This article explains the March clause and what you should look out for when making one-off payments in the first quarter of a year.

What is the March clause? 

The March Clause pursuant to Section 23a (4) SGB IV states that one-off payments made between 01.01. and 31.03. can, under certain conditions, be allocated to the last payroll period of the previous year. This is the case if one-off payments exceed the prorated contribution assessment ceiling (BBG) in the month in which they are paid and are therefore not fully subject to contributions. This helps to distribute the burden of contributions more equally.

Prerequisites for the March clause 

Assign one-off payments to the last payroll period of the previous year if: 

• Payment is made between 01.01. and 31.03. 
• The employment subject to mandatory insurance was with the same employer as in the previous year. 
• The aggregate of the one-off payment and the earnings subject to mandatory contributions that have been paid to date exceeds the prorated contribution assessment ceiling. 

The March Clause applies to all insurance types except accident insurance, for which the cash method continues to apply.

For employees who are subject to mandatory health insurance, the prorated contribution assessment ceiling for health and long-term care insurance applies. Employees who are exempt from mandatory health insurance, however, for example employees who are voluntarily or privately insured, are subject to the contribution assessment ceiling of German pension and unemployment insurance.

Allocation of One-off Payments to Payroll Periods

One-off payments are usually reflected in the month they are paid. However, the March Clause allows these payments to be allocated to the last payroll period of the previous year, usually December, regardless of aggregate earnings. If the employment ended in the previous year, the payment is allocated to the last payroll period of the employment period. 

Social Security Contributions

If the March Clause is applied, the social insurance contributions for the portion of the one-off payment that is subject to mandatory contributions are also calculated as if the payment had been made in December of the previous year. The contribution rates and contribution assessment ceiling of the respective month apply.

Termination in the First Quarter

If an employee is terminated in the first quarter and receives a special payment by 31.03., this payment is allocated to the last payroll period of the employment period, even if the contribution assessment ceiling is exceeded. In this case, the March Clause does not apply.

Employer's Reporting Obligations

If the March Clause is applied and a one-off payment is allocated to the previous year, you are required to send a special notice pursuant to Section 28a (1) (12) IV, stating reason 54.

Reviewing Payment Allocations to the Previous Year

The following example illustrates how the March clause is applied in theory. 

Baseline situation

• The employee is subject to mandatory insurance contributions in all areas of social insurance.
• The employee is based in the West legal jurisdiction.
• Salary in 2024 and 2025: €4,500.00
• One-off payment in February 2025: €5,000.00

Reviewing Mandatory Health Insurance

First check whether the employee is subject to mandatory health insurance. If this is the case, as in our example, use the health insurance contribution assessment ceiling for your calculation. Otherwise use the pension insurance contribution assessment ceiling as the basis for your calculation.

Determining the Social Security Income Threshold (SV-Luft)

Determining the Social Security Income Threshold Health / Long-term Care Insurance for the Previous Year

You can now calculate the Social Security Income Threshold using the respective BBG from the previous year, i.e. 2024. Here, too, we will use the BBG health / long-term care insurance in our example. To determine this, take the difference between the annual salary for 2024 and the annual BBG health / long-term care insurance for 2024.

Determining the Social Security Income Threshold Pension / Unemployment Insurance for the Previous Year

In the last step, you calculate the Social Security Income Threshold for pension and unemployment insurance for the previous year, i.e. 2024. To do this, take the difference between the annual salary and the yearly BBG pension / unemployment insurance for 2024.

Result: The one-off payment of €5,000.00 is subject to mandatory contributions to pension and unemployment insurance in full. 

This procedure also applies if the one-off payment in the previous year is partially or fully exempt from mandatory contributions because the contribution assessment ceiling is exceeded. No favorability calculation may be applied; the contribution rate valid at the time must always be applied.