Digital work-credit accounts – Innovative, flexible, and lifelong


In light of recent demographic and economic developments, both companies and employees alike are beginning to appreciate the benefits of a more flexible work life. With work-credit accounts, you can take the wishes of employees into account by offering greater flexibility in terms of their working hours. Studies show that the ability to take sabbaticals is playing an increasingly important role in the choice of employer (especially among younger employees), along with prospects for early and partial retirements. In fact, more and more employees are opting for partial retirement or taking advantage of the “retirement at 63” plan, especially if they have been in the workforce for an extremely long time.

The widespread use of work-credit account plans has been given an additional boost by the fact that employees can now transfer the balances of their work-credit accounts to a company pension plan or a new employer.

Work-credit account plans are flexible corporate instruments that allow employers and employees to devise early retirement solutions and/or define periods of time off during an employee’s work life. In short: with work-credit accounts, you can stand out as a modern and innovative employer.

How it works

With work-credit accounts, employees accumulate “credit” during their active work lives that can be used to finance sabbaticals or early retirement. Contributions to the accounts are made in units of time (e.g., overtime) and/or units of money (e.g., bonuses). Depending on their intended purpose, a distinction is made between lifetime work accounts, which are used to finance early retirement, and flexible time accounts, which are used to arrange sabbaticals during the employee’s work life. The accumulated credit of work-credit accounts must be protected against the potential insolvency of the employer. Since the accrual principle applies, the credit is only subject to social security contributions if it is used by the employee. Furthermore, once the credit reaches a certain value, the potential social security contributions of the employer must also be safeguarded against insolvency. As described above, the purpose of a work-credit account is to pay for time off while continuing the employment relationship. If the account is used for any other purpose, a so-called “incident” occurs and the full amount of the social security contributions must be paid at once.

In order to account for such incidents, a so-called “social security buffer” must be kept that corresponds to the amount of the income subject to social security contributions during the incident.

Individual contracts or company agreements between the employer and the employee (or a representative of the employee) are used to initiate and deploy work-credit accounts at companies. The employer must inform the employee at least once per year of the current value of the credit, as well as the social security buffer on the work-credit account (i.e., statement of account). HR departments, in particular, are affected by the additional tax, labor, and social security-related requirements associated with the management of work-credit accounts. This fact, in addition to the legal obligation to provide insolvency protection for the credit balances, leads many companies to outsource the management of work-credit accounts to external providers such as consulting firms and investment companies.

Powerful management software with a web portal is a must!

If you decide to manage work-credit accounts in-house, then a powerful management tool is a must. This tool must be able to cover the special requirements involved in the administration of current work-credit account plans. 

Ideally, the system will be highly automated and support the entire life cycle of a work-credit account – from its setup to the definition of insolvency protection parameters and the closure of the account in the event of an incident or a leave of absence. 

The software should also allow for certain standard processes to be controlled and executed automatically:

  • Processing of data, logs, reports
  • Execution of processes (generation of orders, processing of receipts, posting to virtual employee accounts)
  • Regrouping of assets
  • Distribution of earnings
  • Detection of exceeded parameters

Work-credit accounts designed to make work life more flexible are defined as individual contracts between employers and employees, or in the case of larger companies, in the form of company agreements.

With such agreements, virtual accounts must usually be set up to manage the employee’s contributions (credits). In the case of a participation model (money model), units of time are converted into units of money using the hourly rate, such that changes in value correspond to changes in the hourly rate.

Changes in the value of credit in work-credit accounts subsequently play an important role in the medium to long-term, regardless of the type of contribution. A so-called “investment plan” is used as a framework for the agreement between the employer and the employee.

The following should be defined in this plan:

  • Specification of monetary (participation) or time (career) model
  • Frequency of contributions
  • The invested product
  • Potential discrepancies in value (according to the type of contributions)
  • Management of the social security buffer
  • Definition of liability and protection modalities
  • Management of business processes by the employer

Financial instruments

The software must be able to manage all the financial instruments available on the market. Currently, these are the following:

  • Funds
  • Life-cycle models
  • Insurance products
  • Hybrid products

The software should also be able to automatically record exchanges of data with the respective product provider, as well as provide the precise value of the work-credit account on any specific date.

Calculation of the social security buffer

As mentioned above, the social security buffer plays an important role in the management of the tax and social security-related aspects of work-credit accounts.
In order to cover “incidents” (unscheduled payments of credit), this buffer must be perfectly calculated and managed at all times.
Incidents include the following:

  • Termination of the employment relationship
  • An employee’s incapacity to work or occupational disability
  • Death of the employee
  • Insolvency of the employer

As described above, in the event of an incident, employers are required to make an additional contribution to the credit balance and to pay the corresponding amounts to the respective social security authorities (“social security buffer”). In the event of insolvency of the employer, a trustee usually takes over the processing and payment of the contributions.

The software must therefore also be able to take into account these processes, as well as do the following:

  • Calculate the social security buffer in accordance with the “sum field” or “option” model;
  • Generate the payment process;
  • Create an incident report containing the information on the credit value and the social security buffer.

Insolvency protection

Insolvency protection is a complex issue. It is therefore important to choose software that helps you reduce the complexity of insolvency-related processing, all the while complying with insolvency protection and information obligations, which are explicitly outlined in the amendments to the German “Flexi Act” and “Partial Retirement Act” (AltTZG).
You need a system that can automatically trigger processes in the event of “insolvency” and therefore keep your overall administrative work (and that of trustees) to a minimum.

In addition, the software should cover the most commonly used insolvency protection models on the market:

  • Fidelity insurance
  • Surety models
  • Trust models with external capital investments
  • Security models

Overview of the benefits and advantages of modern system software for the management of work-credit accounts:

  • Account management in units of money and/or time
  • Custom creation of investment strategies and liability solutions
  • Administration and calculation of the social security buffer in accordance with the “sum field” or “option” model
  • Processing of incidents
  • Use of common insolvency protection models
  • Comprehensive document management and reporting
  • Periodic account balance notification (and as required)
  • Powerful and customizable (with regard to corporate design) web information portal for employers and employees
  • Optional web information portal for trustees and intermediaries
  • Convenient connection to existing system architectures via interfaces
  • Simultaneous administration of other work-time flexibility models

The information regarding employers above also applies to investment companies, insurance companies, and consulting firms that manage work-credit accounts. For these companies as well, it is vital that the software assist with all the necessary business processes.

In addition to the standard administration of work-credit accounts, the tool should also help with the administration of:

  • CTA models
  • Partial retirement plans
  • Direct commitments with fund-based capital investments

Expert consultants can help…

Look for a consulting firm that can help you set up your work-credit accounts, and if necessary, manage them. Otherwise, an expert software partner can provide you with a platform that will allow you to administer them internally. 

Here is a checklist of the tasks that the software should allow you to perform by yourself:

  • Configure employees (manually or by uploading data)
  • Create and manage users
  • Report contributions (manually or by uploading data)
  • Record leaves of absence
  • Record incidents
  • Request reports
Want to learn more about this topic? Our expert Jens Gustenhoven, Senior Business Developer, will be happy to help.

Do you have any questions or comments? Then please leave us a comment.

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