COUNTRY GUIDE
The EUs most populous country, Germany’s business culture is well known for being highly focused, efficient, professional, and hardworking. Here’s what you need to know about payroll and HR in Germany.
EUR
+49
Monthly
22
Berlin
CET (GMT (+1))
German
January – December
19%
30-33%
20-22%
14-45%
After registration with the Commercial Register, the local Trade Office (Gewerbeamt) and Tax Office (Finanzamt) must be notified. You’ll receive a tax number and, if applicable, a VAT ID.
While it is not necessary to have a German bank account, it can help with reimbursement payments from authorities.
The length of the average full time working week in Germany is typically between 36 and 40 hours, dependent on sector. Most full-time jobs in Germany are seven or eight hours a day, five days a week, with an hour or 30 minutes break at lunchtime. There are strict legal limits on working hours: employees are not permitted to work more than eight hours per day.
The working week runs from Monday to Saturday, and employees must not work more than 48 hours per week. This can be extended to 10 hours per day if within six months (or 24 weeks) the overall average working time does not exceed eight hours per day. An uninterrupted rest period of 11 hours after daily work must be guaranteed. There are no opting-out provisions under German law.
There are a range of statutory pay requirements in Germany, governing minimum wage, sick pay, maternity pay, and severance pay. Let’s take a look at the core considerations for each:
All employers are required to pay staff at least the current minimum wage. As of 2023, the national minimum wage in Germany is €12 per hour. However, there are exceptions to this rule:
It’s important to note that actual earnings can vary based on job type, sector, or region, especially in industries where collective bargaining agreements are in place, where wages can be significantly higher than the statutory minimum.
Employees in Germany are entitled to their full salary for up to six weeks if they are unable to work due to illness. This is known as continued remuneration (Entgeldfortzahlung). However, if an employee falls sick within the first four weeks of starting a new job, the employer is not required to continue paying the salary. In such cases, the employee can request sick pay from their public health insurance.
If an employee is on sick leave for more than six weeks due to the same illness, they are entitled to receive sick pay from public health insurance for up to 72 weeks. This applies to both physical and mental illnesses. The amount of sick pay usually amounts to either 70% of the gross monthly salary or 90% of the net monthly salary, subject to social contributions. The maximum Krankengeld per day is set at 112.88 euros gross, leading to a maximum of 3,386 euros gross per month.
Small companies (less than 30 employees) can request a reimbursement from the health insurers if they paid a certain levy (U1). The amount depends on the respective health insurer and on the amount the employer selected for reimbursement.
Maternity pay
The Maternity Protection Period consists of 6 weeks prior to birth and 8 weeks after, all at full pay and as such during those periods’ employment is prohibited. For a multiple birth, premature births and disabled children mothers receive a further 12 weeks paid leave. The leave entitlement starts on the day of birth and ends 8 or 12 weeks later on the same day of the week as the day of the birth. In the event of premature birth, the length of time is extended by the time that the actual birth would have taken prior.
During the individual maternity protection period the employee is entitled to full pay. The remuneration of pregnant women is calculated on the average remuneration of the last 13 weeks or of the 3 months prior to the beginning of the month of pregnancy.
Dismissal of a woman during pregnancy and in the first four months following delivery is automatically described as unlawful.
Parental leave
Parental leave in Germany, known as Elternzeit, is generally an unpaid break from work. However, parents can apply for a state-funded program called Elterngeld (Parental Allowance) to compensate for the lack of salary during this period. The programme provides financial support to new parents for up to 14 months.
It’s worth noting that paternity leave in Germany falls under the parental leave guidelines, so there are no pay requirements for new fathers.
Severance pay is calculated at half a month’s wages for every year of service. This amount is standard for employees terminated for operational reasons. For those terminated for person-related reasons, severance pay may be provided based on collective bargaining agreements (CBAs) or specific agreements with the employer, but it is not mandated by national labour law.
In Germany, you’re responsible for making a number of deductions from an employee’s salary during payroll, as well as making your own contributions as an employer. Here, we’ll cover what you need to know about the German tax and social security system:
It is the responsibility of the employer to calculate and deduct employee income tax based on their specific tax class and pay it to the correct authorities. Germany has tax treaties with most countries that prevent employees from being taxed by two different countries on the same income.
2023 income tax rates for single taxpayers in Germany are as follows:
Income (EUR) | Tax rate |
Less than 10,908 | 0% |
10,909 – 62,809 | 14% to 42% |
62,810 – 277,825 | 42% |
More than 277,826 | 45% |
2023 income tax rates for married taxpayers in Germany are as follows:
Income (EUR) | Tax rate |
Less than 21,816 | 0% |
21,816 – 125,618 | 14% to 42% |
125,618 – 555,650 | 42% |
More than 555,560 | 45% |
Additional rules also apply:
The payment deadline is 10th of the following month, payable to Finanzamt. If payment or submission is made late, a penalty can be issued at a maximum of 10% of the assessed tax along with interest.
Social security contributions to Germany’s statutory social insurance schemes are obligatory by law. Both employers and employees must contribute to the different schemes. The typical contribution is around 40% of an employee’s gross income, but employers normally contribute half of this.
Employee Social Security Rate: 20-22%
Employer Social Security Rate: 20-22%
Payment Deadline: Last working day – 3
The system covers unemployment, healthcare, pension, long-term nursing care, and accident insurance.
Social security contributions by insurance type
Insurance Type | Employee Contribution | Employer Contribution | Contribution Ceiling |
State Pension System | 9.3% | 9.3% | €87,600 |
Unemployment Insurance | 1.3% | 1.3% | €87,600 |
Health Insurance | 7.3% | 7.3% | €59,850 |
Long-term Nursing Care | 1.525% – 2.375% | 1.025% – 1.525% | €59,850 |
Industrial Injury/Workers’ Comp. | 0% | 0.6% – 2% | €59,850 |
The pension system in Germany is split into the state pension scheme and private pension scheme. The state pension is generous and therefore private pension contributions are not common.
If an employee wishes to contribute to private pension scheme then this is tax-free, but pension payments are taxed when the pension is eventually received.
Moving onto to the key areas you need to consider to make sure you stay fully compliant with German employment law, now, we’ll cover the various rules and legislation governing payroll and HR compliance in Germany:
On a monthly basis the following payroll changes must be provided:
Annual leave does not need to be recorded on payslips, however annual leave records should be maintain/monitored as they will be required should an employee leave.
There are two main payroll filings you will need to make as an employer in Germany:
13th month bonuses are not a legal requirement but may often be outlined in collective bargaining agreements (CBA). If outlined in a CBA, this allows German employees who have worked all 12 months of the year to receive a full month’s payment as a year-end bonus. This would be prorated if the employee joined part way through the payroll year.
New hires must be registered within the first 6 weeks of employment, but there are special circumstances in which new starters must be registered on the first day of employment. This applies to employers working in branches such as restaurant’s etc.
When an employee joins the following information is required:
Employees need to arrange their health insurance and provide the necessary information within the new hire form.
Health insurance is mandatory for all employees in Germany, including foreign nationals. Employees are required to participate in either Public Health Insurance or Private Health Insurance. There is no state medical provided assistance in Germany.
People who are publicly insured can take out supplementary private insurance to improve their cover. Under a certain income level an employee must choose public insurance and the monthly price is shared with the employer 50/50. As of 2023, when an employee’s income rises above €66,600 gross, an employee can opt for private insurance, the price of which is determined by age, state of health, chosen tariff etc.
If the employee chooses to unenroll from public health insurance and only participate in private health insurance, they are not allowed to go back to public health insurance, unless specific criteria is met, e.g., loss of job, or income falls below €66,600 gross.
Employers must supply employees with written notice of termination and no employees can be terminated at will. The notice period and severance pay will depend on the length of employment. Employees can challenge the dismissal in court.
Employees final payment in Germany must be received within the normal payment run along with any additional payments that need to be paid in line with the employment contract.
In Germany, work permits and visa requirements vary based on your nationality, the duration of your stay, and the nature of your work. Here’s a simplified overview:
Types of work visas:
The social security contributions cover a wide range of benefits however in addition to social security employers must offer:
Supplementary benefits in Germany often include:
In Germany, employment law grants employees a legal right to holiday time, typically 24 working days per year for a 6-day work week or 20 days for a 5-day work week, with most full-time employees receiving 25 to 30 days annually.
Employees are entitled to their full vacation after six months of continuous employment with the same employer, with any fractional vacation days rounded up to the nearest half or full day. Employees accrue 1/12th of their annual leave for each full month of employment.
While vacation days can be carried over to the next calendar year for urgent operational or personal reasons, they must be used within the first three months of that year. Any unused vacation due to employment termination must be compensated.
Any contractual annual leave beyond the statutory minimum should be clearly stipulated in the employment contract.
Germany celebrates nine national public holidays as well as additional public holidays that vary by state, those that are nationally recognised are the following:
Holidays are always observed on the day on which they fall, even if they fall on a weekend. Holidays are not moved to the nearest Monday, nor do employees get a free day in compensation for a holiday falling on a non-workday.
If employees are required to work on a holiday that falls on a working day, they must have a day of rest in compensation, which must be granted within a period of 8 weeks including the day of employment.
Employees are entitled to at least 6 weeks of sick leave at full salary if the employee can present a medical certificate from their doctor (more than 3 days of sickness requires evidence), without a prescribed maximum depending on further certification.
If the employee falls sick again due to the same illness, the 6-week period will start again if 6 months have passed since the end of the last sick leave or if 1 year has passed since the beginning of the first sick leave.
For an employee who falls sick during their annual leave and is unable to perform work as certified by a doctor, then those days are not counted under vacation days. As opposed to public holidays where employees receive their continued remuneration because of sickness but they do not get another day off.
Employers generally accept up to 30 sick days per year. Exceeding this limit, especially repeatedly over several years, can be viewed as unreasonable and could potentially lead to termination of employment.
Legally, employees must provide a doctor’s note after three days of sickness (on the fourth working day). However, companies can specify a shorter period in the employment contract, sometimes requiring a note after just one or two days of illness.
In Germany, all employees are entitled to parental leave, an unpaid break from work for parents (biological or adoptive) to care for and raise their child. This leave can last up to 3 years per child and must be requested 7 weeks in advance. Parents can use this leave any time before the child’s 3rd birthday, and a portion of it can be taken between the child’s 3rd and 8th birthdays. Parental leave is optional and can be taken by either or both parents, either separately or simultaneously, and can be divided into up to three separate periods.
Paternity leave in Germany falls within the parental leave regulations.
During parental leave, parents can choose to not work or work part-time (15 to 30 hours per week). Parents of premature babies are entitled to additional leave. While on parental leave, employees have job protection, meaning they cannot be dismissed and have the right to return to the same or a similar position.
Parental leave also covers most aspects of adoption leave, also unpaid. The principal difference is the timing as adoptive parents can take a minimum of two months and a maximum of two years of unpaid parental leave and split the time between two parents based on adoption dates.
The employer is liable to pay employees for such leave in cases where such a claim has been agreed between the employer and employee via an agreement/works council.
In both cases, employees are protected against dismissal from the date they inform the employer about their impending leave. An employee can only take a carer’s leave once for the same person in need of care. Employees may also need to provide proof, such as a medical certification.
In the case of part-time leave, they must state which hours they want to work. In the case of part-time leave, the employer and employee must also draw up a written agreement on the reduction and distribution of the employee’s working hours. In so doing, the employer must grant the employee’s requests, unless there are important business reasons not to.
Short term:
Employees, in the broadest sense, have the right to unpaid leave from work for up to 10 workdays in special circumstances when a relative requires support. This is necessarily used to organize need-based care an acute medical situation or to ensure care during this time.
Long term: (Nursing Care Leave)
An employee is entitled to unpaid leave for a close relative who needs care at home for a period of a maximum of 6 months, instantiated by medical certification. The claim does not apply to employers with 15 or fewer employees and in ideal cases would be 8 weeks in advance. In case, the close relative is no longer in need of care or home care, the leave ends 4 weeks after the change in circumstances.
Arrangements for a partial leave must be set up in writing for both parties involved at least 10 days before a claim is made.
Bereavement leave:
There are no laws specifying a minimum number of days an employer must provide for bereavement days in Germany. 2 days is usually given for mourning and funeral for a close relative, but specifics should be written in the employment contract and are often governed by works council agreement.
Special event leave:
Employees can take a few days to deal with a variety of non-work related matters within a year while receiving their regular pay, this is culturally practised with a variety of legal settings to underpin paid time. Works council time on a voluntary basis must be paid for by the company, there are other protected rights that confer additional rights on this basis. Additional life events such as support moving house/weddings e.c.t are provided at paid time but depends on the contract, works council and federal state.
Sabbatical leave:
Sabbatical leave is generally stated in works councils or embedded within the contract itself and as such may vary as a result. This is a defined period during which the employment contract is suspended along with pay, there are no fixed periods but culturally speaking this is capped at 1 year.
There have been recent changes in how annual leave accrues during this period, at present annual leave does continue to accrue during this time with the German Federal Labour Court rendering judgements.
The most common legal structure used by international businesses in Germany is a GmbH, which stands for the Gesellschaft mit beschränkter Haftung. This is a popular structure because the liability of the members is only limited to the amount of invested capital.
You can register for a GmbH-Private Limited Liability Company with just one shareholder and one director with a minimum of 25,000 EUR share capital. The shares of a German GMBH cannot be transferred to the public nor registered at the Stock Market.
The company formation process in Germany includes preparing the necessary company documents needed for registration and entry into the German Commercial Register, such as the articles of association, specimen signatures and a set of passport copies for the company directors to confirm identities.
Part of the official documentation must be signed in front of a public notary in Germany. Your company will also need to find a registered office, have a business bank account and hire a local accountant for the company.
GmbH is an abbreviation of the German phrase ‘Gesellschaft mit beschränkter Haftung,’ which means ‘company with limited liability.’
Share capital is EUR 25,000, 50% of which must be paid up-front.
To form a GmbH you will need to:
Your application will then be revised by the Register Court and if successful the GmbH will then be registered with the Commercial Registry.
It takes an average of 12 weeks to set up a company.
If you provider goods and services for which VAT is chargeable, you are generally required to register for VAT—and this is particularly the case if your annual turnover exceeds €22,000. If your turnover is below 22,000 in the current year and expected to be below 50,000 in the next year, yu can opt for small business regulation where you are not required to charge VAT to your customers, but you cannot reclaim VAT on your business expenses.
Rules may differ depending on cross-border transactions. For example, if you sell digital services to consumers in other EU countries, you may need to register for VAT regardless of your turnover.
Even if you’re not required to register for VAT, you can do so voluntarily so that you can reclaim VAT on your business expenses. Registration is done through the local tax office (Finanzamt).
No. Your directors do not need to live in Germany.
The new German R&D tax credit is available for personnel expenses and fees for subcontracting related to any activity that relies on a technical discipline to improve a product or process.
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