A lifetime working hours account (German: Lebensarbeitszeitkonto, also known as a long-term working time account or deferred compensation account) is a working time model in which employees accumulate working hours, salary components, or bonuses over the course of years and later use this balance for extended leave, early retirement, or a sabbatical. The legal basis is § 7b of the German Social Security Code Book IV (SGB IV), introduced by the Flexi-II Act of 2008. For employers, it is an attractive benefit for employee retention — with clear statutory requirements regarding insolvency protection and permissible investment forms.
Please note: The lifetime working hours account is a model rooted in German labour law. The statutory references (§ 7b SGB IV etc.) apply specifically to Germany. Companies operating internationally should consult local employment law specialists for equivalent provisions in their jurisdiction.
What Is a Lifetime Working Hours Account?
A lifetime working hours account is a long-term account on which employees accumulate working time or portions of their remuneration over an extended period — often many years or even decades. The accrued balance (the so-called deferred compensation credit or Wertguthaben) is not paid out immediately but is reserved for a later release phase: for example, for a sabbatical, a gradual transition into retirement, or extended care leave.
The model differs fundamentally from an ordinary flexitime account, which merely offsets short-term fluctuations in overtime. A lifetime working hours account is designed to span the entire career and is subject to stricter statutory requirements.
Lifetime Working Hours Account vs. Standard Flexitime Account
Legal Framework
§ 7b SGB IV – The Flexi-II Act
The statutory foundation for lifetime working hours accounts is § 7b of the German Social Security Code Book IV (SGB IV). The underlying Flexi-II Act came into force in 2008 and sets out the conditions under which deferred compensation agreements qualify for tax and social security relief.
According to § 7b SGB IV, a qualifying deferred compensation agreement requires:
- a written agreement between employer and employee,
- the balance to be designated for a future release from work duties,
- verifiable insolvency protection in place,
- the investment of the balance to comply with the statutory requirements.
If these conditions are not met, the social security relief lapses — and the balance is treated immediately as contribution-liable remuneration.
Who Can Set Up a Lifetime Working Hours Account?
In principle, the model is open to all employees subject to compulsory social insurance in Germany. It can be introduced by individual employment contract, works agreement, or collective bargaining agreement. Different or no comparable regulations apply to civil servants and self-employed individuals.
How Does a Lifetime Working Hours Account Work?
What Can Be Accumulated?
Employees can contribute various remuneration components to the account:
- Overtime and additional hours — the most common form of contribution
- Remuneration components — for example, bonuses, Christmas pay, or holiday pay
- Salary conversion (Entgeltumwandlung) — waiving part of current salary in favour of the account balance
- Portions of annual leave entitlement — to the extent permitted by statute and collective agreement (the statutory minimum holiday entitlement under German law cannot be contributed)
Important: Contributions are exempt from both income tax and social security contributions at the point of accrual. Tax and social security liability arises only when the balance is actually paid out during the release phase — the so-called accrual principle (Zufluss-Prinzip).
Permitted Investment Forms
The accumulated deferred compensation must, pursuant to § 7b SGB IV, be invested in an appropriate form. Permitted options include, among others:
- Bank deposits (e.g. fixed-term deposits, savings accounts)
- Securities (e.g. funds, bonds, equities — within the agreed risk profile)
- Life and pension insurance policies
- Company trust arrangements
The chosen investment form must be stipulated in the deferred compensation agreement. Employers bear responsibility for proper investment management.
The Release Phase: How the Balance Is Used
During the release phase, the employment relationship continues to exist legally, even though the employee is not actively working. Employees continue to receive their regular salary — funded from the accumulated balance. Social security coverage remains fully in place throughout the release phase, as contributions are calculated on the basis of the salary paid out.
Typical uses of the release phase include:
- Early retirement / gradual transition to retirement — stepwise reduction of working hours before statutory retirement age
- Sabbatical — a period of several months off work for rest, travel, or further education
- Care leave — supporting family members in need of care
- Extended parental leave — beyond the statutory entitlement
Tax and Social Security Treatment
Tax Treatment When Contributions Are Made
Contributions to a lifetime working hours account are initially exempt from wage tax. The employer does not withhold wage tax when crediting the balance. Social security contributions (health, pension, long-term care, and unemployment insurance) are likewise not due at this point.
Tax Treatment When Payments Are Made
During the release phase, the accrual principle applies: the salary paid out is subject to regular wage tax liability and full social security contributions — just like normal employment income. Employees should therefore bear in mind that the tax burden during the payout phase will depend on their applicable tax bracket at that time.
Note: The tax and social security treatment can be complex in individual cases. Personalised advice from a tax adviser or specialist employment lawyer is recommended.
Insolvency Protection — A Statutory Obligation for Employers
Why Is Insolvency Protection Mandatory?
§ 7e SGB IV requires that deferred compensation balances be secured against the employer's insolvency risk — as soon as the balance exceeds €2,520. This protection prevents employees from losing their long-accumulated savings if the company becomes insolvent.
If adequate insolvency protection is absent, the social security relief lapses: the balance is then treated immediately as contribution-liable remuneration — with corresponding back-payment obligations for employers.
Permitted Forms of Insolvency Protection
Legally recognised forms of protection include:
- Trust arrangement (Contractual Trust Arrangement, CTA) — the balance is transferred to a trustee who holds it securely in the event of insolvency
- Pledge (Verpfändung) — the invested balance is pledged in favour of the employees
- Guarantee (Bürgschaft) — a third party (e.g. a bank) guarantees the balance
- Insurance solution — protection via a life or pension insurance policy
The chosen protection arrangement must be documented in the contract and verifiably demonstrated to employees. Proof of insolvency protection must be provided to the German Pension Insurance (Deutsche Rentenversicherung) upon request at any time.
Implementing a Lifetime Working Hours Account: HR Checklist
Introducing a lifetime working hours account requires careful planning. This checklist provides HR professionals with a structured overview:
Step 1 – Fundamental Decision
- Is a lifetime working hours account appropriate for our workforce and company size?
- Are there collective bargaining provisions that need to be observed?
- Has a cost-benefit analysis been carried out?
Step 2 – Contract Design
- Written deferred compensation agreement drafted in accordance with § 7b SGB IV?
- Permitted uses (early retirement, sabbatical, etc.) clearly defined?
- Investment form and risk profile established?
Step 3 – Setting Up Insolvency Protection
- Appropriate insolvency protection arrangement selected (CTA, pledge, guarantee)?
- Insolvency protection legally established and documented?
- Employees informed about the insolvency protection arrangements?
Step 4 – Administration
- Accounting system for deferred compensation balances set up?
- External service provider (pension fund, bank, insurer) engaged? (particularly recommended for SMEs)
- Tax and social security treatment agreed with a tax adviser?
Step 5 – Communication
- Employees informed and trained on the model?
- FAQ prepared for employee queries?
- Works council (if applicable) involved?
Frequently Asked Questions About Lifetime Working Hours Accounts
What is the difference between a flexitime account and a lifetime working hours account?
A standard flexitime account serves to offset short-term overtime fluctuations over weeks or a few months. A lifetime working hours account, by contrast, is designed for long-term accumulation over years or decades. It is also subject to significantly stricter statutory requirements — in particular regarding insolvency protection and investment regulations under § 7b SGB IV.
What can I accumulate in a lifetime working hours account?
Employees can accumulate overtime, remuneration components (e.g. bonuses, holiday pay), salary conversions, and — within the limits of collective bargaining law — portions of their annual leave entitlement. The statutory minimum holiday entitlement under German federal holiday law (Bundesurlaubsgesetz, BUrlG) cannot be contributed.
How is the lifetime working hours account treated for tax purposes?
Contributions are exempt from tax and social security at the time of accrual. Tax and social security liability arises only during the release phase, when the balance is actually paid out (accrual principle). The precise tax burden will depend on the individual's income circumstances at that time.
What insolvency protection obligations apply to lifetime working hours accounts?
Under § 7e SGB IV, deferred compensation balances must be secured against insolvency once they exceed €2,520. Permitted arrangements include trust solutions (CTA), pledges, guarantees, and insurance solutions. Without verifiable insolvency protection, the social security relief lapses.
Can I use a lifetime working hours account for a sabbatical?
Yes — the release phase for a sabbatical is one of the classic uses of the account. During this time, the obligation to work is suspended, but salary continues to be paid from the accumulated balance. Social security coverage remains fully intact. You can find more on this topic in the article Sabbatical.
What investment forms are permitted for lifetime working hours accounts?
Permitted forms include bank deposits, securities (e.g. funds), life and pension insurance policies, and company trust arrangements. The chosen investment form must be specified in the deferred compensation agreement. It is important that the investment risk corresponds to the agreed risk profile.
Is a lifetime working hours account worthwhile for SMEs?
Yes, but with caveats: the administrative burden is proportionally higher for smaller companies than for large organisations. External service providers — such as banks, pension funds, or specialist providers — can take over the administration and reduce this burden. As a tool for employee retention and employer branding, the model is attractive even for SMEs, as it represents a visible and long-term benefit.
What happens to the balance if employees leave the company?
Upon leaving the company, employees are generally entitled to have their balance transferred to the new employer or to the German Pension Insurance (Deutsche Rentenversicherung). The precise transfer rules are governed by § 7f SGB IV. A cash payout is generally not possible without losing the tax and social security benefits.
Conclusion
The lifetime working hours account is a powerful tool for companies that want to offer their employees genuine flexibility across the entire arc of their working life. It allows the long-term accumulation of deferred compensation for sabbaticals, care leave, or a gradual transition into retirement — with tax and social security benefits under § 7b SGB IV.
Anyone introducing the model must take the statutory requirements seriously: a written agreement, proper investment management, and — from a balance of €2,520 onwards — verifiable insolvency protection are not optional, but mandatory. For SMEs in particular, partnering with a specialist service provider is strongly advisable.
As a benefit for attracting and retaining skilled professionals, the lifetime working hours account is growing in relevance in the context of demographic change and intensifying competition for qualified talent.
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Sources
- § 7b SGB IV – Deferred Compensation Agreements. Federal Ministry of Justice, current version. https://www.gesetze-im-internet.de/sgb_4/__7b.html
- § 7e SGB IV – Insolvency Protection. Federal Ministry of Justice, current version. https://www.gesetze-im-internet.de/sgb_4/__7e.html
- § 7f SGB IV – Transfer of Deferred Compensation Balances. Federal Ministry of Justice, current version. https://www.gesetze-im-internet.de/sgb_4/__7f.html
- Flexi-II Act – Act to Improve the Framework for Securing Flexible Working Time Arrangements. Federal Law Gazette, 2008.
- Deferred Compensation and Social Security. German Pension Insurance (Deutsche Rentenversicherung), 2024. https://www.deutsche-rentenversicherung.de
- Information on Deferred Compensation and Long-Term Working Time Accounts. Federal Ministry of Labour and Social Affairs (BMAS), 2024. https://www.bmas.de
- Flexible Working Time Models – Long-Term Accounts in Practice. Haufe Verlag, 2023. https://www.haufe.de
- HR Trends: Flexible Working Hours and Benefits. DGFP – German Society for Personnel Management, 2022. https://www.dgfp.de
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