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Germany, which boasts the largest economy in the European Union, is a home to booming sectors such as tech, banking, and healthcare. As the world’s fourth largest economy, Germany is a hub for some of the world’s top talent, with multinational firms, tech companies, and startups setting their sights on building local HQs in Berlin, Frankfurt, and other cities.
Payroll in Germany is how companies manage onboarding, payments, benefits, deductions, compliance, taxes, terminations, severance, and other parts of the employee lifecycle.
Companies without a German entity can manage payroll with an EOR partner like Via.
No matter what path you choose, it’s important to maintain compliance with all local and federal regulations. As an employer, you need to pay close attention to details, including individual income tax, social security, health insurance, sales tax, withholdings, and business tax.
This article outlines everything employers need to know about setting up payroll in Germany, as well as what employees should expect when being put on payroll.
The pay cycle in Germany is monthly. Payments are issued around the 25th day of the month and must be made on a working day. You will also need to pay employees using their bank account information.
However, German laws have strict data protection for employees. You can have their personal data to run and issue payment, but you must keep this data safe and secure. Paying employees can only occur using Germany’s file transfer and access management (FTAM) protocol.
The minimum wage in Germany is 9.50 (EUR) per hour or 1,584 (EUR) per month.
The tax year in Germany run from the 1st of January to the 31st of December.
Setting up payroll in Germany is quite complex, as is establishing a business or subsidiary in the country. In addition to setting up a subsidiary, statutory laws require businesses to file a large amount of different financial filings.
If you decide to expand your business by opening up a subsidiary, you will need a tax advisor that can help you navigate different payroll options. You will also need to hire a legal advisor to give you advice about doing business in Germany.
Further, you will need extensive documentation from employees to add them to the payroll:
ID/passport
Tax ID number and bracket
Residence permit/work permit
Social security number
Banking information
It can take up to six months to meet all of the necessary laws and requirements to run your own internal payroll. For companies looking to hire German talent immediately, partnering with an EOR service like Via can expedite the process.
The pay cycle in Germany is monthly. Payments are issued around the 25th day of the month and must be made on a working day. You will also need to pay employees using their bank account information.
However, German laws have strict data protection for employees. You can have their personal data to run and issue payment, but you must keep this data safe and secure. Paying employees can only occur using Germany’s file transfer and access management (FTAM) protocol.
The minimum wage in Germany is 9.50 (EUR) per hour or 1,584 (EUR) per month.
The tax year in Germany run from the 1st of January to the 31st of December.
Employers should plan to pay around 22.33% of the employees salary to social security contributions. Social security costs are split equally between the employee and employer, with the exception of accident insurance, which is paid in full by the employer. These contributions cover sick pay, sick leave, health insurance, pension, and a wide variety of other social rights.
Social security contributions are broken down into 5 parts:
Statutory health insurance
Nursing care insurance
Unemployment insurance
Pension insurance
Statutory accident insurance
Employer Contributions | Percentage |
---|---|
Retirement | 9.3% |
Health insurance | 7.3% |
Unemployment insurance | 1.2% |
Long-term health insurance | 1.53% |
Accident security | 2% |
Maternity | 1% |
Total employer payroll contributions | 22.33% |
Employee Contributions | Percentage |
---|---|
Health insurance | 7.9% |
TK-specific supplementary contribution | 0.6% |
Pension insurance | 9.3% |
Unemployment insurance | 1.2% |
Long-term care insurance | 1.52% |
Church tax | 0%-9% |
Total employee contribution | 22.05%-31.05% |
The German corporate tax for employers is 15%, plus a 5.5% surcharge. Germany has one of the higher corporate tax rates in the EU.
Further, Germany operates under a progressive income tax scheme, where rates range from 0%-45%, depending on the employee’s salary.
Single person tax rate:
0%: Up to $9,984 EUR
14%: $9,985 EUR to $58,596 EUR
42%: $58,597 EUR to $277,825 EUR
45%: $277,826 EUR and over
Married person tax rate:
0%: up to $19,968 EUR
14%: from $19,968 EUR to $115,836 EUR
42%: from $115,836 EUR to $549,226 EUR
45%: more than $549,226 EUR
For sales tax or value added tax, there is a flat rate, charged at 19% throughout the country.
13th-month salaries are not mandatory but customary in Germany and are normally paid in December each year.
The work week in Germany can be no longer than 48 hours with 8 hours per day. The working hours can be extended up to 10 hours per day, if within 6 months, the average working time does not exceed 8 hours per day. The standard work week is Monday-Saturday.
Overtime must be agreed upon in the employment contract.
The are two types of overtime. Mehrarbeit happens when the working time exceeds the normal 8 hours per day over a 6 day period. This may be extended up to 10 hours per day if the employees total working time averages 8 hours per day for 6 months. Überstunden, refers to hours worked on top of what is contractually agreed upon.
The statutory minimum paid time off for vacation is 24 days. Many employers choose to increase this leave to 30 days per year.
There are 9 national holidays that employees are required to have off.
Employees that have been employed for at least 4 weeks before an illness are entitled to sick pay at 100% of their regular salary for up to 6 weeks. After 6 weeks, the health insurance fund pays between 70% and 90% depending on the employees fund level for up to 78 weeks in 3 years.
New mothers are entitled to 14 weeks of paid maternity leave. This leave can be extended to 18 weeks in the case of complicated or multiple births. The public health insurance fund pays for maternity leave.
New parents are entitled to unpaid parental leave. Parental leave must be requested in writing to the employer 7 weeks before the start date.
Parental leave is 36 weeks and can shared by either parent. 12 months of the parental leave must be taken within the first 3 years of the child's birth or adoption.
Parents can also choose to work 30 hours per week during this period with permission from the employer.
To calculate the payroll deductions, including income tax, for employees based on their income, use the Germany (DE) - Salary After Tax Calculator to have a general overview of payroll deductions.
In Germany, there are a few options that you can choose from to set up and run payroll in the country:
Internal payroll is a good option for companies who want to build out a strong presence in the country. Employers should have the resources to directly manage the subsidiary or entity, and hire your own HR team to manage payroll. However, this option requires an extensive knowledge of tax regulations as well as being able to wait 6 months to open a subsidiary. Employers will need a variety of resources to meet all of Germany’s payroll compliances or face legal fines.
Payroll processing companies are another option. You can find a German payroll outsourcing company to manage payroll. However, you will still be legally responsible for all compliance issues, so this option must be taken with caution, to avoid any statutory issues.
PEO services handle compliance with the onboarding and hiring process, but do not shoulder as much legal liability in the case of mismanagement. This is a co-employment model, so your company will still need to open an entity in the country.
Finally, you can hire employees using a global EOR service like Via. Global Employer-of-record services handle all of the legal, payroll, and benefits compliance. An EOR takes on the legal responsibilities associated with paying and hiring compliantly in Germany. Via owns its entities and manages all of the HR responsibilities abroad.
Many people want to hire employees in Germany, but are unsure of how to navigate the country’s complex payroll processes. Via makes hiring German talent and building your global team seamless. Our easy-to-use platform helps you manage the local HR processes for benefits, payroll, background checks, and more. We have a local team of lawyers and on-the ground experts that understand compliance as you expand abroad.
As your employer-of-record/entity in Germany, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Germany with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.
Payroll in Germany runs monthly and employees are normally paid around the 25th of each month. Germany has a long list of requirements to set up payroll for employees. The German work week is 40 hours per week.
When an employee is salaried in Germany, their salary is paid annually with employment contracts, which indicate if a 13th-month salary or holiday bonus is included in their base pay.
Salaries in Germany are paid monthly, around the 25th of the month.
Germany requires 13th-month pay for some industries, depending on the collective bargaining agreement that was established between employers and employees.