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What is a vacation bonus?
A vacation bonus is understood to be extra pay towards the partial financing
of your vacation. The trend towards vacation bonuses started in the 1960s. Back then it was introduced through collective agreements in some industries, so that employees could afford an annual vacation. In economically difficult times, many people use the vacation bonus as a financial buffer.
Important: A vacation bonus (Urlaubsgeld) is not the same as vacation pay (Urlaubsentgelt) - unlike the vacation bonus, vacation pay is required by law and means your salary continues to be paid while you are on vacation.
Entitlement to a vacation bonus
A vacation bonus is not mandatory. It is, however, laid down in some collective agreements. In 2022, 74 percent of employees in the private sector across Germany received a vacation bonus. Outside companies bound by a collective agreement it was only 34 percent. More than half of all employees working in Germany received no vacation bonus.
Who is entitled to a vacation bonus?
So a vacation bonus is only owed to those for whom it has been laid down in
- their employment contract
- the works agreement
- or a collective agreement
one of these documents.
The collective agreement depends on the industry and sets the amount of the vacation bonus and who is entitled to it.
A vacation bonus can also be governed by works agreements if the company is not bound by a collective agreement.
Another option is the employment contract. Here the vacation bonus can be agreed individually for particular employees.
In some companies the vacation bonus is paid purely voluntarily. The employer then sets the amount and the frequency depending on its financial situation. But without a contractual commitment there is also no direct entitlement to this vacation bonus. Employers are free to discontinue it again.
How much vacation bonus is usual?
Because the vacation bonus is not mandatory, there is no general amount either. Collective agreements differ from industry to industry, so the size of the vacation bonus can vary widely.
In many cases the vacation bonus depends on the location and the size of the company. It is also significantly lower on average in eastern Germany.
Salary plays a role too: employees on higher incomes often receive a higher vacation bonus, or are generally more likely to get one at all.
Important: When setting the vacation bonus on a voluntary basis, the equal treatment act under employment law (arbeitsrechtliches Gleichbehandlungsgesetz) must be observed. Differences in the amount of the vacation bonus should therefore only arise for objective reasons, such as workload.
Payment and calculation of the vacation bonus
How is the vacation bonus paid out?
Employers are free to decide when the vacation bonus is paid out. In some cases it is set out in a collective agreement. If they choose voluntarily to pay a vacation bonus, they can pay it either monthly or once a year.
How do I calculate the vacation bonus?
If the vacation bonus is set out in a collective agreement, the calculation can be found in the relevant passage of that agreement. The same applies where the vacation bonus has been laid down in the employment contract or in the works agreement.
How is the vacation bonus taxed?
From a tax perspective the answer is clear: yes, the vacation bonus has to be taxed. For employees this is usually unproblematic, because the employer automatically pays the tax and social security contributions due as part of payroll. One thing to note: social security contributions are only due up to the so-called contribution assessment ceiling (Beitragsbemessungsgrenze).
The vacation bonus as a special payment
Where the vacation bonus is granted as a one-off special payment, particular rules apply to the wage tax calculation. In this case tax progression is applied:
- First the employer calculates the wage tax on the expected annual income without the vacation bonus.
- Then the wage tax on the annual income including the vacation bonus is calculated.
- The difference between these two amounts is the wage tax attributable to the vacation bonus itself.
This method often means the vacation bonus is taxed more heavily than the regular monthly salary. That is due to progression, under which higher incomes are taxed at a higher percentage.
If the vacation bonus is not paid as a single payment but spread across the year, it is taxed like normal wages. The tax burden is then spread evenly, and no additional progression-related tax arises.
Vacation bonus for mini-jobs
Special rules apply to mini-jobbers, because their income must not exceed a monthly ceiling of €556 (as of 2025). The vacation bonus counts as part of income and can lead to that limit being exceeded. If that happens, the mini-job turns into an employment relationship subject to social security contributions, and contributions become payable.
Are there tax-free options?
In principle the vacation bonus is taxable, but there are exceptions in which special payments can be tax-free:
- Employers can grant tax-free subsidies or allowances that are earmarked for specific expenses such as travel or further training.
- Instead of a cash payment, employers can grant benefits in kind (e.g. vouchers of up to €50 a month), which are tax-free under certain conditions.
- Some industries or fields of work (e.g. social or care professions) occasionally benefit from special tax rules for allowances. Here it is worth looking at industry-specific collective agreements.
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