Payroll & Benefits in Germany | CXC Global (2024)

Navigating the complexities of payroll in Germany amid constantly changing labour laws and regulations can be a daunting task for any growing business. Errors in payroll processing can be costly, resulting in financial setbacks and damage to your company’s reputation. The penalties for non-compliance can be severe, as well as the potential consequences for employee morale, productivity, and engagement.

To mitigate risks and ensure compliance, many companies are turning to payroll outsourcing as a strategic solution. Outsourcing your payroll in Germany can significantly streamline your operations, enabling you to focus on your core operations and achieve your global growth goals. Though handling payroll in-house may seem viable, it is much more complex and challenging than it appears, as regulations are frequently changing. Opting for payroll outsourcing to a reliable payroll service provider like CXC can help you stay compliant in your global expansion journey.

In our comprehensive guide, we offer invaluable insights on managing a compliant payroll in Germany. From understanding minimum wage requirements to navigating statutory benefits, we provide the essential information you need to streamline your payroll operations effectively. Moreover, we will explore the benefits of partnering with a reliable international payroll service provider to optimise your international expansion efforts

As of 2024, the minimum wage in Germany is set at 12.41 EUR per hour gross, as reviewed every two years by the Minimum Wage Commission in Germany in consideration of economic conditions and wage trends. This translates to a minimum monthly wage of 2,151 EUR gross based on the standard 40-hour workweek.

What is the average salary in Germany?

The average annual income in Germany is approximately 48,000 EUR. Determining the average salary in Germany varies based on the following factors:

• Industry: The average salary in Germany varies depending on the industry. For example, sectors such as finance, IT, and engineering are known to offer higher average salaries due to the demand for specialised skills. On the other hand, industries like retail or hospitality may have a lower average salary due to market dynamics.
• Geographical location: Salaries tend to be higher in metropolitan areas, such as Frankfurt or Munich, mainly because of the higher cost of living and increased competition for talent. Meanwhile, the regions in Germany with lower living costs and a different industry landscape may have a lower average salary.
• Workers’ qualification and experience: Typically, employees with higher educational degrees, certifications, or extensive work experience have higher earning potential. Moreover, negotiating skills and market demands for specific skills can impact individual salaries.

Keeping track of these factors and aligning compensation strategies with market trends enables you to attract and retain top talent in Germany. Ensure that your salary offerings remain competitive while staying compliant with laws and regulations. Moreover, you must also guarantee equal pay for work of equal value regardless of the worker’s gender, race, ethnicity, or age.

Payroll cycle in Germany

The payroll frequency in Germany is monthly, with employees receiving their salaries on or around the 25th of the month. Typically, the employees receive the payment into their bank accounts.

13th-month salary in Germany

13th-month salary is customary in Germany and typically given on the December pay date. It is customary for employers to provide this extra month of payment to their employees as a year-end bonus.

Payroll taxes in Germany

Payroll taxes in Germany are based on monthly earnings and are usually deducted from employee’s salary every pay period. Employers should be aware of several aspects related to payroll taxes to ensure compliance and accurate financial planning. This includes the following:

• Tax deductions from employee salaries: Employers in Germany are responsible for withholding the correct amount on behalf of the employee.
• Statutory deductions: Employers are responsible for deducting various taxes, such as wage tax, church tax, and solidarity tax. The church tax in Germany, known as “Kirchensteuer,” is a tax collected by the state from members of certain recognised religious denominations to provide financial support for the churches. It is typically collected automatically from an employee’s salary. The church tax rates generally vary between 8% and 9% of an individual’s income tax, depending on the state. Members of the recognised churches are typically subject to the church tax unless they officially unregister from the church, which involves a formal process and may require a fee.
• Social security contributions: Employers are also responsible for withholding and remitting social security contributions from employees’ salaries, which cover pensions, unemployment, and healthcare insurance.
• Solidarity tax: The Solidarity Tax (Soli) is an additional tax in Germany, with a flat tax rate of 5.5% of the employee’s gross income. As of January 1, 2021, the application of the solidarity surcharge tax has been substantially reduced, resulting in tax relief for an estimated 90% of German taxpayers, including freelancers and self-employed business owners.

Payroll tax rate in Germany

In Germany, the payroll tax rate is determined by a progressive tax system, where the percentage of tax increases with higher income levels. This means that the tax rate is not a fixed percentage but rather varies based on the employee’s earnings. For instance, in 2024, the tax-free allowance for a single employee is set at 11,604 EUR annually or 967 EUR monthly, which means that income up to this amount is not subject to income tax.

The progressive tax rate ranges from 0% to 45%, with higher-income individuals being subject to higher tax rates.

Payroll processing in Germany

When it comes to paying employees in Germany, there are important steps and considerations to keep in mind:

1. Register as an employer: Employers must obtain an Employer Identification Number (EIN) and register with the local tax office. This step is crucial for identifying the business and ensuring accurate tax remittances.
2. Gather relevant information and ensure the correct worker classification: Employers need to collect applicable information from their employees for payroll processing, such as personal details, tax forms, and bank account. In addition, they must determine their workers’ employment status and classification to ensure compliance and accurate payroll processing.
3. Set employees’ salaries in euros: Employee salaries should be set and paid in euros in Germany. Employers must ensure that the currency is correct to comply with local regulations.
4. Leverage global payroll services: Managing your payroll in-house can be overwhelming, especially if you are unfamiliar with Germany’s labour laws and regulations. Employers can leverage payroll outsourcing and partner with a reliable international payroll service provider like CXC to streamline and automate payroll processes. This can help ensure accuracy and compliance with local regulations, mitigating potential legal and financial risks.

In Germany, there is a comprehensive set of statutory employee benefits that form a substantial part of the social security system. This system provides residents of Germany with insurance coverage for healthcare, sick pay, and long-term nursing care.

The social security contributions include the following:

• Pension insurance: The contribution for pension insurance is 18.6% of gross income, with half of the contributions paid by the employer and the other half by the employee.
• Unemployment insurance: A contribution rate of 2.5% is applied to cover unemployment insurance, with equal sharing of contributions for both employer and employee.
• Health insurance: The contribution for health insurance is 14.6% and is shared equally between the employee and employer to ensure access to a wide range of health care services.
• Long-term care insurance: This policy has a specific contribution rate to provide coverage for long-term care needs.

Statutory health insurances in Germany

Germany is known to have one of the best healthcare systems in the world. Employees covered under statutory health insurance in Germany have access to a diverse range of medical services, including consultations, treatments, diagnostic tests, surgeries, and rehabilitation services. This comprehensive coverage ensures that employees can receive the necessary care without facing financial obstacles.

The statutory health insurance in Germany offers a catalogue of benefits. Some of the key benefits for employees include:

• Medical, dental, and psychotherapeutic treatment: In Germany, employees covered under statutory health insurance have the right to receive medical, dental, and psychotherapeutic treatments, as necessary. Employees can receive routine dental check-ups, cleanings, fillings, and other dental services to maintain their oral health.
• Provision of medicines, dressings, and remedies: Statutory health insurance covers the costs of prescription medicines, dressings or medical supplies, and remedies prescribed for the medical treatment of employees.
• At-home nursing care: Employees can receive at-home nursing care if needed, with the costs covered by statutory health insurance.
• Hospital treatment: In the event that hospitalisation is required, statutory health insurance provides coverage for hospital treatment and related expenses.
• Medical rehabilitation: Employees are entitled to medical rehabilitation services as prescribed by healthcare professionals, with the costs covered by statutory health insurance.
• Preventive healthcare services: The statutory health insurance in Germany also covers preventive healthcare, including screenings, vaccinations, health check-ups, and preventive treatments.
• Maternity and family benefits: Pregnant employees can benefit from maternity allowances, prenatal care, childbirth assistance, and postnatal care covered under statutory health insurance. Additionally, family members of employees, such as children and spouses, may also be eligible for coverage under specific circ*mstances.
• Mental health support: Mental health services are an essential component of healthcare, and statutory health insurance in Germany includes coverage for psychotherapeutic treatments, counselling sessions, and mental health support services.
• Rehabilitation and physiotherapy: Employees who require rehabilitation services, physiotherapy, or occupational therapy can benefit from coverage under statutory health insurance.
• Chronic disease management: Statutory health insurance in Germany offers support for managing chronic conditions through ongoing medical care, specialist consultations, treatment plans, and monitoring services.
• Long-term care benefits: This includes health insurance coverage for long-term care services, nursing care, and support for individuals requiring long-term assistance with daily activities.

Employees in Germany have the opportunity to select from a variety of statutory health insurance options. However, employees who earn above the annual remuneration thresholds have the option to get private health insurance plans instead. Regardless of the chosen plan, the contributions for health insurance are divided equally between the employer and the employee.

This flexibility in selecting between statutory health insurance and private health insurance allows employees to have options that suit their specific needs and preferences.

There are different types of bonus payments, and other employee benefits are common in Germany. While statutory benefits are mandated by law, non-statutory employee benefits provide employers with the flexibility to customise their offerings and cater to the specific needs and preferences of their workforce.

Here are some common employee benefits in Germany that you can consider when attracting and retaining top talent:

• Performance-based bonuses and incentives in Germany: Some companies in Germany offer this benefit as a reward for employees who have exceptional performance, contributions, and achievements.
• Company cars and car allowances in Germany: Some companies in Germany offer company cars or provide car allowances to employees as part of their benefits package. This benefit not only provides convenience for employees but also serves as an attractive incentive, especially for those who rely on transportation for work purposes.
• Gym memberships in Germany: To promote employee wellness, companies often provide gym memberships or reimburse employees for fitness-related expenses.
• Group accident insurance in Germany: This employee benefit ensures that employees are financially protected against accidents that may occur during work or outside of working hours.
• Jobticket (subsidized commuter passes): The Jobticket is a subsidised commuter pass, allowing employees to use public transportation at a reduced cost.
• Childcare arrangements in Germany: To highlight the importance of work-life balance, many companies offer childcare arrangements or reimburse employees for childcare expenses. This benefit not only supports working parents but also demonstrates a commitment to creating a family-friendly workplace.
• Professional development training in Germany: Some companies in Germany offer professional development training opportunities to help employees enhance their skills, knowledge, and competencies in relevant areas.
• Additional allowance for sick pay in Germany: Some employers in Germany provides an additional allowance to supplement sick pay benefits. This benefit ensures that employees receive sufficient financial support during times of illness, helping them focus on their recovery without worrying about income loss.
• Employee Assistance Programs (EAP) in Germany: Employee Assistance Programs are non-statutory benefits that provide confidential counselling, mental health support, and resources to help employees navigate personal and work-related challenges.
• Flexible work arrangements in Germany: Providing flexible work arrangements, such as remote work options, flexible hours, compressed workweeks, or job-sharing opportunities, is also common in Germany. This enhances work-life balance and promotes employee satisfaction.

By offering a wide range of employee benefits, companies in Germany can differentiate themselves as employers of choice, attract top talent, and retain highly skilled professionals. These employee benefits not only contribute to employee satisfaction and motivation but also cultivate a positive work environment, enhance teamwork, and support the overall success of the organisation.

Navigating the complexities of global payroll management can be overwhelming, but it doesn’t have to be. Partnering with a reliable international payroll service provider like CXC can be a strategic advantage as you expand your operations globally. With our extensive knowledge and team of compliance experts, you can ensure adherence to labour laws and regulations, mitigate risks, and achieve international success.

Whether you want to outsource your payroll in Germany or across multiple jurisdictions, we have a tailor-made solution for your specific requirements. Speak to our team today.