October is a useful time to prepare special payments for the final payrolls of the year. A spreadsheet containing names and amounts may leave important questions unanswered. Payroll needs the employing entity, approved payment basis, earning period and actual payment date so that queries can be resolved before the November or December run.
Start with the employer's approved payment decision
HR and the responsible decision-makers should establish eligibility before instructing payroll. The employment contract, collective agreement, works agreement or individual bonus arrangement may contain different conditions. The label “Christmas pay” does not establish whether a payment can be reduced or whether an employee leaving the business remains eligible.
The approved payroll instruction should identify the employing entity, employee number, gross amount, payment month, relevant period and authorisation. A net-pay promise must be expressly identified and calculated separately in advance. A budget or an unapproved proposal should not be treated as a payment instruction.
Christmas pay is not automatically tax-free
Non-recurring Christmas remuneration and an additional thirteenth monthly salary are normally classified as other remuneration, or sonstige Bezüge, for German wage-tax purposes. The tax administration explicitly lists these examples in guideline R 39b.2. Calling a payment a gift, award or bonus does not create a tax exemption.
Under section 39b(3) EStG, wage tax on other remuneration is calculated using the difference between annual wage tax with and without that payment. Employers should therefore avoid promising one fixed “bonus tax rate” for everyone. The same gross bonus can result in different additional deductions for different employees.
Social security follows separate rules
Tax and social security require separate classifications. Section 23a SGB IV generally defines one-off remuneration as employment income that is not paid for work in a single payroll period. Christmas pay and annual awards may fall into this category. A payment covering several months is not automatically a one-off payment merely because it is paid less frequently than monthly.
The relevant proportion of the annual contribution ceiling must be considered for a one-off payment. Previous contributory earnings and relevant employment periods with the same employer are among the inputs. Payroll consequently needs complete year-to-date records; a calculation based only on the current monthly salary can give the wrong contributory amount.
Include the actual payment date
A one-off payment is generally allocated for social-security purposes to the payroll period in which it is paid. Section 23a(2) SGB IV contains special allocation rules for payments made after employment has ended or while the employment relationship is suspended.
If a bonus planned for 2026 is paid between January and March 2027 instead, the March clause, or Märzklausel, must also be checked. Subject to the conditions in section 23a(4) and (5) SGB IV, it can allocate the payment to the previous year. Employers cannot freely choose the allocation, and describing an amount as a “2026 bonus” does not decide the issue. Notify payroll of payment-date changes before the run.
Separate the gross award from the expected net payment
For example, an employee receives a monthly salary of EUR 4,000 and an approved gross bonus of EUR 1,000. With all other pay unchanged, the starting total gross remuneration is EUR 5,000. This does not establish the employee's additional net payment or justify applying a single contribution calculation to the whole amount.
Personal payroll characteristics, year-to-date values and the correct classifications determine the result. Communicate the gross award that has been approved. Where a specific net-impact illustration is needed, arrange an individual payroll simulation using complete employee data.
Identify joiners, leavers and corrections explicitly
For employees joining during the year, taking extended leave or leaving the company, the employer first confirms eligibility and the amount due under the applicable arrangement. Payroll processes that approved decision. It should not have to infer a reduction rule from a blank cell or a missing employee name.
Any later amendment needs an identifiable replacement approval. State whether it replaces the earlier amount, increases it, cancels it or represents an additional payment. This helps avoid duplicate bonuses and supports reconciliation between HR, payroll and finance.
November and December payroll checklist
Before the agreed cut-off, HR and payroll should work from the same authorised list.
- Identify the employing entity and employee number
- Confirm eligibility and the approved payment basis
- State explicitly whether the promise is gross or net
- Record the amount, relevant period and actual payment date
- Flag joiners, leavers and interruptions
- Assess wage-tax and social-security treatment separately
- Include year-to-date records and previous special payments
- Version amendments and obtain a renewed approval before payment
How Northwind supports the monthly process
Northwind prepares the agreed German payroll using the employer's confirmed data. Complete bonus instructions received on time allow simulations, queries and final approval to fit into the payroll calendar. Payment approval and execution remain with the employer.
This article explains special-payment preparation as at 29 October 2026. The individual calculation depends on employment history, the payment's purpose and personal payroll characteristics. Specific employment-law entitlement questions should be resolved before payroll approval.
Official sources
The regulatory references in this article were reviewed against these official sources: