Insolvency Wage Guarantee Fund faces funding gap and rate hikes

The Austrian Court of Audit has reported a significant funding gap in the Insolvency Wage Guarantee Fund (IEF), which secures employee claims such as wages, vacation pay, and severance in the event of employer insolvency. The report indicates that previous reductions in contribution rates have depleted the fund's reserves, necessitating an increase in employer contribution rates by 2027 or 2028.

The Court of Audit also identified potential risks of misaligned incentives, noting that certain claims, such as unverified overtime, could be exploited, and that long severance periods might discourage job seeking.

In response, the Austrian Trade Union Federation (ÖGB) has rejected proposals to reduce benefits for workers. Instead, the federation argues that the solution lies in increasing employer contributions to ensure the fund fulfills its legal obligation to protect earned wages without shifting insolvency risks onto employees.