Social security fraud

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Social security fraud

Law firm for criminal law in Kerpen, Cologne and Witten

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Within the Criminal Code, social security fraud is listed in the Twenty-Second Section under the Fraud and infidelity are regulated. Sometimes the most diverse types of the Fraud their regulations. Worth mentioning, for example, are the General fraud, the computer fraud, Subsidy- and Investment fraud to credit / sports betting fraud or even the fraudulent obtaining of benefits.

Section 266a of the German Criminal Code (StGB) specifically regulates the withholding and embezzlement of remuneration. It states:

§ Section 266 - Withholding and misappropriation of remuneration

(1) Any person who, as an employer, withholds from the collecting agency the employee's contributions to social insurance, including labor promotion, regardless of whether remuneration is paid, shall be punished by imprisonment for not more than five years or a fine.

(2) Likewise, any person who, as an employer.

1. provides incorrect or incomplete information to the office responsible for collecting the contributions regarding facts that are significant under social insurance law, or
2. in breach of duty, fails to inform the office responsible for collecting the contributions of facts that are relevant under social insurance law

and thereby deprives this entity of social security contributions, including employment promotion, to be borne by the employer, regardless of whether remuneration is paid. [...]

Thus, anyone who withholds or fails to report pay to the authorities under §266a StGB can and probably will be liable to prosecution for social security fraud. Thus, according to §266a StGB, only the employer can commit the offense. Social security fraud by the employer is possible in four different constellations.

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Social security fraud by the employer

Lawyer Social Security Fraud | Social Security Fraud by Employer

1. the entrepreneur has the possibility to withhold contribution payments from the contribution collection agency.
2. the Contractor fails to inform the Collection Agency of any material information.
3. the employer retains parts of the salary and does not deduct them.
4 The employer makes incorrect statements about parts of the salary.

It should essentially be noted here that it does not matter whether the company or the employer makes a profit or not. According to these facts, it is therefore only relevant whether the employee has to pay social security contributions or not. Whether one is an employer can be determined by the general definition. An employer is a person who employs a worker. The employer's duties are therefore to pay the employee and to give instructions to the employee.

What are social security contributions

Social Security Fraud Lawyer | Definition of Social Security Fraud.

People in Germany enjoy an extraordinary social security system compared to other countries. This system is supported only by the contributions of employees and employers. The employer is therefore obliged to determine these social security contributions and pay them to the competent authority. The social security system consists of different branches. These include: health insurance, pension insurance, unemployment insurance, long-term care insurance, accident insurance, contributions on a pay-as-you-go basis and an insolvency contribution.

The contributions must be paid to various collection agencies. These include the respective health insurance fund for health and long-term care insurance, the levy for possible insolvency and contributions in the pay-as-you-go system. The pension insurance goes to the pension insurance and the unemployment insurance to the employment agency. Possible contributions for accident insurance go to the employers' liability insurance associations and accident insurance companies.

The employee does not have to take any action himself when it comes to paying the contributions. This is the sole responsibility of the employer, depending on the employment relationship with the employee. The contributions are partly borne by both parties, but only the employer is required to pay them. The amount of the deductions depends on the employee's remuneration. 

Currently, the contributions must be paid equally by the employee and the employer if the gross salary exceeds € 2000.00. The employee pays less if the gross salary is between € 2000.00 and € 520.00. A salary between 2000.00 € and 520.00 € works in favor of the employee, so that he pays less shares. If the employee is employed as a GFB (marginal employee), the employee no longer pays his/her own contributions. In this case, the employer must pay the contributions to the Federal Miners' Insurance Fund, regardless of where the employee is actually insured.

Contribution assessment limits

Lawyer Social Security Fraud | Definition of the concept of the income limit for contributions

Furthermore, there are so-called contribution assessment limits. The reason for this is that the benefits of the system are also limited. In concrete terms, the income threshold is the limit of the gross monthly salary above which the contributions are maxed out and no higher contribution is due. A distinction must be made here between health and long-term care insurance and pension and unemployment insurance. For the former, a contribution assessment limit of €4,987.50 applies for 2023. For the latter, a distinction is made between old and new federal states. For old federal states, the limit is €7,300.00 and for new ones €7,100.00.

The severance payment in terms of taxes and social security contributions

Lawyer social security fraud | severance pay, taxes and social security contributions

What is exciting for many employees who receive a severance payment is the extent to which taxes and possibly social security contributions must be paid on it. A severance payment is nothing more than a compensation payment made by the employer to the employee as compensation for the loss of his or her job. A distinction must be made between genuine and non-genuine severance pay. Genuine severance pay is payment for the loss of employment. 

This form of severance payment is not subject to social security contributions. Namely, this payment is not remuneration for work. Non-genuine severance pay is a payment made by the employer upon termination of the employment relationship in settlement of the employee's claims against the employer. This can be, for example, a claim to wages. This is exciting in the dismissal protection process. Example: The employee is dismissed without notice. In the proceedings, the termination without notice is converted into a termination with notice and a claim to wages thus arises for the period of the termination with notice. 

The retroactive payment of wages may then be colloquially regarded as severance pay, but it remains a non-genuine severance payment. The fact that it is not a genuine severance payment in this specific case means that the payment must be regarded as remuneration for work. In this case, one is also obligated to pay or contribute to social security and cannot exempt oneself from this obligation. The severance payment is also subject to wage tax in full.

Consequences as an employee

Lawyer Social Security Fraud | Consequences for the employee

As mentioned above, the employer is responsible for the payment of contributions. However, the perpetrator of social security fraud is also the employer. Therefore, as an employee, one cannot be guilty of social security fraud if the employer pays too little or no amounts to the social security.

The pseudo self-employment

Lawyer social security fraud | definition of bogus self-employment

Another point that needs to be illuminated is pseudo self-employment. Bogus self-employment is a contractual relationship that looks to the outside like the commissioning of a self-employed person, but in the actual form and definitions of the employee and employer can be considered an employment relationship. 

If this is the case, then the activity must be registered as subject to social insurance. The most common target group that this affects are probably freelancers and freelancers. Freelancers do not have to register a trade and do not have to pay trade tax. In most cases, freelancers have registered a trade and must pay trade tax.

In addition to the normal employees of a company, there are also employees who perform services for the company under a contract for work and services. The differentiation here is that those do not have to follow the instructions of the employer. Based on this assessment, it sometimes mistakenly happens that the employer assumes that these are not employees but self-employed persons. If this were the case, then no social insurance would be due.

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Criminal law assessment

Lawyer Social Security Fraud | The Criminal Appraisal

The § 266a StGB is a special offense. In the cases of paragraphs one to three, therefore, only the employer can be the perpetrator. This then also includes the managing directors and the board members of corporations, as well as partners authorized to represent partnerships. In the context of employee leasing, an employer hires out personnel from a lender. These employees then perform the work only according to the instructions of the hirer. However, the hirer remains obliged to pay the contributions.

§ 266a StGB speaks of the withholding of employee contributions. Thus, this is sometimes the most important case of application of the norm. Therefore, the object of the offense and the object of action are the employee's contributions to social security, including labor promotion. Even if it is the employee's share, the employer is fully liable for it. The assessment basis is the employee's remuneration. Thus, all income of the employee that is related to the employment and accrues to him/her as a result must be taken as a basis. One-off allowances or income do not constitute remuneration as long as they are exempt from wage tax.

The act is completed if it has not been performed by the time the payment is due. At the same moment it is also finished. Paragraph two regulates the withholding of employer contributions. The reason for this second paragraph is the law to intensify the fight against illegal employment. Also included is a possible fraud-like commission of the non-payment of contributions by the employer. This applies only to the employer's contribution, for example, to accident insurance. Only fraud-like for the reason that it does not depend on an act of deception or an error in the specific case.

With regard to paragraph 2 No. 1, this offense specifically requires that the employer has provided incorrect or incomplete information to the collection agency. This information relates to the amount or the reason for the payment obligation. Conceivable are information about the amount of the remuneration or also the existence of the employment relationship. In the context of an omission (offense of omission), paragraph two no. 2 provides further information. 

More precisely, this concerns the offender's failure to notify the collection agency about the obligation to notify in the context of significant facts concerning the obligation to pay contributions. A major aspect of this omission is undeclared work. However, if declarations are made but certain facts are omitted, then there is only incompleteness. The consequence of the offense is also the withholding of the employer's social security contributions.

Undeclared work and payroll tax

Lawyer social security fraud | definition of moonlighting and payroll tax

Legally, a person is considered to be an undeclared worker if he or she regularly performs work for which taxes and social security contributions are not paid. In this context, it is important to note that undeclared work is illegal, regardless of whether the person is an employee or an employer. The consequence of such undeclared work can additionally be proceedings for tax evasion or fraudulent social benefits.

The Act to Combat Undeclared Work and Illegal Employment has not been in force for long. To be more precise, it has only been in force since 01.08.2004. Undeclared work is conceivable in these possible but not conclusive constellations: Violation of tax law, social security law, the obligation to register or a missing business registration. Another prerequisite is that the behavior must be profit-oriented. 

A small favor for a neighbor with compensation is not yet moonlighting. However, if there is an agreement to make regular purchases and you always receive the same "compensation" for it, it could possibly already be moonlighting.

Undeclared work is nothing more than working for pay without the authorities knowing about it and without being registered with them as an employee. The profit of such undeclared work is the same on both sides. The employee has a higher wage, because no tax and social security contributions are due. The same applies to the employer, because he also does not have to or will not pay any taxes. However, in addition to advantages for both parties, there are also disadvantages. 

Thus, both parties have no claims against each other. If the employer does not pay wages after the work, then the employee also has no claim to wages. If the employee has not performed his work properly and damage occurs, the employer also has no claim to compensation. Furthermore, the employee has no health insurance coverage in case of accidents at work, as well as occupational health and safety. Likewise, there is a risk of being caught moonlighting. The risk of moonlighting can bring either fines or imprisonment.

Possible undeclared work is checked by the responsible customs authority. An inspection does not have to be announced in advance. If violations are found, then this will result in proceedings, because after notification the public prosecutor's office will investigate and criminal proceedings will be conducted before the ordinary courts.

Tax evasion as a secondary consequence of social security fraud under Section 370 of the Tax Code

Lawyer Social Security Fraud | § 370 Tax Ordinance in connection with tax evasion

Tax evasion (such as payroll tax evasion in this case) is committed by the § 370 Tax Code regulated. More precisely, it states:

§ 370 AO - Tax evasion

(1) A penalty of imprisonment for up to five years or a fine shall be imposed on anyone who

1. provides incorrect or incomplete information to the tax authorities or other authorities about tax-relevant facts,
2. fails to inform the tax authorities about tax-relevant facts in breach of duty, or
3. fails to use tax stamps or tax stamps in breach of duty

and thereby evades taxes or obtains unjustified tax advantages for himself or another.

(2) The attempt is punishable. [...]

It should be noted here that in the case of undeclared work or social security fraud and tax evasion, these are two individual or separate acts, which must be assessed separately from each other. Such cases are particularly difficult because a large number of authorities are involved. Among others, the following should be mentioned here: the tax office, the police authority with the investigating public prosecutor's office, the customs authority, the FKS (Financial Control of Clandestine Employment) or also the pension insurance as well as health insurance and employment agency.

Tax evasion already exists if the employer does not declare the wage tax completely or in time to the tax office. According to the § 370 AO it is therefore irrelevant whether the employer pays the payment in full or in full after the 10th day of the registration period. Meanwhile, in the context of penalty assessment, the employee's black wage paid is extrapolated to a gross wage. In the context of a partial black wage payment, the extrapolation is then extrapolated to the part of the black wage in the same way as in the case of full black wage payment. 

Since the employer must have received the employee's tax data in the context of the non-partial black payment, the partial black payment is also calculated in the same way as the non-partial black payment. This means that if the employee is placed in tax class III, the tax will be recalculated on the basis of tax class III. This is done to protect the employee. If the tax data of the undeclared workers are not available, the recalculation of the tax will take place on the basis of tax class VI. This is the highest taxation that currently exists in Germany for employees.

With regard to marginally employed persons, a different way of assessing damages takes place. As a rule, the employer has to pay a lump-sum amount of income tax and social security contributions when employing a person who is marginally employed. However, there is no calculation in the above-mentioned way. The damage is therefore the lump sum amount that has not been paid.

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Consequences for employees

Lawyer Social Security Fraud | Consequences for Employees

The consequences discussed so far have mostly been related to the employer. However, the employee also has to reckon with the consequences of moonlighting or social security fraud. Thus, the competent authorities such as the Federal Employment Agency, the health insurance funds or pension insurance institutions would like to hold the employees accountable. Since no social security contributions and wage tax have been paid for the work performed and consequently for the remuneration, the employees are threatened with fines and additional payments. 

In case of doubt, these can amount to up to € 500,000.00. Specifically, in most cases, the social security contributions for the last four years or less will be claimed in arrears. The consequence of moonlighting remains the procedure for tax evasion and breach of duty to the social security and the associated reporting offices.

Other conceivable triggers for criminal tax proceedings

Lawyer Social Security Fraud | Trigger for Criminal Tax Proceedings

In this context, the focus has so far been on social security fraud and the associated criminal tax proceedings for undeclared work. However, the general criminal tax proceedings can also be stimulated by other triggers. These can sometimes be for entrepreneurs: The cash register shows differences, the company has not withstood a tax audit, anonymous charges have been filed with the tax office, there are capital investments abroad, the tax return prepared is unrealistic or questionably high cash deposits are made. 

However, these are only a few more examples of why criminal tax proceedings could be initiated. It should be noted that almost every circumstance could be classified as suspicious.

The issue of voluntary disclosure

Lawyer Social Security Fraud | The self-disclosure

In most cases, one is tormented by a guilty conscience, because one knows that one has done something wrong, which indirectly harms the population and the state. Often, one then comes up with the idea of reporting oneself, in the hope that a penalty will be lighter or even that a penalty will be waived altogether. It is important to note, however, that if the proceedings have already been initiated, the voluntary declaration is no longer of any use. The self-disclosure is then forfeited when the investigation of the authorities has begun. From another point of view, the self-disclosure logically has the effect that criminal proceedings or investigations will be initiated or started in any case.

If the voluntary declaration was effective and the taxes and interest were paid, it is not uncommon for the proceedings to be discontinued. If the voluntary declaration is not effective, an indictment could be filed. Thus, a deliberate report protects only if no investigation has been started yet. It is therefore advisable to deliberately wait before taking this step or, in individual cases, to obtain initial legal advice from a specialized lawyer for a fee.


There is virtually no area of law in German law that is as complex and extensive as tax law and social security law. In most cases, many authorities are involved in the case and the overview can be lost very quickly. Therefore, legal assistance in such a dispute is absolutely essential. We would be happy to be the appropriate legal contact for your social security law or tax law case.

We are here for you nationwide in the event of a police hearing!

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+49 (0) 2273 - 40 68 504

Law firm for criminal law in Kerpen, Cologne and Witten

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