Transfer company and severance pay: background and tips before you move

Andrea von Zelewski
Updated on:August 18, 2026

In cases of retrenchments, German law offers a transition solution to delay the unemployment for the employees, the so called transfer companies (Transfergesellschaften). The purpose is to avoid or minimize retrenchments while at the same time the unemployment for the retrenched employees is delayed. Employees have the option to switch from their old employer into the transfer company for 12 months. During this time they don’t have to work. They can use the time for training or looking for new employment. The article explains how this works and the financial support during this time.

The key points at a glance:

The purpose of a transfer company (Transfergesellschaft) is to avoid dismissals on operational grounds and to offer employees a fixed-term employment in the new transfer company.
The move to the transfer company takes place through a termination agreement with the employer and a new employment contract for 12 months with the transfer company.
Payment: While in the transfer company, the employee receives an allowance of 60% of the last net pay (Transferkurzarbeitergeld) by the Federal Employment Agency. In addition the previous employer pays a top-up payment of up to a total of 80% of the last net pay.
Severance pay: The employer may not entirely exclude employees who move to a transfer company from severance pay. But different amounts of severance may be paid. In practice they often receive the same amount to encourage them to make the move.

What is a transfer company?
Moving from the current employer to the transfer company
Reasons for moving to a transfer company
Severance pay when moving to a transfer company
Payments while in a transfer company
Frequently asked questions (FAQ)

What is a transfer company?

A transfer company (Transfergesellschaft) is a separate legal entity (often a Pty Ltd) formed by the employer or an external provider.

In the past they were also known as “employment companies” or “qualification companies” (“Beschäftigungs- oder Qualifizierungsgesellschaften”). They take on employees who would be otherwise dismissed on operational grounds by their current employer. The aim is to avoid such dismissals and at the same time to protect employees. Their unemployment is delayed, they receive financial support and the chance to get training for new job opportunities.

Once employees have joined the transfer company, they no longer perform their previous work (“zero short-time work”). They can use the time for professional development, take up retraining, further education and look out for new jobs.

Moving from the current employer to the transfer company

The move to a transfer company happens in two steps:

First, the employer and employee enter into a termination agreement.
Then the transfer company and the same employee enter into a fixed-term employment contract for twelve months. The sole purpose of this fixed-term relationship is to train employees and place them on the job market. The transfer company therefore offers a broad range of services. It starts with initial advice on current or new job opportunities, how to apply for jobs, training, work placements etc.

The three parties (employee, previous employer, transfer company) can also combine the two contracts into one (tripartite agreement: dreiseitiger Vertrag).

Reasons for moving to a transfer company

There are numerous reasons for business restructuring and the use of transfer companies, including:

Repositioning of the business
Mergers or takeovers
Closure of individual divisions or branches
Relocation of production sites
Restructuring processes to rescue the business
an impending insolvency.

Severance pay when moving to a transfer company

In most cases a Social Plan provides for severance pay where the employee concludes a termination agreement with the employer and moves to the transfer company.

A Social Plan is an agreement between the works council and the employer which, in connection with operational changes (restructuring, closures etc.), should soften the economic disadvantages for employees. This includes severance pay.

The works council and company have a wide discretion – within the principle of equal treatment – how they compensate economic disadvantages. The content of such agreements depends on the individual situation of the business and what they want to achieve. The parties may agree on different levels of severance pay for employees who either get a dismissal for operational reasons or who move on to the transfer company. The differences must be objectively justified.¹ Here are some examples:

It is not permissible to completely exclude employees from severance pay just because they do not want to move to a transfer company.²
But it is permissible to offer employees who accept a dismissal and do not want to move to a transfer company a lower severance pay.
It is permissible to offer employees the full severance pay as an incentive to move to the transfer company.

In this situation it is always advisable to ask the works council about the content of a Social Plan. Always request a copy of it. Based on that information, employees should consult a lawyer to have the content and validity of the severance pay checked. After taking legal advice, the employee can make a final decision which options are best for him.

Payments while in a transfer company

While employees are in the transfer company, they receive the following financial benefits:

The Federal Employment Agency pays the employee an allowance (Transferkurzarbeitergeld) of 60% of the last net pay. Employees with at least one child receive an allowance of 67%.
The employer or the works council apply for this benefit. The requirements: (1) a permanent loss of work without pay; (2) notification to the Federal Employment Agency; (3) the operational and personal requirements; and (4) the works council and the employer have to take advice from the Federal Employment Agency beforehand (consultation record).³
In addition to this allowance, the employer pays a top-up amount of up to a total of 80% of the last net pay. This should encourage the employee to move to the transfer company.

The fixed-term employment relationship with the transfer company is subject to social insurance contributions. The employer usually pays these contributions in full along with subsidies for training and similar costs. This depends on the agreed content of the Social Plan.

Frequently asked questions (FAQ)

How long can you stay in a transfer company?

The employment relationship with the transfer company lasts twelve months at most. The Social Plan can also provide for ways of leaving earlier.

What are the advantages of a transfer company?

A transfer company gives the employee the following advantages: (1) the chance to take up further training and education to improve the prospects of new employment. (2) Delays unemployment. (3) Due to the allowance and the employer’s top-up payment, the employee receives more than the unemployment benefits. (4) After leaving the transfer company the unemployment benefits are based on the pay earned with the previous employer. (5) The period of employment with the transfer company extends the duration of later unemployment benefits.

What are the disadvantages of a transfer company?

Disadvantages: (1) If you have a new job, the reduced income in the transfer company is most probably less. (2) As there is no dismissal, the Labour Court can not review the validity of the operational requirements.

How much do you earn in a transfer company?

You will receive an allowance (Transferkurzarbeitergeld) by the Federal Employment Agency (Agentur für Arbeit) of 60% (67% for employees with a child) of the last net pay. Depending on the Social Plan or an individual agreement, the employer pays in addition to the allowance a top-up payment, which might total up to 80% of the last net pay.

Can I turn down a job in a transfer company?

Yes, employees can turn down the offer to move to a transfer company. They would then be dismissed on operational grounds, most probably with severance pay. After the end of the notice period, they have to apply for unemployment benefits.

How much unemployment benefit do you get after a transfer company?

Unemployment benefit after a period in a transfer company is calculated on the basis of the earlier salary before joining the transfer company. The amount corresponds to the regular unemployment benefit entitlements (60% or 67% of the last net pay) with the employer before the transfer company.

Is severance pay possible despite moving to a transfer company?

Yes, severance pay is possible and can be agreed in a Social Plan or individually, even if you move to a transfer company. Employees who move to a transfer company must not be excluded entirely from severance payments under a social plan. The works council and the employer may, however, set different levels of severance in the social plan. Often the same severance is paid as an incentive to move to the transfer company. The severance is usually due when the employee moves to the transfer company.

What is transfer short-time work allowance?

Transfer short-time work allowance (Transferkurzarbeitergeld, or Transfer-Kug) is paid by the Federal Employment Agency in order to avoid redundancies and improve the placement prospects of those affected on the job market. It’s purpose is to soften the loss of income while they take part in training and placement measures in the transfer company.

How much is the transfer short-time work allowance?

The transfer short-time work allowance amounts to 60% of the last net pay, and 67% for employees with children.

Am I entitled to transfer short-time work allowance?

Yes, if you move to a transfer company and all the other requirements are met. The application has to be made by the employer or the works council . The requirements: (1) a permanent loss of work without pay; (2) notification to the Federal Employment Agency; (3) the operational and personal requirements; and (4) the works council and the employer have to take advice from the Federal Employment Agency beforehand (consultation record; more details in the main article).

How is the transfer short-time work allowance calculated?

The transfer short-time work allowance is calculated on the basis of the last net pay and amounts to 60%, or 67% for employees with children. It is based on the average monthly net income of the last three months before joining the transfer company.

Is the transfer short-time work allowance tax free?

The transfer short-time work allowance is exempt from income tax. That means it is not taxed directly, but it is added to your total income when working out the tax bracket. so, you might end up with a higher tax %. The social security contributions are payable by the employer alone. The employer’s top-up payments are subject to income tax.

Is the transfer short-time work allowance a salary replacement benefit?

Yes, the transfer short-time work allowance is a salary replacement benefit in order to make up for the loss of income during employment in the transfer company. For pension purposes these periods count as contribution periods, and they have to be declared for tax. The social security authorities are informed when the payments start and end.

What effect does secondary employment have on the transfer short-time work allowance?

Any secondary employment has to be reported to the transfer company and to the Federal Employment Agency. Secondary employment of more than 15 hours a week that was already in place before joining the transfer company is not taken into account for the allowance. Secondary employment of more than 15 hours a week taken up after joining the transfer company is offset against the allowance, provided the monthly allowance of 165 € is exceeded.

Section 75 Works Constitution Act ↩︎
LAG Hamm 11.11.2015, 2 Sa 753/15 ↩︎
more details in Section 111 Social Security Code III (SGB III) ↩︎

Andrea von Zelewski

Lawyer & Former Labour Court Judge Master of Laws (LLM) cum laude, University of Stellenbosch | Former Labour Court Judge in Stuttgart and Karlsruhe | Admitted Attorney (South Africa)

Following her legal training, Andrea worked as a presiding judge at the labour court for six years. During this time, she delivered seminars to works councils and chaired the conciliation committee.

She has lived in Cape Town since 1997, where she completed her Master of Laws (LLM) at the University of Stellenbosch. She then taught labour law at the University of the Western Cape (Cape Town) for ten years. For the past twelve years, she has worked remotely as a research assistant for a German law firm that specialises in labour law and exclusively represents employees and works councils.

Areas of Expertise: Employment Law, Dismissal, Works Council, Labour Court Proceedings, Severance Pay

All information on our website is of an editorial nature and expressly does not constitute legal advice. Naturally, we have made every effort to ensure the accuracy of the information and links contained on this website. Nevertheless, we cannot guarantee the accuracy of the information. It is in no way a substitute for legal advice from a lawyer.