The following article explains what the annual earning threshold (Jahresarbeitsentgeltgrenze [JAEG]) is all about and why it needs to be reviewed at the end of each calendar year.

Regular Annual Earnings

What Are Regular Annual Earnings?

Pursuant to Section 6 (1) (1) SGB V, employees whose regular annual earnings exceed the annual earning threshold (Jahresarbeitsentgeltgrenze [JAEG]) are exempt from mandatory health insurance. This is why the JAEG is also known as the mandatory insurance threshold.

Pursuant to Section 14 SGB IV, regular earnings comprise the following:

• Current gross salary
• Regularly paid one-off earnings:
  • contractually guaranteed payments (e.g. employment contract)
  • customary payments or payments based on company practice. These occur when employers grant regular benefits without a contractual obligation.
  • Examples: Christmas bonuses, vacation benefits, 13th monthly salary

Earnings components not taken into account:

• allowances based on marital status (e.g. for married employees)
• family allowances in the public sector
• irregularly paid earnings and variable earnings components:
  • one-off payments for individual performance or company success
  • Examples: irregularly paid overtime compensation, performance-based commissions

Exceptions are overtime cliff payments made monthly as a lump sum, and commissions paid monthly with a fixed and a performance-based component. These count as regular earnings.

Multiple Employment Subject to Mandatory Insurance

If an employee is employed in several jobs that are subject to mandatory insurance, their respective earnings are added up to calculate their regular annual earnings.

This does not apply to marginally paid secondary employment, which is not taken into account if it complements primary employment that is subject to compulsory insurance. In the case of multiple marginal jobs, employees' earnings from the second and subsequent jobs are counted.

Which Payments Are Included in the Regular Annual Earnings?

The table below shows which payments do and do not count towards the regular annual earnings.

Calculation of Regular Annual Earnings

Regular annual earnings are calculated in advance based on the employee's expected earnings to check whether they exceed the JAEG threshold. To do this, the employee's current monthly salary is multiplied by 12, and any regularly paid allowances or one-off payments are added. This method also applies to fixed-term employment contracts of less than 12 months.

Note 
Pursuant to Section 6 (4) Sentence 3 SGB V, salary increases may only be considered from the time an employee is actually entitled to the higher salary. 

Schedule for Calculating the Regular Annual Earnings

The following schedule has proven to be useful for calculating regular earnings:

Total earnings from employment within a year

- Income that is not earnings from employment

= Annual earnings

- Irregular earnings

- Family allowances 

= Regular earnings 

Explanation

Annual Earnings Threshold (Jahresarbeitsentgeltgrenze [JAEG])

What is the Annual Earnings Threshold (JAEG)?

Since 01.01.2003, the JAEG has been separated from the contribution assessment ceiling for pension insurance. There are:

• the general JAEG pursuant to Section 6 (6) SGB V.
• the special JAEG pursuant to Section 6 (7) SGB V. 

These thresholds are redefined annually.

Special JAEG

The special JAEG only applies to employees who are, on the effective date, i.e. 31.12.2002:

• exempt from compulsory insurance because their earnings exceeded the JAEG for 2002 (€40,500.00) and 
• were insured with a private health insurance company.

Note 
If an employee is subject to the special JAEG, evidence that they had private health insurance on 31.12.2002 must be provided and stored in their documents. 

The special JAEG is lower than the general JAEG and corresponds to the contribution assessment ceiling for health insurance. It applies without limitation to all employees concerned, even if they change employers, are temporarily not insured, or are temporarily subject to compulsory health insurance.

JAEG Timeline

The following table provides an overview of how the JAEG has evolved since 2021:

End of Mandatory Insurance

When Does Mandatory Insurance End?

If an employee's regular annual earnings exceed the JAEG, they are exempted from mandatory insurance from the end of the calendar year pursuant to Section 6 (1) SGB V. This applies if it is expected that the JAEG for the following year will also be exceeded. Salary increases therefore do not immediately suspend mandatory health insurance.

Employees who exceed the JAEG can take out voluntary statutory health insurance within a period of 3 months. In the above example, the employee would need to submit their application for membership by 31.07.2025.

Exceeding the Annual Earnings Threshold as Part of Ongoing Employment

An employee can also become exempt from mandatory insurance during ongoing employment. This occurs when their regular annual earnings exceed the JAEG due to a salary increase during the year. The increased salary is multiplied by twelve at the time of the salary increase. If it exceeds the JAEG based on this calculation, the employee becomes exempt from mandatory insurance at the end of the year, even if their annual earnings remain below the JAEG.

Salary Increase at the Beginning of the Year

Employees who are exempt from mandatory health insurance remain unaffected by this exemption. This applies if their regular annual earnings exceed the JAEG for the current and the following year. This also applies retroactively from 01.01. if a salary increase is granted in January. The entitlement must continue to exist until the due date.

Interruption of Employment

If an employee was exempt from mandatory insurance before the interruption because their earnings exceeded the JAEG, they remain exempt. An interruption of employment does not affect the insurance status.

In certain cases, employees remain exempt from compulsory insurance, even if their employment was interrupted and their earnings drop below the JAEG. These include: 

• Receipt of compensation benefits (maternity, sickness, injury or transitional benefits)
• Reintegration after an extended period of incapacity for work
• Participation in a lawful strike or employees affected by a lockout
• Short-time work (exception: seasonal short-time work and transfer short-time allowances)
• Participation as a reservist in a military exercise

New Employment

If an employee starts a new job during the year, their earnings must be considered prospectively. If earnings, multiplied by twelve, are above the JAEG, the employee is exempt from mandatory insurance.

Rules for Multiple Employment

If an employee has several jobs that are subject to compulsory insurance, all their earnings are added up to determine their regular annual earnings. 

When reviewing the JAEG, you should take a close look at the following scenarios in connection with multiple employment:

Case 1: primary job + one or more secondary jobs subject to compulsory insurance

If an employee has a primary job and one or more secondary jobs that are all subject to mandatory insurance, the earnings from these jobs are all added up. Keep the following in mind:

• An employee who is exempt from mandatory health insurance because their earnings exceed the JAEG remains exempt from mandatory health insurance if they have a second job. This applies even if their earnings from their second job are below the JAEG. 
• If an employee takes up a second job that is subject to mandatory social insurance and their combined earnings exceed the JAEG, they remain subject to mandatory insurance for both jobs until the end of the year. Mandatory insurance only ends when the aggregate of their regular annual earnings exceeds the JAEG for the next year.
• If an employee takes up a secondary job at a salary that alone exceeds the JAEG, the secondary employment is exempt from mandatory insurance from the beginning. Mandatory insurance for the primary job ends with the start of the second job.

Case 2: primary job subject to mandatory insurance + marginal job(s)

If an employee has a primary job subject to mandatory insurance and a mini-job (marginal employment), their earnings are not aggregated.

However, if they have several mini-jobs, the earnings from the second and further mini-job(s) count towards their annual earnings, which can therefore result in them exceeding the JAEG. If their earnings from several mini jobs exceed the JAEG, they remain subject to mandatory insurance for their primary and secondary jobs until the end of the year.

Case 3: primary employment exempt from mandatory insurance + marginal job(s)

An employee who is exempt from mandatory health insurance and earns more than the JAEG threshold remains exempt from mandatory insurance even if they take on a mini-job (marginal employment). The mini-job is not aggregated with the earnings from primary employment. Flat-rate contributions still need to be paid to health and pension insurance, however, and the employee is subject to pension insurance contributions, unless an exemption applies.

Commencement of Mandatory Insurance

Earnings below the annual earnings threshold

If the earnings of an employee who is exempt from mandatory health insurance fall below the JAEG threshold, they become subject to mandatory health insurance immediately, not at the end of the calendar year. Common reasons for this are reductions in working hours and associated salary reductions.

Employees subject to mandatory private health insurance may apply for an exemption from mandatory health insurance under certain circumstances. In certain cases, privately insured employees over the age of 55 do not become subject to mandatory insurance.

Compulsory health insurance does not apply if: 

• the salary reduction is limited to a short period or
• earnings only fall temporarily below the JAEG threshold.

A short period is defined as a period of no more than three months (e.g. short-time work or reintegration after illness). 

Note 
This rule does not apply to part-time employees during parental leave or partial leave of absence pursuant to the Home Care Leave Act. In these cases, the exemption from compulsory health insurance ends. 

Increase in the Annual Earnings Threshold

If the JAEG threshold increases at the end of the calendar year, but an employee's annual earnings no longer exceed the threshold as of 01.01. of the following year, the employee is generally subject to mandatory health insurance.

Other Cases

When Can Employees be Exempted From Mandatory Health Insurance?

Pursuant to Section 8 SGB V, employees can apply for an exemption from compulsory health insurance if, on 31.12.2024: 

• They are exempt from mandatory health insurance because their earnings exceeded the general JAEG of €69,300.00.
• They have private health insurance.
• They would be subject to mandatory health insurance due to the increase in the JAEG threshold to €73,800.00 on 01.01.2025.

This can happen due to an adjustment in the JAEG threshold or due to the following:

• Entry into partial retirement (prerequisite: exemption from compulsory insurance in the last five years because earnings exceeded the JAEG threshold).
• Taking up reduced employment during parental leave.

When Is an Employee Excluded from Mandatory Health Insurance?

In certain cases, an employee may be excluded from mandatory health insurance even if they meet relevant prerequisites. This applies to privately insured employees who:

• are aged 55 or older.
• have not had statutory health insurance during the previous five years.
• were either exempt from social security contributions, exempt from mandatory insurance, or primarily self-employed for at least half of the previous 5 years.

For these employees there is no need to calculate the annual earnings every year.

Which Reporting Requirements Apply to Employers?

Since mandatory health insurance only ends at the end of the calendar year, employers must submit a notice of change at the end of the year:

• With effect from 31.12., the employee is deregistered from their health, pension, unemployment and long-term care insurance using SI (social insurance) Notification 32.
• From 01.01., the employee is registered for pension and unemployment insurance using SI (social insurance) Notification 12.

Annual reports are still required for accident insurance.

Read our best practices article for more information about JAEG reviews and the steps involved.