a release phase is no longer possible, will a conversion of the credit balance into a type of occupational pension and hence to additional capital accumulation and an additional retirement pension be possible.

Depending on whether the release phase has to be taken at the end of the employee’s working life or may be taken in between as a sabbatical, a distinction is drawn between a lifetime working hours account (early retirement account) and a long-term working time account.

There is another variant of the long-term working hours account, the age-related part-time account, which is eligible for particular incentives from the state. This is a special form of the lifetime working hours account, which cannot be set up until the employee’s 55th birthday and is promoted in particular by the Federal Ministry of Labour. Major changes were introduced for this type of long-term working hours accounts when the third Modern Labour Market Services Act (Hartz III) came into effect on 1 July 2004. For age-related part-time working arrangements set up after 1 July 2004, a stricter obligation regarding security from insolvency applies to the credit balance and the associated employer’s portion of the overall social security contribution.

In addition to these legal provisions, every employer is obliged to give consideration to the expiry of state incentives for age-related part-time working on 31 December 2009.Companies acting too late will lose out when it comes to all the measures that can be taken given the long lead time.

Given the various different concepts and investment formats for long-term working hours accounts as well as the existing interface to occupational pensions, it is essential for you to work with a partner who offers more than just advice - an integrated financial services provider. Dresdner Bank.