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Parental allowance and additional income

24.06.2020

As a state compensation benefit, parental allowance replaces about 65% of the prenatal net income. With Parental Allowance Plus it is even only half of that.

This often enormous financial cut brings many parents to the limit of what is financially feasible, which is why many parents ask themselves whether, and if so how much, they can earn during parental leave or parental allowance.

This article deals with this topic in detail and provides valuable tips and tricks on how to best master the issue of parental allowance and additional income:

Employed and additional income from parental allowance

Income from employment is generally relevant to parental allowance, i.e. those who receive parental allowance and also have income from employment must provide the parental allowance office with proof of additional income (weekly hours and gross income). Proof is regularly provided in the form of an employer confirmation.

By the way, it is irrelevant here whether the job is a mini-, midi- or "regular" job.

Note:
Only those wage types that have also increased the parental allowance in the assessment period count. If you receive other payments such as bonuses while receiving parental allowance, your parental allowance won’t be reduced.

Tip:
First find out your optimum Parental Allowance Plus gross amount. Then make an agreement with your employer to pay you the optimum Parental Allowance Plus gross amount as a regular taxable income. All other benefits should be paid to you as miscellaneous/one-off payments. In this way, you can receive Parental Allowance Plus free of charge. The requirements of the employment tax guidelines for wage type taxation must of course be fulfilled.

Therefore: Contact your employer.

"If you plan your parental benefit period and additional income early, you will get the most out of it and will not be surprised later on.”

Self-employment and additional income with parental allowances

Self-employed persons, tradespeople and farmers or foresters have enormous potential for shaping their income situation while receiving parental allowance. They may work up to 30 hours a week and submit a profit calculation for the specific period during which parental benefits are paid. In particular, if you calculate your profit according to the principles of § 4 para. 3 of the Income Tax Act (so-called profit surplus calculation), you can have a positive influence on your operating result (= Profit) during the parental allowance period by influencing the inflow of operating income.

Example self-employment and gap in the reference period:

The mother is self-employed and receives basic parental allowance for the months of life 1-6 and 8-13. She works about 10 hours a week in the months of life 1-6, but settles her work at the end of month of life 6. The inflow of income to her business account takes place in month of life 7 (so-called gap formation). In the months of life 8-13 she works about 20 hours per week and settles her accounts at the end of the 13th month of life. The inflow of income takes place in month of life 14, i.e. also outside the reference period.

Now she submits profit determinations for the months of life 1-6, as well as 8-13, from which a tax loss is recognizable, because the operating expenses exceed the income. Thus she could be employed part-time, receive her full parental allowance and even make profits.

The regulations on parental allowance can be very complicated. Get professional advice. Here you can access our parental benefit advice service.

Working while receiving parental allowance

Rumours about the possibilities of employment during parental allowance are persistent. We hear false statements such as "during basic parental allowance you are not allowed to work" or "during Parental Allowance Plus you have to work" again and again. The rules for Basic Parental Allowance and Parental Allowance Plus are clear:

1) Maximum 30 hours per week

The 30 hours-per-week limit applies to all types of parental allowance, i.e. to both basic parental allowance and Parental Allowance Plus. The weekly hours are to be regarded as an average value in the month of life. This means that it is possible to work 40 hours a week without any problems if fewer hours are worked elsewhere.

Exception:
Incidentally, gainful employment for employment during vocational training (apprenticeship, studies, etc.) and for day care persons who do not look after more than five children in day care are exempt from the limit.

How does the Parental Benefit Office check the working hours of employees?

In order to check whether the working time limit is observed, the Parental Benefit Office determines the working hours to be taken into account ex officio. The hours actually worked are decisive. Overtime must be taken into account in the same way as any undertime. On the other hand, times in which earned income is received without work performance must be taken into account, in particular holidays, public holidays, times of a prohibition of employment outside the protection periods before or after delivery and sick days with continued wage payment.

Periods of leave to care for a sick child must also be taken into account. In this case, the contractually agreed working time attributable to these periods is regarded as working time. In the case of a five-day week with 30 hours per week, for example, this would be 6 hours per day of leave.

If residual leave from full-time employment is taken during part-time employment, the planned working time applicable during part-time employment is to be taken as the basis for each day of leave. Periods of work that do not count as working time according to the Working Hours Act (Arbeitszeitgesetz) (e.g. periods of on-call duty) are not taken into account as working hours.

If a person does not work more than 30 hours in any one week, the permissible weekly working hours are observed. If this is not clear, the parental allowance offices usually use two methods to check whether the working hours have been observed:

1. monthly calculation by calendar days, since it is sufficient if the weekly working time does not exceed 30 hours on average in any month:

Here, all the working hours to be taken into account in the reference month (monthly working hours) are added together. The total calculated in this way is compared with the permitted working time in the reference month; the permitted working time must not be exceeded:

For 28 days in a month of life, the permitted working time is 120 hours, for 29 days 125 hours, for 30 days 129 hours and for 31 days 133 hours.

2. in the case of a disproportionate number of working days in a reference month, a monthly calculation based on working days.

If a person in an employment relationship never works on certain weekdays (for example, never on Saturdays and Sundays within the framework of a five-day week) on the basis of a working time regulation, collective agreement or employment contract, the parental allowance office checks whether the person has not worked on average more than is permitted weekly on the agreed working days.

If the monthly working time in a reference month exceeds the maximum number of hours permitted according to the calendar day calculation, this may be due to the fact that in the month of life in question there is (coincidentally) a disproportionate number of agreed working days. In such cases, it is checked whether the maximum permissible working time has been observed on average over the working time of the month in question.

On the basis of the part-time agreement (employer's certificate), it is checked on how many and which days of the week are worked. Then the average maximum permitted number of working hours per day for the parent is determined by dividing the total permitted average number of hours per week (30) by the number of agreed working days (five in the example). The result is then multiplied by the number of working days in the actual month of life, which are bindingly defined in the part-time work agreement.

Example:
A five-day week results in an average maximum permitted number of working day hours of 6 hours (30 hours per week divided by 5 working days). This must be multiplied by the number of agreed working days falling within the reference month.

For a five-day week, 22 working days result in a permissible working time of 132 hours and 23 working days in 138 hours.

A three-day week results in an average maximum permissible working day of 10 hours (30 hours per week divided by 3 working days). This must be multiplied by the number of agreed working days falling within the reference month.

A three-day week results in a permissible working time of 140 hours for 14 working days and 150 hours for 15 working days.

The duration of employment and the weekly working time must be proved by a certificate issued by the employer.

Conclusion
As a rule, the working time limit is verified by an informal certificate from the employer. Only if there are justified doubts about the actual implementation (e.g. higher salary than agreed, indication of longer employment) does the Parental Benefit Office request further evidence of the actual working time (e.g. copy of the hours account).

Note:
For many occupational groups, regulations on the assessment of working time or the extent of working time deviate from the classic model of working hours. Depending on the job, the calculation is based on compulsory hours, flying hours, maximum workload limits, or even on the number of hours worked (case numbers).

The regulations made in the individual case follow the needs of the occupational field and can result from service agreements, collective agreements, EU law or national regulations.

If, during the examination of the parental allowance application, it emerges that there may be special working time regulations, the maximum number of hours allowed is checked by linear conversion. In relation to a full-time working time of 40 hours, 30 hours correspond to an earning rate of 75 percent, 25 hours (e.g. in the case of the partnership bonus) to an earning rate of 62.5 percent.

Example:
The father is a teacher with a compulsory 27-hour work schedule: With a basic compulsory number of 27 hours per week for teachers, an employment volume of 30 working hours corresponds to an employment volume of 20.25 compulsory hours (27 * 0.75). An employment of 25 working hours corresponds to 16.875 hours.

How does the Parental Allowance Office check the working hours of self-employed persons?

Self-employed persons are also only allowed to work up to 30 hours per week. This does not include work in their own household. Applicants must declare that they do not exceed this limit and provide credible proof of this. To do so, they must explain the extent of their working hours and what precautions have been taken in the company to compensate for the reduction in their activity (e.g. hiring a replacement, taking over tasks from existing employees, reducing the number of orders carried out in favour of childcare, etc.).

Conclusion:
As long as self-employed persons can plausibly demonstrate their working hours, parental allowance offices have no problems following the application in the majority of cases. A working time account or similar is therefore not to be kept separately.

2) Creditable income

When asking which income is taken into account for parental benefit, a distinction is first made according to the type of income (employee or profit income). Which income is relevant for parental allowance is shown here:

Employed (also mini- and midi-job)

  • Current and flat-rate taxed salary
These are according to the wage tax guidelines:

Current pay is the pay that the employee receives on a regular, continuous basis, in particular:
  • monthly salaries,
  • Weekly and daily wages,
  • overtime pay,
  • Supplements and allowances,
  • non-cash benefits from the permanent provision of company cars for private use,
  • subsequent payments and advance payments, if these relate exclusively to wage payment periods ending in the calendar year of payment,
  • Wages for wage payment periods of the previous calendar year, which accrue within the first three weeks of the following calendar year.
Self-employed

  • The taxable profit, i.e. the surplus of operating income over operating expenses, can be credited.
Operating income is all operating income that is generated for operational purposes, including income from main, auxiliary and secondary business, in particular
  • current sales revenues
  • received sales tax
  • Proceeds from the sale of fixed assets
  • Free of charge value levies
  • and counting

3) non-eligible income - tip

There are ways of earning income while receiving parental allowance that do not reduce the parental allowance. Everyone should at least check whether they have the possibility to make use of this potential.

Normally, the principle applies that what did not increase the parental benefit during the prenatal period must not reduce it during the reference period.

Employees in particular benefit

Tax-exempt wage components can be received in parallel with parental allowance in the same way as other/one-off payments without affecting parental allowance.

According to the employment tax guidelines, other payments are the wages that are not paid as regular wages. Other payments include, in particular, one-time wage payments that are paid in addition to the current wage, for example :

  • thirteenth and fourteenth month's salary,
  • one-off severance payments and compensation,
  • gratuities and royalties that are not paid on an ongoing basis,
  • Anniversary bonuses,
  • holiday allowances not paid on a continuous basis and compensation to compensate for holidays not taken,
  • Compensation for inventions,
  • Christmas benefits,
  • back payments and advance payments, if the total or partial amount of the back payment or advance payment relates to wage payment periods ending in a year other than the year of payment, or, if wages for wage payment periods of the previous calendar year accrue later than three weeks after the end of that year,
  • Compensation payments for the advance payments made during the working phase due to a block model part-time employment contract for older employees that is terminated before the end of the agreed period,
  • payments within a calendar year as quarterly or half-yearly instalments.

Tip:
Try to negotiate your options with the employer. In the best case, agree on a basic salary in the amount of the optimal Parental Allowance Plus gross. The "optimum" Parental Allowance Plus gross amount] and the rest is paid out in non-eligible wage types (e.g. in the form of bonuses).

Income types that are not relevant

Income from private asset management (e.g. from letting and leasing or from capital assets) is not taken into account for parental allowance, nor is other income (e.g. private sales transactions).

This means that you can receive your rental income, your interest or even your outstanding profit distributions from corporations without being credited parallel to the parental allowance.

Caution with pensions or other (income-replacing) benefits

Although pensions and similar items are classified as other income for income tax purposes (§ 22 of the Income Tax Act) and are therefore not relevant to parental allowance, caution is advised here.

Since parental allowance is a compensation benefit, it cannot be received in parallel with other compensation benefits. This applies in particular to maternity benefits, accident insurance benefits, etc. In the case of pensions, you must therefore check exactly what form of pension is involved, in other words, whether the pension has a pay-replacement character or not.

Additional income for basic parental benefit

It is generally not worthwhile to earn additional income during basic parental allowance, because theoretically there is no credit-free amount (except for about €105 gross for employees). This means that the value of your additional income decreases sharply, which means that the effort to generate the income is usually not worthwhile.

Example: Additional income basic parental allowance

The easiest way to illustrate this is to use an example:

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In the example, the basic parental allowance of the mother is EUR 1,784.15. She is now considering a 450 EUR job from the age of 7 months. If she continues to receive basic parental allowance, she will "only" receive EUR 1,580.92 per month of life. That is 203.20 EUR less, just because of a 450 EUR job.

The additional income of 450 EUR per month is therefore "only" worth 246.80 EUR.

The mother should consider whether she draws 7 Parental Allowance Plus from the month of her life, in which case her parental allowance will not be reduced. The only disadvantage here is that the parental allowance will continue until the child reaches 18 months of age, but perhaps this will suit her very well.

You must always check in each individual case whether it is worthwhile earning extra money while receiving basic parental allowance. There are also situations in which we recommend the basic parental allowance despite a reduction (see for example here: Parental allowance and company car).

Additional income with Parental Allowance Plus

With Parental Allowance Plus, the additional income is immediately more interesting. This type of benefit was created by the legislator in 2015 to make it worthwhile to earn additional income while receiving parental allowance, because until then, the crediting dynamics were the same as for basic parental allowance, regardless of the time at which additional income was earned.

But beware: Parental Allowance Plus also has disadvantages, for example that it delays the receipt of parental allowance for much longer (which makes it "less free" to work full-time again or generate income without "worries") and is limited to half of the basic parental allowance. As a result, many parents are "too short" financially for too long, and this is where the legislator could start by simply increasing the Parental Allowance Plus (additional income bonus or similar).

Example: Additional income Parental Allowance Plus

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We take the same example as for the basic parental allowance. The EUR 450 job during the Parental Allowance Plus period does not result in a reduction in parental allowance. This means that the mother can earn EUR 450 during the months 7-18 and still receive EUR 892.08 Parental Allowance Plus (half of the basic parental allowance).

Parental Allowance Plus is particularly worthwhile for parents who
  • already earn (want to earn) additional money before the 12th month of life,
  • have a high level of jointly assessed taxable income, or
  • would like to be on parental leave for as long as possible and receive monthly parental benefit.

The "optimal" Parental Allowance Plus gross amount

Up to a certain value, you can earn additional money during a Parental Allowance Plus payment without being credited. However, you cannot do this indefinitely; there is a limit above which the Parental Allowance Plus is also reduced.

We call this limit the "optimal Parental Allowance Plus gross amount". It is basically the gross additional income that you can earn during Parental Allowance Plus without the Parental Allowance changing.

"If you can take advantage of your "optimum Parental Allowance Plus gross", you should take advantage of it."

In simple terms, you can earn half of your prenatal net parental benefit during Parental Allowance Plus (in net terms). However, it is almost impossible to determine this value specifically for yourself in parental benefit planning and Internet research, as the calculation of the additional parental benefit is very complex.

In our specially developed parental allowance software, we have developed an additional income calculator that calculates your "optimal Parental Allowance Plus gross amount" for your situation. And it does this in a matter of seconds.

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In our example, the mother can earn up to EUR 1,833 gross without her Parental Allowance Plus being reduced from EUR 892. However, if she earns an additional EUR 4,000 per month, her parental benefit is reduced to EUR 150 (minimum amount for Parental Allowance Plus):

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Our additional income calculator is worthwhile for those who are considering earning a little extra while receiving parental allowance and for those who would like to apply for the partnership bonus.

Report additional income retroactively

You are not yet sure if and when you want to take up part-time work?

We recommend that you first apply for parental allowance without part-time work, as you can easily notify the Parental Allowance Office later if you wish to take up work, but you should definitely notify the Parental Allowance Office in good time before you start work.

In this case, you should first apply for as many basic parental allowance months as possible. If necessary, you can later convert these into Parental Allowance Plus months (this only works for months of life that are still in the future at the time of the change).

If you know later when you want to start part-time work, it is best to tell us the number of hours per week and your expected earnings. As a rule, these must be certified by the employer or, in the case of self-employed persons, credibly stated/forecast.

If you do not report part-time work until later or not at all, this is at least an administrative offence. We advise against this.

Tips and advice

Parental allowance and additional income can be very complicated in some places. Here we give you a few tips for special cases:

Company car and other benefits in kind

Monetary benefits are usually taxed as current taxable income in the salary statement. This means that the imputed income reduces the parental allowance in the reference period.

If you can continue to use your company car while receiving parental allowance, your parental allowance will be reduced proportionately. If the employer pays the running costs (petrol, repairs, washing, inspection, etc.) in full, it is possible that the reduction in parental allowance will be compensated for in view of these savings.

Therefore, check carefully, for example with the help of our additional income calculator in the parental benefit software, how high the actual parental benefit reduction is in this case, so that you can estimate whether the "loss" in parental benefit will be compensated in view of the ongoing benefits.

If the difference is not in proportion, for example due to a very high gross list price, you should consider applying for Parental Allowance Plus or officially giving up your company car for the period of parental leave. The latter is proven by an employer's certificate.

Photovoltaic system

Income generated because of a photovoltaic system is usually income from commercial operations. The profit (surplus of the income over the business expenses) reduces the parental allowance proportionately.

If possible, try to arrange the payments from the energy providers in such a way that you receive the income outside the parental allowance reference period. For example, if you receive monthly deductions, this variant is more difficult than if you only receive the bill once a year. If you know the exact date of the annual statement, you can simply plan for a "gap" in the parental allowance in the month of your life and the photovoltaic system would no longer reduce the parental allowance.

Nevertheless, even in this variant you will still have income during the reference period without being actively employed yourself. This income and the corresponding profit (would be a loss in this case) must be declared when submitting the parental allowance application.

Good planning and consultation with the energy provider, which should take place in good time before the birth, is particularly important here.

Co-entrepreneurs in partnerships (GbR, oHG, KG, etc.)

In the past, the special income tax circumstances of partnerships have regularly challenged the parental allowance law.

Due to the so-called transparency principle, the partner is deemed to have received the profit that the company generated in the corresponding period, in proportion to his share. As a result, there were parents who were not gainfully employed, but still generated income from employment and were therefore often only entitled to minimum amounts.

The Parental Allowance Office therefore applied a lump sum by setting the annual profit share of the shareholder pro rata in the reference period against the parental allowance claim. This led to considerable injustice, which is why a tax adviser concerned successfully brought an action against it before the Federal Social Court in December 2018 (reference number: BSG ruling of 13.12.2018 - B 10 EG 5/17 R).

As a result, co-entrepreneurs in partnerships can now reduce their share of profits to 0% during the parental allowance period (an informal shareholder resolution is sufficient for this purpose), which means that you can receive full parental allowance. The only other prerequisite is that you do not make any withdrawals from the partnership during the reference period.

Tip:
Co-entrepreneurs in partnerships should definitely plan their parental allowance payments in detail and discuss them with the co-owners before the reference period. Otherwise, the regular parental benefit entitlement is at great risk. Let us advise you.

Managing Director

A further special feature of the law on parental allowance is that the managing partners of corporations are shareholders. In particular, if they have sole power of representation, they are faced with an enormous potential for shaping the situation when it comes to parental allowance payments.

Our basic recommendation here is probably to set a current gross income at the "optimal Parental Allowance Plus gross" and to make the most of the possibilities of other/one-off payments.

Alternatively, a basic parental allowance can be very well optimised by means of on-call services for the corporation, which are remunerated with premiums on a one-off basis.

Here, too, you should seek advice so that you can apply for your basic parental allowance in the best possible way.

Minimum amount from the start

It happens very often that parents cannot manage their additional income in the reference period and inevitably fall to the minimum amount of 300€ (basic). Particularly affected are insurance brokers, who receive monthly commissions from their brokerage contracts, and retailers with retail shops or online shops, who generate the daily sales revenue. Often these groups of people have little or no opportunity to generate accounting losses in the reference period. In these cases, in order to save bureaucracy from the outset, you should apply for the minimum amount right away.

Tip:
However, you should definitely talk to your tax advisor beforehand to check out all possibilities. Perhaps he will recognize potential that you can use.

Please note:
The minimum amount, which is independent of earned income, is not a compensation payment but just a social benefit. This means that no proof of income is required, neither for the assessment nor for the reference period. The only conditions that have to be proven here are that

  • you have your residence/ordinary stay in Germany
  • you live in the same household as the child while receiving parental benefit
  • you do not work more than 30 hours per week during the reference period, and
  • you have not exceeded the income limit (€500,000 taxable income for couples) in the calendar year preceding the birth

Unfortunately, we have often seen parental allowance offices which have nevertheless demanded further proof of income. We recommend not to comply with these requirements. Also, the "declarations of income" of the parental allowance applications do not have to be filled out in detail in these cases.

FAQ: Parental allowance and additional income

How much can I earn in addition to the parental allowance?

Unfortunately it is not possible to give a general answer here. There is income that is free of charge and income that can be taken into account. In addition, during Parental Allowance Plus, you can earn about half of your prenatal net income without taking it into account.

Does a 450 EUR job count towards the parental allowance?

Yes, unless you only earn tax-free wage types. A mini-job is generally hardly worthwhile while basic parental allowance, but much more so with Parental Allowance Plus.

How much can I earn with Parental Allowance Plus?

You can earn about half of your prenatal net income free of tax while earning Parental Allowance Plus, but the calculation is very complex. Please use an additional income calculator to calculate your "optimum gross income".

Too complicated? - Our tip

The parental allowance rules can be complicated. Make it easy and, like many other parents, use our services to get the most out of your parental allowance. We offer you many possibilities to make your application for parental leave as easy and uncomplicated as possible:

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