Payroll in Germany

Payroll in Germany

In Germany, payroll and social taxes are regulated primarily by federal law as well as works councils, which act similarly to unions in other countries. Employers and employees share the burden of social responsibility.

Recent changes to tax requirements, including the solidarity tax and progressive tax brackets, make payroll reporting and administration in Germany more complicated than in other European countries.

If you’re looking to administer accurate and compliant payroll in Germany, you’ll need a firm understanding of the local tax and employment regulations that govern payroll processing and reporting.

Currency
The euro (EUR) is the official currency of Germany.

Payroll cycle
Employees must be paid at least monthly and employers are required to provide a written pay slip upon payment.

Taxes for payroll in Germany

Corporate tax
The national corporate tax rate for entities in Germany is 15%. In addition, they owe 5.5% for a solidarity surcharge related to reunification costs. Municipalities can levy their own taxes as well, so the total corporate tax varies based on where you are based.

Income tax
Income tax rates for employees are levied on a progressive scale, with rates ranging from zero to 45%. The base amount of income on which tax is not assessed is known as the Grundfreibetrag, and changes annually.

2021 federal tax brackets are:

  • €0–€9,744: 0% 
  • €9,745–€57,918: 14%–42%
  • €57,919–€272,612: 42%
  • €272,613 and above: 45%

In 2022, brackets adjust to:

  • €0–€9,984: 0% 
  • €9,985–€58,596: 14%–42%
  • €58,597–€277,825: 42% 
  • €277,826 and above: 45%

Additionally, some employees who meet a certain income tax obligation must also pay the 5.5% solidarity surcharge.

Employers must withhold the appropriate amount from employees’ gross payments each month, then submit payment to the appropriate local tax office by the 10th of the following month.

The penalty for a late tax submission in Germany is up to 10% of the assessed tax up to €50,000. Until 2021, when the German Federal Fiscal Court ruled it unconstitutional, 6% interest per annum was assessed on late tax payments. The courts have until July 31, 2022 to decide on a new interest rate.

Social taxes
Germany’s multifaceted social insurance scheme, known as Sozialversicherung, is financed jointly by employer and employee contributions and includes unemployment insurance, healthcare coverage, pensions and long-term care.

Employers in Germany must withhold the appropriate amount and pay social taxes to the federal government. Current contribution rates are as follows:

  • Pension: 9.3% each for employees and employers
  • Healthcare: 7.3% each for employees and employers
  • Long-term care: 1.525% each for employees and employers
  • Unemployment: 1.2% each for employees and employers (through 2022)

Workers’ compensation
Employers contribute an average of 1.3% of payroll for workers’ compensation, also known as accident insurance. Rates may vary with the assessment of risk and employees do not contribute to this fund.

Insolvency benefit
Employers are assessed an insolvency benefit contribution of 0.12% of payroll to fund wage-replacement benefits to individuals who lost work because their employer became insolvent.

Benefits tax
Employers have the option to pay a flat income tax rate—typically between 15% to 25%— for services provided to employees, like office outings, transportation, accident insurance and retirement payments.

Employee compensation and benefits in Germany

Most labor-related requirements and benefits in Germany are regulated by the German Trade Union Federation and collective bargaining agreements. The Federal Leave Act mandates time off, such as vacation, maternity, parental and sick leave. These regulatory bodies in Germany have a big impact on the structure of payroll, as they may decide issues related to working decisions, working times and wages.

When processing payroll in Germany, you’ll need to consider the following employment regulations:

Partner with Safeguard Global for your payroll in Germany

Hundreds of organizations depend on our global payroll expertise to ensure their payroll processing is accurate and compliant with local tax and employment requirements.

We support payroll in Germany in various ways: through our employer of record solution, as a local payroll provider for your German operations, and as part of a managed provider solution for your global organization.

As an employer of record in Germany, we handle payroll for your German workers, ensuring accuracy and compliance, while you manage their day-to-day contributions.

As a local provider of payroll in Germany, we can help your German operations:

  • Comply with German labor laws and regulations
  • Deduct the appropriate tax and social security withholdings
  • Ensure your employees in Germany are paid accurately and on time

As a Global Managed Payroll provider, we offer centralized multinational payroll in over 150 countries—with streamlined processing across countries, currencies, languages and time zones—to help companies gain global visibility to pay data and make smarter workforce decisions.

Whether you need payroll support in Germany through an employer of record, a local provider or as part of a comprehensive global payroll system, contact us to let our experts find the right solution for you.

The information provided on or through this website is for informational purposes only and does not constitute legal advice. Safeguard Global expressly disclaims any liability with respect to warranty or representation concerning the information contained herein, including the lost essence, interpretation, accuracy and/or completeness of the information in transit and language translation.

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