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German social security legislation comprises many different contribution types. Among others, these include the following three types of social security contribution, the cost of which are borne entirely by the employer:

• U1 contributions (continued payment insurance for sick leave)
• U2 contributions (continued payment insurance for maternity protection)
• U3 contributions (continued payment insurance for insolvency)

U1 contributions (continued payment insurance for sick leave)

U1 contributions are mandatory for employers who employ no more than 30 employees and become useful if an employee needs to take sick leave. If an employee falls ill (for max. six weeks or 42 days), they continue to receive their salary in the form of sick pay despite their time off from work. A certain proportion of their gross salary during this period is reimbursed to the employer by the employee's health insurer. Section 3 (1) AAG can be used to determine the number of employees who need to be taken into account here.

Reimbursement rate and contribution rate

The reimbursement rate is the percentage of the employee's gross salary that their health insurer pays to the employer. The employer can choose between several different reimbursement rates. The percentage reimbursed depends on the monthly contribution rate paid by the employer to the health insurer in question, regardless of whether the employee was sick or not.

Each health insurer sets its own reimbursement rates annually. The contribution rate must be paid by the employer for all employees, based on their gross earnings. Various different factors can influence the employer's choice of reimbursement rate, such as how often the employees tend to get sick.

The employer must choose a reimbursement rate and thus a contribution rate for each of their employee's health insurers. As each health insurer has its own reimbursement rates, there is no standard reimbursement or contribution rate for the different employees.

Exceptions

Specific criteria determine which employers have to take part in the U1 cost-sharing system and which employees they must pay contributions for. There are certain exceptions to the rules explained in the example above:

Repayment

If an employee takes sick leave, employers who participate in the U1 cost-sharing system must request repayment in order to be reimbursed by the relevant health insurer for a proportion of the employee's sick pay. The following steps are required to trigger a repayment:

1. The employer must submit an AAG application (AAG = Aufwendungsausgleichsgesetz = German Expenditure Compensation Act).
2. The person responsible for the company's payroll accounting must digitally send the AAG application to the relevant health insurer, thus informing them of the reimbursement period and amount of sick pay.
3. The health insurer can then compare the AAG application with the employee's certificate of incapacity for work (which they will have received from the employee's doctor).
4. If everything is in order, the health insurer will pay the agreed reimbursement rate to the employer.

Example
Reimbursement of continued paid health insurance contributions to employers.

▶︎ An employee is insured with health insurer XY (see example above) and was on sick leave from 08.01. - 12.01.2024 (five days).
▶︎ The employee's gross monthly salary is €3,000.
▶︎ The company has chosen to pay health insurer XY's standard reimbursement rate (70%).

The employer submits an AAG application to receive their reimbursement. The amount to be reimbursed is calculated as follows:

€3,000 / 30 days = €100 (salary for one day)
€100 x 5 sick days = €500 (salary for the 5 sick days)
€500 x 70% = €350 (amount to be reimbursed by health insurer XY to the employer) 

U2 contributions (continued payment insurance for maternity protection)

U2 contributions allow companies to be reimbursed for 100% of their expenditure when an employee requires maternity leave. The reimbursement includes the employer's contribution to maternity benefits for the entire maternity protection period and the salary due during the employment ban (pregnancy). The employer's contribution rate varies depending on the health insurer. Participation in the U2 cost-sharing system is mandatory for all employers, no matter how many employees they have.

Note
The employer must pay U2 contributions for all employees, regardless of gender, so that women are not at a disadvantage during the recruitment process.

U3 contributions (continued payment insurance for insolvency)

U3, or insolvency benefit contributions, are necessary to ensure that salaries owed to employees can be paid should the company go bankrupt. Insolvency benefit contributions are mandatory for employers with employees in Germany. There are only very few exceptions (for example, foreign seasonal workers) and thus very few employees for whom employers are not required to pay insolvency benefit contributions.

Should a company become insolvent, it can also use insolvency benefits to pay its mandatory contributions. The company's size, turnover and industry have no effect on these contributions. The current insolvency benefit contribution rate is 0.06% (as of February 2024).