Germany offers companies great opportunities for international growth with one of the largest economies in the world, a sophisticated business infrastructure, and perfect location in the heart of Europe.
There are challenges with doing business and managing payroll in Germany. There is a complicated tax system, several required tax payments during the year, and up to 14 different types of taxes imposed on businesses. There are also many local regulations that require additional certifications depending on the type of industry and company.
Payroll and Tax Considerations:
- The national minimum wage is EUR 9.35
- Work hours are regulated by the Hours or Work Act. Regular full-time employees cannot exceed 8 hours per day. There is a 10 hour limit, including overtime, as long as the 8 hour rule is maintained over a 6 month period
- Minimum working age is 15 years. In the case of light work, minors over 13 are allowed to be employed
- Employees are entitled to severance pay due to operational termination, termination by the judgement of a court, immoral or extraordinary dismissal as determined by a court
- Written contracts are not mandatory to begin a job, but a document with work conditions must be put in writing no later than one month after the employee start date
- Pension contributions are paid by the employee and the employer, with each paying half of the contribution. Some workers have additional pension schemes administered by their employer and private savings plan
- There is a progressive income tax rate ranging from 0-45%. Any income over EUR 9408 is subject to income tax
- There are 2 additional taxes applied to all incomes. Solidarity surcharge of 5.5% of the income tax and Church tax of 8-9% of the income tax – levied if the taxpayer is a member of a church
HR and Statutory Requirements:
- Workers in Germany are entitled to a minimum of 24 working days of leave per year. Annual leave can be transferred to the next year but must be taken by March 31 of the following year
- Sick leave is regulated by the Sick Pay Act. This requires employers to provide employees with 6 weeks of paid sick leave for each illness that results in the inability to work
- If a sick leave lasts longer than 6 weeks, the employee receives a sickness allowance through health insurance in the amount of 70% of most recent salary
- Female employees are entitled to 14 weeks of paid maternity leave (6 weeks prenatal leave and 8 weeks of postnatal leave)
Leave policies in Germany:
In accordance with the labor laws of Germany, the following rules apply to payment for absence due to regular illness (including government mandated quarantine with Covid-19)
- Employer paid six (6) weeks salary
- After six (6) weeks, health insurance will take over sick leave payments
- Employers with less than 30 employees can request a reimbursement from the health insurance
- In the case when an employee has had contact with someone who tested positive for an infectious disease and must remain home under quarantine, the employee is entitled to the same six (6) weeks’ pay.
Holidays in Germany
- January 1 – New Year’s Day
- April 15 – Good Friday
- April 18 – Easter Monday
- May 1 – May Day
- May 26 – Ascension Day
- June 6 – Whit Monday
- October 3 – Day of German Unity
- December 25 – Christmas Day
- December 26 – Boxing Day
The tax year ends on December 31st, and tax declarations must be made by May 31st each year. Monthly and yearly reporting of social security and Benefits in Kind are required. Monthly and annual reporting obligations include social security and withholding tax statements, statutory accident insurance and more. Social security statements must be completed and submitted for each employee in March of each year.
Blue Marble can help you get payroll and business operations up and running to ensure compliance in Germany. Our cloud-based payroll technology provides customized, aggregated reporting to give you real-time access to payroll across all countries. We have a hybrid service model with a US-based team and in-country experts in Germany to help when questions come up. Talk to us today about simplifying your payroll in Germany.