What are the rules for Bonus payments in Germany?



Modified on: Tue, 30 Sep, 2025 at 8:32 AM

In Germany, bonuses and commissions tied to performance are subject to strict legal requirements. Employers must be especially cautious when including variable compensation in employment agreements (EAs), as doing so may create binding obligations.

To remain compliant and avoid creating unintended obligations, Horizons employment agreements in Germany include bonuses only on a discretionary basis. This means:

  • Bonuses are not guaranteed.
  • They may be awarded based on company performance or individual contribution, but are not contractually promised.
  • No fixed amount or specific targets are included in the employment agreement.

This approach reflects the legal requirement in Germany that any guaranteed bonus must include clearly defined targets and metrics. Without this level of detail, a bonus could be interpreted as a binding entitlement and potentially lead to disputes or legal liability.


Legal Context in Germany

Under German law, if a bonus is contractually guaranteed, the employer must:

  • Clearly define the bonus amount.
  • Outline performance targets and KPIs in the employment agreement.
  • Ensure targets are set timely, transparently, and documented.

Failure to do so can result in legal liability, including full bonus payouts, even if the employee did not meet performance expectations.


The Federal Labour Court in Germany ruled that:

  • Employers who fail to set targets on time may be liable for 100% bonus payments.
  • Targets set after three-quarters of the performance period are considered ineffective.
  • Retroactive target setting is inadmissible if it no longer serves a motivational purpose.
  • Courts presume full target achievement unless the employer can prove otherwise.


How to include Guaranteed Bonus

If a company chooses to include a guaranteed bonus in an EA, it must:

  • Define SMART targets (Specific, Measurable, Achievable, Relevant, Time-bound).
  • Set targets at the beginning of the performance period.
  • Document the criteria, timing, and communication of targets.
  • Be prepared to prove that targets were achievable and fairly applied.

Was this article helpful?

That’s Great!

Thank you for your feedback

Sorry! We couldn't be helpful

Thank you for your feedback

Let us know how can we improve this article!

Select at least one of the reasons
CAPTCHA verification is required.

Feedback sent

We appreciate your effort and will try to fix the article



Related Articles