Payroll in Germany

What does the payroll process in Germany involve?

If you’re running a startup or SME, you likely haven’t encountered international payroll processes yet. While many components of the payroll process are similar no matter which country you’re operating in, Germany does have some unique aspects. 

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.

When processing payroll in Germany, you need to keep the following regulations in mind:

• Compensation
• Taxes and deductions
• Payroll cycles
• Working hours
• Holidays
• Maternity leave
• Sick leave
• Termination and severance

What you need to know about payroll in Germany

Germany is extremely welcoming of foreign companies doing business in their country. As such, payroll processing is fairly similar to other European countries. 

Minimum Wages

The minimum wage in Germany is €12 per hour, which means that a full-time worker (working 40 hours per week) would earn a minimum monthly salary of €2,080. This is before taxes and social security contributions are deducted.

• The minimum wage in Germany is reviewed every two years. The next review is scheduled for October 1, 2024. It is possible that the minimum wage will be increased at that time.
• Here is a table showing the minimum monthly wage in Germany for different working hours:
  20 hours- €840
  30 hours- €1,260
  40 hours- €2,080
  50 hours- €2,500
  60 hours- €3,000
• It is important to note that the minimum wage is not the same as the average wage. The average wage in Germany is much higher than the minimum wage. In 2022, the average wage in Germany was €47,700 per year, or €3,975 per month.

Working hours and overtime

Germany is world-renowned for its work ethic, but despite what you may assume, the country also enforces strict guidelines when it comes to how much an employee can be made to work.

The standard working week is capped at 48 hours per work, with an 8 hour per day limit. There is scope to extend this to 10 hours per day if the average working time stays under 8 hours per day across a six-month period. Those looking to utilize this option should be sure they are keeping comprehensive records of employee working hours to ensure the worker is not made to work above the average.

Overtime is heavily regulated to ensure workers are fairly compensated for any extra hours they have to work. Any overtime work must stay within bounds of the maximum working hours as stipulated in the employment contract, collective agreement, or any other legally binding document.

Germany has two common types of overtime that conform to slightly different standards. The first, referred to as Mehrarbeit, refers to any working hours that exceed the 48-hour maximum limit as stated in the Working Hours Act. The second, Überstunden, refers to any hours worked on top of the agreed hours as stated within the employment contract. Both types are legally permissible and employees must be compensated. 

‍Don’t get overwhelmed learning overtime rules in Germany. Leave it to the experts and talk to the Skuad team today.

Germany payroll taxes and deductions

Taxes

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 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 (known as the Grundfreibetrag) changes annually. On top of this, employees who meet a certain income tax obligation must also pay the 5.5% solidarity surcharge.

Employers in Germany must withhold the appropriate amount and pay social taxes to the federal government. Payments must be submitted to the applicable local tax office by the 10th of the following month. 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)

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.

Paid leave for German employees

Germany offers its workers 24 working days of paid annual leave, as stated in the Bundesurlaubsgesetz — the Federal Holidays Act. That said, collective bargaining agreements often increase entitlement to 30 working days. Employees working in high-risk environments are also afforded additional leave. 

Public holidays in Germany can differ depending on which state the employee works in. There are 9 nationally recognized public holidays which include the typical Western public holidays such as Easter and Christmas. Unique public holidays include Whit Monday and German Unity Day.

Germany offers a generous sick leave program. If an employee has worked for a minimum of four weeks, they are entitled to 100% of their regular income for up to 6 weeks of sick leave. After 6 weeks, the health insurance fund will pay between 70% and 90% for incapacity caused by the illness, depending on the employee’s fund level.

Pregnant employees are entitled to 14 weeks of paid leave, which can increase to 18 weeks due to complicated births. Prenatal leave starts 6 weeks before the expected due date, with the remaining 8 weeks taken after the birth. New parents are also entitled to unpaid parental leave of up to 36 months, including 8 weeks of postnatal leave. This can be used at any point between birth and the child’s seventh birthday, though parents must use at least 12 months of parental leave within the child’s first three years. 

Now… this is only scratching the surface of German payroll laws! For a full understanding, you will need to consult with local lawyers and experts. 

‍Or simply get a demo from Skuad and we can tell you everything you need to know — in terms that make sense!

Outsourcing payroll in Germany: What are your options?

Securing a new employee can be as stressful as it is exciting — even more so when you’re starting to hire internationally. Now you have your German employee or team ready to work, it’s time for you to focus on managing their payroll.

Going at it alone with payroll in Germany may seem like a solid move; you can save the money you would otherwise pay out to payroll management services in Germany or a PEO. However, international payroll requires a completely different set of processes to domestic payroll management. And if you’re trying to handle both on your own, the lines can easily blur leaving you open to accidental non-compliance.

As is the case across the globe, penalties for non-compliance can be devastating to a small business, ranging from heavy fines to jail time in extreme cases. For those who accidentally break German labor laws, the small savings they gained from manually processing their German payroll is immediately wiped out. 

Choosing to outsource your payroll can help your business avoid accidental non-compliance, especially overseas. A global payroll service like Skuad puts your business’s payroll in the hands of real experts. This means you can easily navigate the major international payroll challenges and simply focus on growing your business.

Working with Skuad as your payroll provider in Germany

With Skuad as their partner, companies no longer need to have multiple payroll partners. Skuad gives payment and withdrawal flexibility to companies and their teams, provides optimal exchange rates, takes care of remote talent by providing statutory benefits, and consolidates all payroll data on a single dashboard for easy viewing and analysis.

Skuad allows businesses to stop worrying about the intricacies of international hiring and focus on what truly matters to them. Our ways of working are fully compliant with all relevant German employment laws — and that means you can hire the best talent Germany has to offer, without any of the payroll stress.

On top of our expert powered global payroll service, we can take care of your team with brilliant benefits packages that will help your organization attract the best applicants before the big companies get a chance!

If you’re looking to hire in Germany, or anywhere else in the world, Skuad is here to make the process quick and easy. Request a demo to get started today.