The basics of continued pay
The right to continued pay during illness (Entgeltfortzahlung) is clearly set out in the Continued Remuneration Act (Entgeltfortzahlungsgesetz, EFZG). Incapacity for work certified by a doctor is the precondition for the insured person's right to continued pay and sickness benefit (Krankengeld).
For the right to apply, the employment must have lasted for at least four weeks without interruption. The employee must also be unable to work due to an illness that is not their own fault. In the first 28 days of a new job, health insurance funds cover continued pay for employees. After that, employees have a six-week right to continued pay from the company that employs them.
Six weeks of continued pay, then sickness benefit
The right to continued pay lasts for 42 days, which is six weeks. Normally employees keep receiving their full salary during this time. Collective agreements or employment contracts can grant more days, but never fewer. What matters is that the calculation is done per illness. The principle is that continued pay must be granted once for six weeks for each illness.
If the incapacity for work lasts beyond the 42nd calendar day, the health insurance fund pays sickness benefit from that point on. Sickness benefit amounts to 70% of the regular gross salary. The health insurance fund pays it directly to the employee.
How to calculate continued pay correctly
Continued pay equals the pay the employee would have received if they had been able to work. Several pay components are included: the agreed base pay continues in full, as do all regular allowances such as shift, hardship or function allowances.
For variable pay components such as commissions, bonuses or piece rates, the average of the last 13 weeks is used as the basis for the calculation. Only regularly worked overtime is taken into account. One-off payments such as Christmas bonuses or holiday pay are included pro rata if they had already been earned at the time of the calculation.
Sick notes and electronic transmission
The employee must report their incapacity for work to the employer without delay. A doctor's certificate must be provided by the third day at the latest. Since 1 January 2023, doctors' practices have been required to send the sick note electronically to the health insurance fund.
The electronic sick note (elektronische Arbeitsunfähigkeitsbescheinigung, eAU) brings clear benefits: employers can retrieve the eAU data directly from the health insurance funds through an automated retrieval process. This reduces admin and cuts the errors that come with manual transfer.
Tax and social security treatment
Continued pay during illness is fully subject to wage tax (Lohnsteuer) and is treated like normal pay. This means wage tax, church tax and, where applicable, the solidarity surcharge must be paid as usual.
Social security contributions are also calculated and paid as they are for normal pay. This covers all four branches of insurance: health, long-term care, pension and unemployment insurance, each with its employer and employee share.
Payroll during illness: handling special situations
Consecutive illnesses
What happens to continued pay when one illness follows another? Several cases need to be told apart here. If it is the same underlying illness, there is no new right to six weeks of continued pay. If the illnesses are completely different, a new right arises. After a break of at least six months, a new right also arises for the same illness.
Incapacity for work during holiday
If an employee becomes unable to work during their holiday, the holiday days are not lost. Days of incapacity for work are not counted as holiday if a doctor's certificate is provided.
Use the reimbursement scheme
Employers who regularly employ no more than 30 people can have part of their continued pay costs refunded through the U1 reimbursement scheme (Ausgleichsverfahren U1). The standard U1 rate usually refunds around 60 to 70 percent.
The fewer staff a company has, the heavier the burden when one employee is absent. The U1 levy is meant to balance this out. The employer can choose between different refund levels. The standard U1 rate usually refunds around 60 to 70 percent. With the reduced U1 rates, the levy is lower, but the health insurance fund refunds only 40 to 50 percent in the event of illness. With the increased rate, the refund is 80 percent. However, this only applies if the incapacity for work lasts at least six weeks. The claim must be filed within 12 months after continued pay ends. The U2 scheme covers costs related to pregnancy and maternity and refunds up to 100% of the costs.
Avoid common mistakes
The same mistakes come up again and again in practice. The basis for the calculation is wrong when not all pay components are taken into account. Missing or late sick notes cause problems too. So do double payments, where continued pay and sickness benefit are paid at the same time.
Proper records include keeping all sick notes for at least five years. They also include full records of continued pay in the payslips.
Digital solutions make payroll easier
Modern payroll accounting software can automate many aspects of payroll for sick leave. Automatic calculations reduce errors, while deadline management keeps track of all relevant dates. Direct interfaces enable communication with health insurance funds and authorities.
Digitalisation brings considerable benefits: less manual work in payroll, automatic compliance with legal requirements and far fewer errors.
Conclusion on payroll during illness
Handling sick leave correctly in payroll involves legal, tax and social security aspects. The right to continued pay lasts for 42 days. After that, the health insurance fund takes over with sickness benefit.
Compliant payroll depends on complete records, correct calculation of all pay components and on-time processing. Small companies can benefit from the U1 and U2 reimbursement schemes.
Professional payroll accounting software can automate the calculation. It can also take all legal requirements into account and make communication with health insurance funds easier. For small and mid-sized companies without their own payroll team in particular, a digital solution can save both time and money while increasing legal certainty.
Sources
Continued Remuneration Act (EFZG)
