Employer Insolvency in Germany: Insolvency Pay and Your Job

When an employer can no longer pay its debts, employees are often the first to notice: salaries are paid late or not at all. German law protects employees in this situation with insolvency pay (Insolvenzgeld), paid by the employment agency.

Insolvency does not automatically end your employment. But it changes who you deal with, how quickly you can be dismissed and what happens to open claims such as severance.

What Counts as an Insolvency Event?

Insolvency pay is linked to the insolvency event (Insolvenzereignis). This is:

• the opening of insolvency proceedings by the court,
• the rejection of the application for insolvency proceedings due to lack of assets, or
• the complete cessation of business in Germany, if no application was made and the assets are clearly insufficient.

The date of the event decides which three months are covered and when the two-month deadline starts.

Insolvency Pay

What is covered. Your net wages for the three months before the insolvency event, including bonuses and other pay earned in that period. Gross pay is taken into account up to the monthly contribution ceiling for unemployment insurance, which is €8,450 in 2026. The employment agency also pays outstanding social security contributions.

Application. Apply to the employment agency within two months of the insolvency event, online or in writing. The deadline is strict. If you only learn of the event later without fault, you can apply within two months of learning about it.

Pre-financing. During preliminary insolvency proceedings, the administrator often arranges for a bank to pre-finance wages. Your wages are then paid on time, and the bank later receives the insolvency pay.

Wages before the three months. Arrears from earlier periods are not covered. They must be registered as a claim in the insolvency proceedings.

If Your Salary Is Not Paid

If your employer is significantly in arrears, you can refuse to work until the arrears are paid, after notifying the employer. In serious cases, you can resign without notice after a warning. Both steps have risks for your unemployment benefit and your claims, so get advice first.

Dismissal in Insolvency

The insolvency administrator can dismiss employees with a notice period of at most three months, even if your contract or the law provides for longer periods (Section 113 of the Insolvency Code). However:

• the Protection Against Dismissal Act still applies,
• special protection still applies,
• the works council must still be consulted.

If you are dismissed early because of the shortened notice period, you can claim damages for the lost pay as an insolvency creditor. You must still challenge the dismissal within three weeks if you think it is invalid. See unfair dismissal claims.

Severance and Social Plans in Insolvency

• Severance agreed before the insolvency is usually an ordinary insolvency claim. You only receive a share, often a small one.
• A social plan agreed in insolvency is limited to two and a half monthly salaries per employee and a third of the assets available for distribution.
• Severance negotiated with the administrator after the opening of proceedings is paid in full from the estate, if the estate is sufficient.

Registering Your Claims

Claims that are not covered by insolvency pay must be registered with the insolvency administrator in writing, within the period set by the court. This applies to older wage arrears, damages for the shortened notice period and severance agreed before the insolvency.

Business Sale in Insolvency

Often, a buyer takes over the business or parts of it from the administrator. Your employment then usually passes to the buyer automatically. See transfer of undertaking.

Points for Expats

• Residence permit. If your permit depends on your job and the employment ends, see losing your job and your residence permit.
• Information in German. Letters from the court, the administrator and the employment agency are in German, and the deadlines are short. Have them translated immediately.

Frequently Asked Questions