The legal system is becoming more and more complicated every year, also in social security. The area of wage tax and social security is probably as complex today as the taxation of the GmbH. Experts wonder whether the complexity has already taken the legal system to the limit of unconstitutionality?

Contributions paid – yet no benefits:

Those who pay social security contributions are neither safe from the risks for which contributions are paid, nor are they certain that benefits will be paid in case of emergency. From the citizen’s point of view, it is often a matter of the obligation to pay contributions – but the state does not protect the citizen from errors and disappointments. Experts estimate that the “non-eligible” contributors are 1.5 – 1.8 million employees.

Typical case:

S., a trained tax clerk, works in her husband’s GmbH. When she becomes unemployed, the employment agency denies her benefits. It stands without provision for the emergency of unemployment. She finds it astonishing that the contributions were collected for years and that everything was in order even during tax audits.

Social justice:

In its decision of 28 April 1987 (Ref. 12 RK 47/85), the Federal Social Court (Bundessozialgericht) set out the guidelines which the employee perceives as not very caring. In practice, the social security system then forms an opinion as to whether the employee was “properly” insured as soon as the emergency occurred – then the benefit can be refused.

The payment of contributions alone, as well as the later recognised “incorrectness” of an employee’s registration with the social security system, does not constitute a claim to social security benefits.

The employee is then entitled to a refund of contributions (often only after a further application) – but only for claims that are not already time-barred.

Nor is the social security system bound by the findings of the company’s tax audits, which usually take place every four years. There is therefore no protection of confidence and no de facto hardship clause.

Non-social practice

The employee is also easily caught between the two fronts when benefits are due. It is conceivable, for example, that the statutory health insurance fund takes a different view than the German Pension Insurance Federation. This can be the case not only in general, but also with regard to the question of when an employee became or did not become subject to social security contributions. But that is not all, because if, for example, different periods of time have to be assessed due to a change in health insurance, different health insurance funds may also communicate different decisions on the obligation to contribute or on an application for reimbursement of contributions.

There’s a lot of money at stake:

In cases of reimbursement, EUR 100 to 300 thousand in contributions already paid jointly by employer and employee may well be at stake. Practitioners complain that the procedures sometimes take “forever”. There are numerous traps for the consultants, because the circumstances can change during the year – in which case the employee, once released, may also become liable for social security again.

This has consequences for private pension provision, as there does not appear to be any real planning security for longer-term private capital accumulation.

legislator demanded:

The cases in practice raise the question of what formula of justice the legislator had in mind? In civil law, the citizen would demand his money back if he did not receive any benefits – the sometimes short limitation period of four years limits these possibilities in social security and makes the tax consultant liable, although he also finds it difficult to guarantee legal certainty.

For the employee, if he is one of the estimated 1.5 to 1.8 million affected persons, the system for determining his social security obligation is similar to a lottery system. The uncertainty among those affected should soon come to an end.

by Dr. Johannes Fiala

by courtesy of

www.dental-tribune.de (published in Dental Tribune, issue No 19/2006, under the heading: Social security contributions paid and yet no unemployment benefit and pension?)

and

ZKN Mitteilungen (issue 10/06 under the heading: Erroneous social security contributions: Nevertheless no unemployment benefit and no pension)

and

www.channelpartner.de (published on 07.07.2006 under the heading: Erroneous social security contributions: Nevertheless no unemployment benefit and no pension?)

Link: www.channelpartner.de/knowledgecenter/finanzen/204453/index.html