The UK is officially in a recession, and countries across the European Union are not far behind.
Inflation in the UK is at a forty-year high of 11.1%, while Germany’s inflation rate hit 10.4% in October 2022, up 0.9% on the previous month. This is an all-time high since German reunification in 1990, and is closely linked with the high price of energy caused by the Russian invasion of Ukraine.
In response to rising inflation – and the resulting cost of living crisis – the German government moved to encourage organizations to pay out inflation bonuses to their workers.
As part of a wider €65 billion inflation relief package, in September, Chancellor Olaf Scholz announced the government would waive the usual taxes on bonuses to staff of up to €3,000. The measure is in place until the end of 2024.
According to AP news, Scholz stated the aim was to ensure that “employees can get through the crisis better with such a payment”.
This relief measure also occurs in the context of unions across Germany pushing for above inflation pay increases, and threatening industrial action if their demands are not met.
Volkswagen negotiates with IG Metall union
This week Volkswagen announced it would be offering an inflation-related bonus as part of its wider collective agreement with the union IG Metall.
The 125,000 employees covered by the newly negotiated agreement with IG Metall will now receive two bonuses. The first will be €2,000 in February 2023, and then followed by €1,000 in January 2024.
These workers will also receive a two-stage pay increase; 5.2% in June 2023 and 3.3% in May 2024 – as part of Volkswagen’s new collective agreement with IG Metall.
Talking about the decision, Volkswagen CHRO (and chief negotiator) Arne Meiswinkel commented: “We have achieved long-term planning certainty and stability for Volkswagen for 24 months.
“This agreement takes account of the exceptionally challenging and persistently volatile macroeconomic environment.
“The strong signal given by an agreement being reached before the duty to refrain from industrial action expired [on 30 November] also testifies to our responsibility towards our workforce and the company.”
Meiswinkel added: “The salary agreement should not hide the fact that we must continue to keep our costs strictly under control. This is a basic requirement if we are to continue our transformation at the pace needed to safeguard our competitiveness and jobs.”
Volkswagen is not, however, the only German company to introduce inflation bonuses. Research by WTW predicts that half of Germany companies will pay out bonuses under the scheme.
Examples of other large companies that have already introduced inflation bonuses are Deutsche Bank, UniCredit and Commerzbank.
Other European governments, including France, Italy and Austria, are also looking at introducing similar bonus incentives for employers.
While some organizations in the UK are introducing bonuses are taking matters into their own hands – examples include Virgin Media O2, Rolls Royce and Lloyds bank – but these will be subject to tax and national insurance deductions.
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