What are the provisions in accounting

Provisions from employment relationships

Provisions from the personnel area have become increasingly important in recent years due to employee motivation and loyalty as well as flexible work models on the one hand and necessary personnel and restructuring measures on the other. Although the mutual obligations of the employer and the employee are generally balanced in an ongoing employment relationship, there are a number of obligations for the employer towards his employees as of the balance sheet date. With the creation of provisions as of the balance sheet date, the economically incurred expenses are allocated to the periods in which the financial burden is only expected in future accounting periods.

In no other area do the commercial law requirements differ from the tax regulations as much as in the context of personnel provisions. For this reason, the relevant provisions from employment relationships, which are to be shown under other provisions in the balance sheet, are examined in more detail below:

Success Bonuses

Become workers Gratuities, bonuses, royalties or others Profit sharing Promised before the balance sheet date, a provision must be made in the commercial and tax balance sheet if the promised performance is intended to compensate for past behavior by the employee. In the case of success bonuses that are linked to future employee performance and / or company profits, however, there is no economic causation, so that the formation of provisions is inadmissible. Income-related grants are to be recognized insofar as the underlying income was already achieved in the past financial year. In the case of bonuses that are only payable under the condition of continued service, a staff turnover deduction must be made in the assessment. If the period between acceptance and payment of a success fee is more than twelve months, a discount must also be carried out.


Alpha GmbH promises all employees employed on the balance sheet date a bonus totaling 1% of the sales for the financial year (total bonus = 1 million euros). However, the success bonus is only paid after five years of continued service with the company.

Both the discount requirement and the likelihood of utilization by taking fluctuation into account must be observed. Based on a staff turnover discount of 2.5%, this results in a settlement amount of 975,000 euros (1 million euros ./. 0.025 * 1 million euros). This amount must then be discounted according to the remaining term (interest rate in the example: 2.5%): 975,000 euros / (1 + 0.025)5 = 962,903 euros.

In the tax balance sheet, in accordance with the principles applicable to liabilities in accordance with Section 6 (1) No. 3 EStG, interest is to be discounted at an interest rate of 5.5%, so that a provision requirement of 975,000 euros / (1 + 0.055)5 = 746,005 euros results.

Anniversary gifts

Long service bonuses are cash or non-cash benefits in kind provided by the employer to his employees, which they receive when they have been with the company for a certain period of time. If it is sufficiently probable as of the balance sheet date that the employee will remain with the company until his service anniversary and thus the benefit is to be paid, a provision must be made for this in the commercial and tax balance sheets. The obligation to perform is caused economically in the years in which the employee performed his work. Thus, provisions are to be created to the extent that the contractual eligibility requirements have been met by the previous employment with the company up to the balance sheet date. I. E. Provisions for long service awards are accumulated in installments up to the time of payment.

In the commercial balance sheet, provisions are to be made for all legally binding promised benefits on the occasion of service anniversaries. In the assessment, the probability of employees leaving the company prematurely must be taken into account by means of a fluctuation deduction determined on the basis of operational experience or a flat-rate fluctuation discount. Cost increases and discounting must also be taken into account.

For the tax balance, however, Section 5 (4) EStG provides for special requirements for the recognition of such provisions:

  • The employment relationship had existed for at least ten years on the balance sheet date,
  • the anniversary requires at least 15 years of employment,
  • the promise of the anniversary bonus was given in writing and
  • the beneficiary acquired his entitlement after December 31, 1992


In addition, the valuations on the balance sheet date are decisive for the valuation of the promised services according to tax law (reporting date principle!). Wage increases may only be taken into account in the assessment if they have already been determined on the balance sheet date.

Vacation days / vacation pay

For the obligation of the employer to grant vacation with continued payment of wages or cash compensation for the vacation days not taken, a provision for uncertain liabilities must be made in the commercial and tax balance sheet. Because the vacation entitlement is economically caused by the work performed by the employee in the past year.

The valuation of vacation accruals is based on the general principles. They are to be set at the fulfillment amount, which is based on a reasonable commercial assessment within the meaning of the from Section 253 (1) sentence 2 of the German Commercial Code (HGB). The amount of the provision is calculated by dividing the annual wages by the average vacation days, multiplied by the number of vacation days not yet taken. The annual wage and the annual working days are therefore relevant for the calculation, but their definitions are different in commercial and tax law.

Under commercial law, gross wages, employer's contributions to social security, any vacation pay and other wage-related ancillary wage costs (e.g. employer's liability insurance association) and promised special payments (bonuses, contributions to pension or anniversary provisions) are part of the assessment basis for calculating the vacation pay. A 13th month's salary and Christmas bonus must also be taken into account if these are a fixed component of the annual salary. The tax authorities, on the other hand, do not count the Christmas bonus as part of the special allowances that can be taken into account, nor do they include bonuses and allocations to pension and anniversary provisions. Future changes in the wage components as well as salary increases are to be taken into account under commercial law, but not under tax law (cf. Section 6 (1) No. 3a lit. f EStG).

There are also differences between the commercial and tax accounts when calculating the annual working days. While the actual working days (= number of actual working days ./. Vacation days and expected sick days) are to be used under commercial law, the regular working days are used under tax law without taking the vacation days of the following year into account.

In practice, a simplified calculation of 220 days under commercial law and 250 days under tax law is often used.

Overtime / working time accounts

If employees have worked overtime by the balance sheet date and the compensation takes place in the new financial year, the employer is in arrears and has to set up a provision for uncertain liabilities under commercial and tax law. The settlement arrears are to be assessed as in the case of the vacation accruals, in particular the employer's social security contributions are to be included. According to the principle of individual assessment, it is not permissible to offset the backlog of performance by the employer with the backlog of other employees.

Severance payments / indemnity agreements

For severance payments (e.g. in connection with the termination of employment relationships or in the context of social plan obligations), provisions are to be set up under commercial law if these exist or are sufficiently likely on the balance sheet date due to a legal or factual obligation. In terms of tax law, provisions for severance payments from termination agreements are at least mandatory if the termination agreement was effectively concluded on the reporting date. The prerequisite for this is the signature of both parties due to the written form requirement. Without a written contract as of the balance sheet date, case law denies the creation of provisions with regard to the principle of not accounting for pending contracts.
If an employer decides, when terminating an employment contract, to forego the work of an employee until the expiry of the notice period (so-called exemption), no performance by the employee stands in the way of the period of notice. Under these circumstances, the employer is obliged under commercial law to set up a provision for potential losses for the period of exemption, which cannot be recognized under tax law due to Section 5 (4a) of the Income Tax Act.