Germany is considered one of the most attractive regions in the world for foreign companies. It boasts Europe’s largest and strongest economy and a very business-friendly regulatory environment that welcomes foreign investment in the country. Despite the many advantages to expanding a business to Germany, it can be a daunting prospect becoming familiar with a territory’s employment and taxation framework. As a Global PEO and payroll outsourcing company in Germany, INS Global can help streamline your business operations in the German market with our comprehensive solution. In order to ensure your organization successfully sets up payroll and is compliant, here are some important things to be aware of.
Understanding Payroll in Germany
To launch a business which employs people in Germany, the company must register with the country’s tax and social security authorities. This includes obtaining an employer number from the Employment Agency and applying for an Employer Tax Number to enrol in the statutory accident insurance (Berufsgenossenschaft).
Personal Income Tax (PIT)
Germany operates on a progressive income tax system; whereby high earners pay a higher rate on their earnings. As a rule, it is the employer’s responsibility to calculate and withhold income tax for employees based on their specific tax class and remit the withheld amount to the authorities. This may present a steep learning curve for foreign businesses who may not be familiar with withholding taxes.
Currently, a solidarity surcharge tax rate of 5.5% is levied on the actual income tax amount. Withholding tax statements or “Solidaritaetszuschlag” is due to be paid to the authorities by the 10th of the following month. Penalties for late submission apply, including a maximum of 10% of the assessed tax and 6% annually for late payment.
Below, we’ve highlighted the income tax brackets for single taxpayers in the tax year 2020-21:
|Taxable income (EUR)||Percentage of Income Tax|
|Up to 9,408||No Tax|
|Between 9,409 and 57,051||14%|
|Between 57,052 and 270,500||42%|
Germany has a well-established social security scheme which ensures that those who contribution can enjoy rights regarding pensions, accidents, retirement, and unemployment.
All workers in Germany are required to make social security contributions. Contributions to the scheme are made by both employers and employees, with contributions amounting to around 20%. Those working in Germany for a short period of time may be eligible for a German social security refund. As with income tax, the onus is on the employer to withhold social security contributions and remit them to the authorities on their employees’ behalf.
German social security rates 2019/2020 for employees:
- Pension: 9.3%
- Unemployment: 1.25%
- Healthcare: 7.3%
- Long term care: 1.525%
As contributions are made 50:50, the same rates apply to employers.
Our German payroll solution
To avoid having to deal with Germany’s complex procedures and reporting requirements, INS Global can take care of your payroll processing on your behalf. We can provide customized support for your employees in Germany, relieving you of the administrative burden of employees in a new country. Our service includes:
- Management of employees – On a monthly basis, we process your employees’ payroll, issuing payslips to your employees through our secure online portal.
- Administrative and legal formalities – Our highly experienced team are familiar and keep up to date with changes in German employment regulations. We register your employees for social security and making accurate payments on time and on your behalf.
- Consulting on HR matters – As a leading Global PEO and HR consulting company, our team is able to offer tailored advice when it comes to drafting labor contracts, ensuring they are in line with German labor law.
INS Global: Your Payroll partner in Germany
Having a partner with knowledge of the German HR landscape is invaluable when doing business in a new territory. As your payroll outsourcing partner in Germany, INS Global can help you get your business operations, including payroll, under control. Contact one of our advisors to simplify your operations today.