Payroll in Germany
Employers in Germany must provide employees with payslips, which will contain information pertaining to tax deductions and social security contributions (pension, health, unemployment and nursing insurance), along with their total earnings in that pay period. The minimum wage in Germany is set at €8.50 per hour (with some exceptions for employees under 18, and other special cases), while the maximum number of hours in a workweek is 48 - compensation provisions must be made for handling overtime work. It is legal to issue online payslips in Germany.
Payroll processing, in each country is driven by local labour laws, different types of legislation and directly implemented rules. This can sometimes be a challenge for large multinational companies and companies expanding internationally.
The information below looks at the main features of payroll in Germany and the complexities tied to the country’s flexible and very involved social system. Payroll in Germany includes collection of different taxes and, importantly, the mandatory contributions to social insurance schemes.
German payslip explained
There are several payroll highlights be aware of, these include:
- Determined by federal labour laws and collective or company agreements
- Using a monthly salary basis; allowances and bonuses determined by collective/company agreements
- Three different taxes withheld at source
- Automatic contributions to four social insurance schemes with a choice of set up and fund (Krankenkasse)
- Significant reporting, archiving and interfacing with third parties
What information do you find on a German payslip?
- Commencement Date, Length of service, DOB, Employee number
- Cost centre, Department, Job Function, Pay group, Pay scale & Pay level
- Tax class, Child tax exemptions, Religion, Annual tax-free amount, Monthly tax-free amount, Retiree tax rule1, Retiree tax rule2, Tax days
- Insurance fund identity number, Social security code, Retiree Social security code, Pension special fund, Child allowance, Private insurance, Pension contribution exemption, Multiple jobs, Social insurance days
- Employer contribution to your savings plan
- Deduction for tax and/or social security
- Awarded Bonus
- Non-cash benefits (these may vary company to company)
- Benefits in kind subject to V.A.T (Car/ Phone etc.)
- Gross Total
Taxes and social contributions
- Income tax
- Solidarity surcharge tax
- Church tax
- Health insurance contribution
- Long-term care insurance contribution
- Pension insurance contribution
- Unemployment contribution
- Total of statutory deductions
- Net income
- Credits to savings plan
- Any other deductions/ adjustments
- Non-cash benefits
- Employer contribution to private pension scheme
- Employee contribution to private pension scheme
- Amount Paid
Social Insurance Fund/ rates + Monthly and Annual amounts
- Health insurance
- Pension insurance
- Long-term care insurance
- Unemployment insurance
Please see below the German words and their meanings as they will appear on your wage slip
Information about the employee’s situation that is used for the numerous tax and social contribution calculations.
The most commonly found are:
- Steuerklasse: Tax class, determines your income tax rate.
- ZKF (Zahl der Kinderfreibeträge): This is the tax exemption for children.
- Konfession: Religion. Coding is as follows, Roman Catholic (rk), Protestant (ev) or none (--). Determines if employee is subject to church tax.
- SV-Schlüsssel. KV/RV/AV/PV: Social insurance codes. Indicates the required contribution level for the four major social insurance schemes according to the employee status. e.g. 1 = full contribution.
- Gehalt: Your monthly base salary.
- VL: AG-Anteil: Voluntary employer contribution to savings plan: note, employees who save money receive additional contributions from their employer.
- Gehaltsumwandlung: Deduction for tax and/or any other social benefits.
- Bonus: Speaks for itself! Granted according to company-specific or descrestionary agreements
- Geldw Vorteil: Non-cash benefits – subject to tax and/or social contributions.
- Erlös Sachbezug: benefits in kind subject to V.A.T.
Social insurance contributions
Employee contributions to social insurance funds.
- KV-Betrag- AN: Health insurance contribution.
- PV-Betrag- AN: Long-term care insurance contribution.
- RV-Betrag- AN: Pension insurance contribution.
- AV-Betrag- AN: Unemployment insurance contribution.
These four employee contributions are complemented by an employer contribution. In addition to this employers contribute to maternity leave and accident insurance funds for their employees.
Sozialversicherungssätze: Rates of the four social insurance schemes to which employee contribute.
- KV-Satz: Health insurance rate
- PV-Prozentsatz: Long-term care insurance rate
- RV-Prozentsatz: Pension insurance rate
- AV-Prosentstaz: Unemployment insurance rate
These taxes are calculated, withdrawn from salary and paid to tax authorities by your employer.
- Lohnsteuer: Income taxes. Calculated at progressive rates, taking into account the employee’s individual situation and rates.
- Solid. Zuschlag: Solidarity surcharge. Tax created in 1991 to fund the country’s reunification efforts. A progressive rate (capped at 5.5 % in 2013) applies above the salary exemption ceiling.
- Church tax: paid by employees who report they are Catholic or Protestant. In 2013, the rate was 9% of the income tax in most of the country.
Other German key words that can be found on your payslip are;
- VL-Sparbetrag: Employee savings on company “sponsored” plan.
- D-Vers-AG, D-Vers-AN: Employer and employee contribution to a private pension scheme.
- Monatswerte/Jahreswerte: Summary of monthly and annual bases, rules and exemptions for social insurance contributions and taxes
red to other social insurance premiums, those for statutory accident insurance are low. Averaged over many years, the premium for employers has been in the region of 1.3%
You may also find the following German Tax Guides useful