3-month notice period and allowance
What should be considered regarding the three-month period in travel expense reports?
3-month period for allowance - business trips
In all our projects, in our Kick-off, we ask our clients if the 3-month rule plays a role for them. It is interesting that more often than not we have to explain what this rule is and why it is important to take it into account in travel expense accounting software.
And let me make this clear right at the beginning: By ‘take into account’, we do NOT mean that employees keep and maintain Excel spreadsheets in the back office to monitor this rule in order to then tick a box somewhere in the travel software.
The rule and its tax implications can be easily researched on the internet. In this respect, we don't want to repeat this for the umpteenth time in our blog post today. Instead, we want to focus on a few specific aspects that we frequently encounter in our customer projects.
When does the rule start and how is it interrupted?
We often hear uncertainties right from the start. Our system can precisely monitor whether travellers have been in the same place for at least 3 days in a week. If this is the case, a so-called ‘long-stay flag’ is set in the system and the system then monitors when and for how long the employee travels to this customer. Once the 3 months have been reached, the tax regulations relating to daily allowances are automatically adjusted.
Sounds quite simple, doesn't it?
Let's look at the details:
- What does 3 days a week mean?
We keep hearing that it supposedly has to be three consecutive days. The rule definitely also applies if there are three days within a week and there are short interruptions in between. If, for example, travellers visit the same customer on Monday, Wednesday and Thursday and enter these trips in the travel expense accounting software, the deadline monitoring should start.
- What does ‘at the same location’ actually mean?
Here, too, customers often tell us that only the location of the trip has been recorded so far. Of course you can do this. But please note that the monitoring of the 3-month rule will then start, for example, if you enter Berlin as the location on three different days of a week. This would also be the case if you were in three completely different places within Berlin and there is actually no reason for the regular monitoring.
The case described above can be corrected by specifying not just the location but the full address.
Let's take a closer look at this case as well. Imagine travellers from your company were actually at exactly the same address three days a week. What now? Many things suggest that the rule really needs to be monitored now, i.e. the 3 months start to count. But what if it's an office building where 10 different companies are based and your travellers were at a different customer every day? Or the address is an industrial estate with X companies sometimes they visited two different customers in one day.
So it's about the WORKPLACE and this is usually defined by the customer (or the location of your own company, which is not the first place of work).
It is therefore worth taking a very close look. The only way to be sure is to document as precisely as possible from when to when the travellers were there. We recommend that our customers simply always enter the customer here. And this is also easily possible via the integrated Google Maps search.
- When is the ‘long-stay flag’ interrupted?
This question is essentially quite simple to answer. Short interruptions for whatever reason are not enough. At the same time, it is important to know that these interruptions do not justify an extension of the deadline. If the deadline starts on 1 December, for example, then it runs until 1 March of the following year.
The deadline is always interrupted if the travellers have not been at this specific customer (place of work) for more than 28 days in a row.
It may also be important to mention that a change of year is NOT a reason for an interruption.
- What are the tax implications with regard to the allowance?
If employers pay their travellers additional meal expenses up to € 14 / 28, these are generally tax-free for the time being, up to twice this amount they are taxed at a flat rate and above this amount they are taxed individually.
However, if the 3-month rule applies, the employer must decide how they wish to proceed with the allowance thereafter. In principle, there are two options:
- Allowance is still paid after this period. In this case, it is fully subject to individual tax from the first EURO
- NO more allowance is paid from this point onwards
Conclusion
As the 3-month period for daily allowance in Germany is a tax issue, great care should be taken here.
Keeping track of everything with a piece of paper, Excel etc. is certainly time-consuming and error prone. In this respect it is also a good reason to consider digitalising your travel expense reports.
However, pay very close attention to what the software can actually do. Do you remember the example from above? I actually once looked at a software for travel expense accounting that looked really good at first glance and also had a great app for recording receipts. When I then asked about the 3-month rule, my contact person couldn't give me a straight answer at first because he didn't know what I was talking about, but then he asked a colleague and proudly announced that they could do it.
Their ‘solution’ was a checkbox controllers could/must tick to start the 3-month period for the travel times entered by travellers. It didn't matter when they did this, with whom and why and it was unclear how the controller would even know when to start checking.
In our projects, we clarify all aspects of this in the kick-off workshop. We discuss the customer-specific processes, clarify the implementation in the software and advise our customers on how things can be organised more efficiently and securely.
Finally, we would like to point out that we are a big fan of not only monitoring the deadline and treating it correctly for tax purposes. We also always recommend that our customers regularly use a report to find out which travellers may be affected by this deadline in the near future (e.g. after 2 months). Based on this report, you can talk to the individual employees and perhaps reschedule customer assignments a little and thus achieve 28 days so that the deadline is interrupted.
If you would like to find out for yourself whether this is relevant at all or what the first concrete steps could look like for you, we will be happy to help you. For this reason, we are now also offering free consultations lasting approx. 1 hour. In these 45 - 60 minutes, we will work with you to find out where you stand and what your specific path to digitalisation could look like.
If this is of interest to you, please book an appointment directly here.
In any case, as always, we look forward to your feedback.
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