The Performance Allowance Explained

Performance allowances are additional payments on top of regular wages, making them a key part of modern compensation systems. As a form of variable compensation, they are often used to recognize special achievements or exceptional performance. These allowances are part of taxable income and subject to social security contributions.

Who Receives a Performance Allowance?

Performance allowances are typically granted for outstanding performance or special accomplishments beyond standard job duties. A personal performance evaluation is often conducted beforehand to objectively assess the employee’s contribution.

Not all employees are automatically entitled to a performance allowance. The conditions may be defined in collective agreements, company policies, or individual contracts. Common criteria include:

• Special Tasks or Responsibilities
  Allowances may be linked to demanding or high-responsibility assignments.

• Performance Criteria
  Employees meeting pre-set goals (e.g., sales targets, overtime) may qualify for an allowance.

• Timeframe
  Performance allowances can be one-time, time-limited, or recurring.

Allowances can be awarded to individuals or entire teams. They may be revoked if performance drops or duties change, depending on agreement terms.

Use in the Private Sector

In private companies, performance allowances are often discussed alongside bonuses or premiums. All three refer to extra compensation for above-average performance and aim to boost motivation and engagement.

There is no specific legal regulation for performance allowances under German labor law. They’re usually defined through sector agreements or internal policies. Specialized software can help define goals, track performance, and automate payouts.

In Public Service

In public service, performance allowances are regular payments for consistent high performance. A performance premium, on the other hand, is a one-time payment based on a target agreement. These are mainly governed by the collective agreement for the public sector.

Practical Examples

Example 1: Auto Shop – Workshop and Service

• Workshop staff receive a set number of “work units” for tasks (e.g., oil change, inspection).
  • Efficiency Bonus: Allowance for hitting a monthly target of work units.
  • Effectiveness Bonus: Allowance for achieving a specific ratio of units per paid hour.

Example 2: Hospital, Nursing Home, or Care Facility

• €150 flat allowance for filling in on short notice.
• €4/hour extra for night shifts.
• €3/hour extra for holiday shifts.

Example 3: Public Sector

• €100/month allowance for consistently good performance.
• €500 performance premium for a notable one-time achievement.
• €50/month allowance for taking on special duties.

Calculating Allowances and Premiums

Performance allowance and premium calculations require precision, transparency, and flexibility to support both individual and business goals. maXzie streamlines the entire process.

Our software digitizes performance-based compensation using clear criteria and KPIs—factoring in both individual contributions and team results. Real-time tracking and reporting make the system fair and efficient.

Contact us for a demo or custom consultation.