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Employer offering voluntary buy-outs

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In order to reduce headcount, my (large) employer is starting to offer voluntary buy-outs and early retirement packages on a non-discriminatory basis to all employees in Germany. These are going in two phases — for those willing to jump on early, they’re offering a one-time payment of [monthly salary] * [years of service] * a factor of 1.8. The offer then reduces to a factor of 1.0 after a month and will continue until they get the required amount of employees. In addition, the contract you sign with HR allows you to choose an end date up to 2 years after signing. 

 

With all that said, this seems like a very attractive offer and I’m debating taking it. I’m 31 with 10 years of service (as of March 2019) and looking at a 6 figure offer through the above calculation — amounting to approximately 2 years gross salary. Some I’ve spoken to say it’d be stupid not to take the offer as finding a new job shouldn’t be too difficult, while others think I’m an idiot for even entertaining giving up the security of an unlimited employment contract at a large German company. As mentioned, this is all voluntary and open to everyone, so there seems to be no personal downside to simply ignoring this (aside I guess from the usual risks present in any organization) should I choose against it.

 

Everything I’ve read here and on other sites seems to deal with individual offers to those already being made redundant, but I haven’t seen anything regarding advice / feedback on these voluntary packages. Has anyone ever experienced such a situation here? What are some things that I should watch out for? Any thoughts on what you’d do given the above?

 

Danke im Voraus!

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I would recommend immediately talking to both a German and a US tax consultant.

You definitely will be taxed at the highest rate in Germany for that package, and you probably will be above the Foreign Earned Income Exclusion, meaning an additional US tax headache.

https://www.howtogermany.com/pages/ustaxes.html

You still might keep enough of your severance to make a nice down payment on a home.

 

What kind of work do you do? If it's IT (programming, technical sales, product manager), now is a good time to find a new job in Germany.

 

 

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Great point, thanks. Hadn’t thought about the US tax implications. Hopefully the Foreign Tax Credit will be enough to cancel that out, but I’ll for sure get in touch with my tax guy.

 

I am in IT (project management) so I’m fairly confident I could find something somewhere. We’re also toying with the idea of using this as our catalyst to move back to the US. Defimitely a lot of decisions to make in the near future.

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@Metall makes a good point.  Sometimes companies will however offer to pay out either as a lump sum or monthly over an extended period.  So you should ask them about this and then talk to tax consultants about what is best for you.

 

Also consider how you might survive the first few months.  I know my company takes time to make the payment, and this leaves people in limbo for a couple of months, so make sure that you have enough money to live on, pay rent/mortgage etc.

 

And remember that because you accept a payout from a company that it is possible that the Arbeitsamt will not accept you for unemployment payments for the first 3 months.  Sometimes the wording of the letter from the company can help, so talk to them about this (basically it should make it clear that although you are leaving of your own accord that if you didn't you would be fired!)

 

 

 

 

12 hours ago, Ben21 said:

... Some I’ve spoken to say it’d be stupid not to take the offer as finding a new job shouldn’t be too difficult, while others think I’m an idiot for even entertaining giving up the security of an unlimited employment contract at a large German company. ...

 

My company seems to go through a cutback round every year and they have just announced the one for this year!

I remember the first round of cutbacks we had in our company.  Some people jumped at the chance because they thought they could easily get a new job.  But in the end it took them one or two years in some cases.  While they could find a job, they paid much less than what they earned before, and in the end they had to accept this.

On the other hand, I know people who have just walked into another job within weeks!

 

In the end it is a decision that only you can make.  If you are flexible about which location in Germany (or beyond) you work in, then this will help you.  If you have a family for which you will be the main bread winner then you need to be more careful.  You could test the market by starting to look for new jobs now and see what is out there, and start applying to see what kind of responses you get!

 

 

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You're still young, I don't know, but pushing 60... damn, I wish I'd get offered something like this.  Would grab it in a heartbeat.

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13 hours ago, Metall said:

You definitely will be taxed at the highest rate in Germany for that package

 

Redundancy payments are subject to the Fünftelregelung, which means that, although you pay tax on the whole thing, the tax rate applied is that which would normally be used if the redundancy payment was one-fifth as large. This makes a huge difference if the payment is large.

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33 minutes ago, apel said:

Redundancy payments are subject to the Fünftelregelung, which means that, although you pay tax on the whole thing, the tax rate applied is that which would normally be used if the redundancy payment was one-fifth as large. This makes a huge difference if the payment is large.

 

Nope, it isn't as simple as that.

 

Please see here for an example of the effect of the "Fünftelregelung" with real numbers: https://www.vlh.de/arbeiten-pendeln/beruf/so-funktioniert-die-fuenftelregelung.html

Basically, the higher your personal income tax rate is, the less an effect the Fünftelregelung has, i.e. the closer you come to the Abfindung being completely taxed.

People who already have an income tax rate of 42% just because of their salary have no advantage at all through the Fünftelregelung.

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4 hours ago, PandaMunich said:

 

Nope, it isn't as simple as that.

 

Please see here for an example of the effect of the "Fünftelregelung" with real numbers: https://www.vlh.de/arbeiten-pendeln/beruf/so-funktioniert-die-fuenftelregelung.html

Basically, the higher your personal income tax rate is, the less an effect the Fünftelregelung has, i.e. the closer you come to the Abfindung being completely taxed.

People who already have an income tax rate of 42% just because of their salary have no advantage at all through the Fünftelregelung.

 

Yes, I agree, I over-simplified.

 

But if you have a large redundancy payment and a small salary in the year (for example because you've taken redundancy), it really can make a big difference.

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45 minutes ago, LukeSkywalker said:

IMO, you should take the offer and since when is a job secure with a large company these days? Look at Siemens.

 

 

I fully agree with that.  There is no such thing these days as a secure job in a big company, and I actually think sometimes it can be worse.  For example: I have seen in my company, if you are in the wrong department at the wrong time then it does not matter how good you are at your job.

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I fail to understand why you think that being made redundant and a "buy out" is any different. It's not.

 

I took the pay out a couple of years ago and would say the following: you WILL get banned from the dole for 3 months, no questions asked. The only chance they won't do this if you have a doctor's note that your health is severly affected by staying which clearly isn't the cause here.

 

US tax I haven't a notion about, but I got my payout in a different year in order to benefit. It may not matter to you and seeing as it is only January, it's probably not even doable.

If you're fairly sure you'll get another job or are moving back, sure, go for it.

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42 minutes ago, camlough said:

I took the pay out a couple of years ago and would say the following: you WILL get banned from the dole for 3 months, no questions asked. 

Of course, it's not a bonus. The pay out is there to overcome a jobless period. I would have problems as a taxpayer, if it were otherwise.

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1 hour ago, camlough said:

I fail to understand why you think that being made redundant and a "buy out" is any different. It's not.

 

I took the pay out a couple of years ago and would say the following: you WILL get banned from the dole for 3 months, no questions asked.

 

For me the difference is that they are literally opening these buy-outs to everyone in the organization. Even those in departments not tagged for downsizing are able to choose the buy-out, should they want. With redundancy I think it’s more individual in that they target specific people / areas that they want to get rid of.

 

To your other point regarding ALG I, I likely won’t be applying at all for it. If I do take the offer, I will probably begin looking seriously this summer for jobs in the US; and if I were to find something earlier than my last day, the HR guy I spoke with confirmed I could kündigen as normal and still collect the Abfindung (however the payout would be deferred until the day I agreed).

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