Relief Bonus Failed: Bundesrat Refuses Approval – What Employers Need to Know and Do Now
On 8 May 2026, the Bundesrat unexpectedly refused to approve the draft legislation on the tax-free relief bonus (Entlastungsprämie). The federal states justified their rejection on the grounds that they, together with the municipalities, would have had to bear the majority of the resulting costs. As a result, the legislation, which the German Bundestag had only passed on 24 April 2026, has failed for the time being. Employers are now faced with the question: What does this mean in practice, and how should they position themselves?
Background: What Was Planned?
The legislation provided that employers could grant their employees a tax- and social security contribution-free relief bonus of up to EUR 1,000 in the form of allowances and benefits in kind until 30 June 2027. The bonus was intended to mitigate the impact of rising consumer prices and followed the proven model of the earlier inflation compensation bonus (Inflationsausgleichsprämie). Employees had no legal entitlement to the payment – the decision as to whether and in what amount the bonus would be paid was to rest solely with the employer.
Current Situation: Why the Bundesrat Blocked the Legislation
The rejection by the Bundesrat was politically motivated. The federal states consider themselves – together with the municipalities – to be exposed to a disproportionate cost burden, as the tax exemption would have led to significant revenue shortfalls in income tax, the proceeds of which are shared jointly by the federal government, the states, and the municipalities. The Federal Government has since announced that it intends to adhere to its plan and will decide on the next steps in the near future. Several scenarios are now conceivable: a referral to the Mediation Committee (Vermittlungsausschuss) and renegotiations with the states regarding compensation for the tax revenue shortfalls or – in the worst case – a definitive failure of the initiative.
Recommendations for Action for Employers
1. No Payment Without a Legal Basis
The legislation has not entered into force. There is currently no legal basis for a tax- and social security contribution-free relief bonus. Payments that employers now make under the designation “relief bonus” (Entlastungsprämie) are subject to regular tax and social security contributions. Employers should therefore refrain from making any payments and wait until the legislation has actually been promulgated and entered into force. This applies even if budgets have already been approved internally or communication measures have been prepared.
2. Put Internal Plans on “Standby” – Do Not Abandon Them
Many companies have already developed distribution models, drafted works council agreements (Betriebsvereinbarungen), or at least initiated budget approvals in anticipation of the legislation. This preparatory work is not wasted. The Federal Government has signalled that it intends to pursue the initiative. We therefore recommend not discarding the internal plans but rather converting them into a “ready-to-deploy” concept. Should the legislation enter into force at short notice following an agreement in the Mediation Committee, this will provide a considerable time advantage in implementation.
3. Involve the Works Council Early – Even Now
For companies with a works council (Betriebsrat), the following applies: The distribution of such a bonus is subject to the co-determination right under Section 87(1) No. 10 of the Works Constitution Act (BetrVG). The involvement of the works council in determining the distribution criteria, identifying the eligible employee groups, and setting the payment modalities requires the conclusion of a works council agreement (Betriebsvereinbarung). This coordination process typically takes time. Employers should therefore already now – on the basis of a draft works council agreement – seek discussions with the works council in order to be ready to act immediately upon the legislation entering into force. The fundamental decision as to whether a bonus will be paid at all and in what total amount remains solely with the employer and is not subject to co-determination.
4. Ensure Equal Treatment in Distribution
Those who use the preparation time should already now measure the planned distribution criteria against the employment law principle of equal treatment (Gleichbehandlungsgrundsatz). Differentiation is permissible – for example, a graduated scale based on income level, scope of employment, or actual work performance. A restriction to certain employee groups may also be possible, provided there are objective reasons. However, arbitrary distinctions or groupings based on irrelevant criteria are not permissible. In the event of violations, there is a risk of “upward adjustment”: disadvantaged employees could then demand to also receive the full bonus, which can cause considerable additional costs.
The case law on the earlier inflation compensation bonus (Inflationsausgleichsprämie) provides valuable guidance in this regard. In particular, it should be noted that, according to the case law of the Federal Labour Court (Bundesarbeitsgericht), the blanket exclusion of employees in the release phase of partial retirement (Altersteilzeit) is impermissible, and fixed-term employees may not be excluded without objective justification.
5. Manage Employee Communication
Particularly in larger companies and corporate groups, employee expectations are high following the public debate. Employers should communicate proactively and transparently: The legislation has not yet entered into force, but the Federal Government continues to pursue the initiative. A premature commitment to the bonus – for example at works assemblies or in internal communications – should be strictly avoided.
Conclusion
The blockade in the Bundesrat is a setback, but not a definitive end. Employers should closely monitor the situation and maintain their internal preparations without prematurely creating facts on the ground. Those who set the right course now – particularly with regard to works council agreements and distribution concepts – will be able to act quickly and with legal certainty once the legislation enters into force.
We are closely monitoring further developments in the legislative process and will inform you promptly as soon as the situation becomes clearer.
