Germany Payroll Services

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Germany Payroll

At Bradford Jacobs, our Employer of Records (EOR) platforms provide reliable solutions for companies wishing to establish their presence in the German economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated Germany Payroll solutions that can be personalized to your requirements.

We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the German payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.

When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Germany.

What Germany Payroll Options Are Available for Companies?

Businesses in Germany have access to a variety of payroll options, depending on their needs:

Remote payroll - Businesses may choose to operate under a single payroll system for all employees, by adding employees in Britain to your parent company’s payroll. However, employees in Germany have to operate under different regulations, which can cause confusion.

Internal payroll - You may also operate payroll out of your subsidiary, especially if you are committed to growing your company’s presence in Germany. However, this does require hiring a dedicated HR staff that understands the local employment and compliance laws.

Germany payroll processing company - If you are keen on outsourcing, working with a German payroll processing company will help in your payroll process – but not compliance.

Germany payroll outsourcing - An option that solves both payroll and compliance needs - working with a company like Bradford Jacobs. We can handle both your payroll and compliance for all your employees in Germany. We take the stress of administration off your shoulders so you can focus on what you do best.

Germany Payroll Services

In Germany, payroll regulations change frequently, and corporation may risk penalties or sanctions if they do not comply. Bradford Jacobs’ payroll services provide what you need - ensuring you stay up to date with the rules. We make filings and associated payments for wage tax and social security contributions directly from our payroll system to the relevant authorities. Our role includes:

  • Registering with the German Tax Office
  • Registering with the Social Security Organization (Sozialversicherungen)
  • Creating employment contracts and ensuring their compliance to local employment laws
  • Calculating employees’ monthly salary and sending them their pay slips
  • Researching for any available tax incentives
  • Corresponding with the involved parties
  • Submitting employees’ or employer’s wage tax returns and national insurance forms
  • Creating and submitting your company’s annual accounts, administration, and year-end statements
  • Creating payment schedules for wage tax, national insurances, and net wages
  • Ensuring proficient personal income tax returns for you and your employees
  • and more!

It is easy to see why outsourcing payroll a popular practice for many employers in Germany. It saves money, time, and guarantees that your employees are paid, tax returns are filed, and social security obligations are fulfilled in full and on time. Bradford Jacobs provides the complete service to remove the anxiety and stress from your administration.

What Is Required to Set up Germany Payroll?

The requirements for setting up payroll in Germany will depend on how you establish your presence in the country. If you would like to set up your business as a subsidiary, you will need to have your subsidiary established first – but this can take some time, depending on where you incorporate as well as the entity type you choose.

To start processing payroll in Germany, you will also need:

  1. An employer tax number
  2. An employer company number with the Employment Agency (Betriebsnummernstelle)
  3. Statutory accident insurance (Berufsgenossenschaft)
  4. Registration for VAT
  5. A local bank account
  6. A File Transfer and Access Management System (FTAM)

These registration processes can take up to six weeks. It is not mandatory for subsidiary companies to have an in-country bank account, though this is advisable. Companies with local bank accounts can benefit from reimbursements from the government or tax authorities.

Payroll should be set up by the employer to make employee payments through a File Transfer and Access Management (FTAM). This enables the employer to authorize bank-releasing payments to all employees, including health and social insurance.

What Entitlement/Termination Terms Are Needed to Set up Germany Payroll?

Employees in Germany can benefit from entitlements for both employment and termination, which are enforced by the local legislation, collective bargaining, trade councils and labor institutions:

National Minimum Wage - The current minimum wage in Germany is EUR 1,585 per month. However, an employee’s monthly wage varies according to their industry, service, qualifications, and experience.

Working Hours - The workweek in Germany is defined as 6 days, from Monday to Saturday. The working time cannot exceed 8 hours in a day or 48 hours in a week.

Overtime - Overtime may only be performed if there is a provision in the employee’s individual contract or their collective bargaining agreement. Employers are also not obliged to compensate employees for their overtime work or provide a premium for overtime work.

Annual Leave - Employees in Germany are entitled to a minimum of 20 days of paid leave per year. Most employers, however, provide between 25-30 days of leave. The employee must use their vacation days during each calendar year, but unless stated otherwise by the employer, vacation days can be carried over until March 31st of the following year.

Sick Leave and Pay - The first 6 weeks of sick leave is covered by the employer and is paid at 100% of the employee’s salary. After that time, any additional payment is paid by the health insurance.

Employees must notify their employers if they are ill. If sick leave is longer than 3 days, employees must submit a doctor’s certificate.

Holiday Leave - There are 10 holidays that all states in Germany follow:

  • New Year’s Day – January 1st
  • Good Friday
  • Easter Sunday
  • Easter Monday
  • Labor Day – May 1st
  • Ascension Day
  • Whit Monday
  • German Unity Day
  • Christmas Day – December 25th
  • St. Stephen’s Day – December 26th

However, the total number of public holidays varies according to the state, with a maximum of 13 holidays. Employees are not entitled to extra pay if they work on a public holiday. If employees work on a public holiday that falls on a working day, they are entitled to a day of rest in compensation.

Maternity Leave - Pregnant employees in Germany are entitled to six weeks of paid leave prior to the child’s birth, as well as 8 weeks of paid leave after birth. For premature or multiple births, the employee is entitled to 12 weeks of paid leave.

All leave types are compensated at the employee’s full pay. Maternity leave in Germany is compensated by the employer and reimbursed by the Health Insurance company.

Paternity Leave - There is no leave benefit that is specific to fathers, although either parent can take advantage of parental leave.

Parental Leave - Parental Leave in Germany is 36 months and may be divided between the parents as they see fit. The eight weeks of maternity leave after labor are also counted as part of this leave. In the mother’s case, however, the parental leave starts after her maternity leave stops.

Parental leave must be requested in writing and submitted to their employer at least seven weeks before its start.

During this time, parents may choose to work part-time for up to 30 hours per week. At least 12 months of parental leave must be taken within the first three years after labor, and the rest can be taken until the child reaches the age of eight.

Termination/Severance - During employment termination in Germany, the employer should give a reason as to why the employee is being dismissed.

A dismissal notice must be given in writing, as well as be signed by the employer’s authorized representative. Severance payments are not mandatory if a justified reason is made, as well as a proper notice is given during employment termination.

However, severance payments are mandatory for termination caused by operational changes. In these cases, employers must give a half-month of the employee’s regular wage for every year that the employee has worked in the company.

13th Month?

In Germany, certain collective agreements allow German employees to receive a full month’s wage payment as an end-of-year bonus, known as a “13th month” pay.

What Taxation Rules Exist for Payroll?

An important feature of payroll in Germany is knowing about the country’s tax regulations.

The tax year is the calendar year. Employees must be provided with pay slips monthly, either manually or online. According to German law, payroll information and reports should be kept for six years, whilst book-keeping information should be kept for 10 years.

However, besides payroll information, employers in Germany also have to keep these following tax payments in mind:

  • Corporate Tax – Companies in Germany are obliged to make an income tax payment of 15%, and they are also subject to a 5.5% solidarity surcharge tax. Corporate tax returns must be filed by the 31st of July of the following year, or the last day of February of the following year if you use a tax adviser. Taxes are paid in quarterly installments.

  • Income Tax – Income Tax in Germany is progressive, depending on how much the individual/employee earns.

    Employers need to calculate income tax payments for each employee – based on their tax class – and pass the withheld tax to the authorities by the 10th of the following month. Late submissions incur a 10% penalty on the assessed tax with a further interest of 6% per year. Income taxes returns must also be filed by the 31st of July of the following year. This income tax rates are as follows:

    - EUR 0 - 9,744 - 0%
    - EUR 9,744 – 57,918 - 14%
    - EUR 57,918 – 274,612 - 42%
    - EUR 274,612 & above - 45%

  • Social Taxes – Statutory social security contributions must be withheld from the employee’s salary, as well as separate contributions by the employer for the following funds:

    Employer's Social Security Contributions

    - Health Insurance (KV) – General Contribution Rate: 7.3%
    - Additional Individual TK (health insurance) contribution rate: 0.6%
    - Pension Insurance (RV): 9.3%
    - Unemployment Insurance (AV): 1.2%
    - Long-term Care Insurance (PV):  1.525%
    - Additional Long-Term Care Insurance (for childless individuals): 0.25%
    - Insolvency Charge: 0.12%
    - Accident Insurance: Depends on industrial sector and the accident risk of the job

    Employee’s Social Security Contributions
    - Health Insurance (KV) – General Contribution Rate: 7.3%
    - Additional Individual TK (health insurance) contribution rate: 0.6%
    - Pension Insurance (RV): 9.3%
    - Unemployment Insurance (AV): 1.2%
    - Care Insurance: 1.525%

For more information on taxes, you can check out our Germany Tax page, or Germany’s tax portal.

Stress Free Global Expansion

If you are looking to expand into Germany and need your employees’ payroll managed with extensive management in compliance, contact us today to see what our International Payroll services can do for you.