Germany is Europe’s largest economy and one of the most attractive markets for global hiring. Its payroll system runs on six tax classes, mandatory social security contributions that add 20%+ to salary costs across all pillars combined, and strict monthly filing deadlines. Getting any of these wrong can turn a promising hire into a compliance problem fast.
This guide covers how German payroll works: tax withholding mechanics, social security obligations, leave entitlements, and the practical steps to pay employees compliantly, whether you’re setting up your own entity or using an employer of record.
What is payroll in germany
German payroll runs on a monthly cycle, with employers typically paying salaries by the last working day of each month. The system uses six tax classes (Steuerklassen) that determine how much wage tax gets withheld based on an employee’s marital status and family situation. Between income tax, solidarity surcharge, and social security contributions, employees often take home around 60% of their gross salary.
Every German payslip must show specific information by law: gross salary, bonuses, non-cash benefits like company cars, and a full breakdown of deductions. Missing any of these elements can create compliance issues with German labor authorities.
- Payroll frequency: Monthly, with payment typically by month-end
- Tax classes: Six Steuerklassen based on marital and family status
- Payslip requirements: Gross pay, bonuses, benefits, and itemized deductions
Employment rules that affect germany payroll
German labor law shapes nearly every aspect of how you calculate and process payroll. Getting familiar with these rules upfront helps you avoid costly corrections later.
Employment contract requirements
German employers must provide written proof of essential employment terms under the Nachweisgesetz (Proof of Employment Act), including salary, working hours, job duties, and benefits. In practice, this means a written contract, and verbal agreements won’t hold up if disputes arise.
Probation period rules
Most German employment contracts include a probation period (Probezeit) of up to six months. During this time, either party can end the relationship with just two weeks’ notice. This shorter notice period affects how you calculate final pay if someone leaves during probation.
Standard working hours and overtime
The standard German work week runs 40 hours, though many industries and collective agreements set it at 35 to 38 hours. The Working Hours Act (Arbeitszeitgesetz) caps daily working time at eight hours, extendable to ten hours under certain conditions. Overtime compensation varies by contract: some employees receive extra pay, while others get time off in lieu.
Compensation, bonuses, and severance in germany
German compensation practices differ from what you might expect in other markets. Getting these details right affects both your payroll calculations and your ability to attract talent.
Minimum wage and salary norms
Germany’s national minimum wage (Mindestlohn) applies to nearly all employees, with rates adjusted periodically by the government. You can find the current rate on the German Federal Ministry of Labour’s website. Salaries in Germany are typically quoted as gross annual amounts, so you’ll divide by 12 for monthly payroll runs.
13Th-month salary and bonuses
While not legally required, many German employers offer a 13th-month salary or Christmas bonus (Weihnachtsgeld). These payments have become standard practice in many industries and employees widely expect them. When you process bonuses through payroll, they’re subject to the same tax and social security deductions as regular salary. A large bonus can push employees into higher tax brackets for that month.
Severance pay obligations
Germany doesn’t have statutory severance pay in most cases. Severance (Abfindung) is commonly negotiated when employment ends, particularly in terminations without cause.
The typical formula is half a month’s salary per year of service, though this varies by negotiation. Severance payments are subject to standard income tax withholding. Employees may be able to apply for more favorable treatment when they file their personal tax return, but employers no longer handle this at source.
Employer tax obligations for payroll in germany
Tax withholding is one of the more involved aspects of German payroll. As the employer, you calculate, withhold, and remit these amounts to the tax authorities (Finanzamt) each month. The obligations cover wage tax, solidarity surcharge, and church tax where applicable.
Wage tax and solidarity surcharge
Wage tax (Lohnsteuer) uses progressive rates ranging from 14% to 45%, depending on income level and tax class. On top of this, you’ll withhold the solidarity surcharge (Solidaritätszuschlag) at 5.5% of the wage tax amount, though recent reforms exempt lower earners.
Both amounts go to the local Finanzamt by the 10th of the following month.
Church tax withholding
Church tax (Kirchensteuer) applies only to employees who are registered members of a tax-collecting religious organization, primarily Catholic and Protestant churches. The rate is 8% or 9% of wage tax, depending on the federal state. You’ll check each employee’s tax registration to determine whether church tax applies.
| Tax Type | Rate | Who Pays | Withheld by Employer |
|---|---|---|---|
| Wage tax (Lohnsteuer) | 14–45% progressive | Employee | Yes |
| Solidarity surcharge | 5.5% of wage tax | Employee | Yes |
| Church tax | 8–9% of wage tax | Employee (if applicable) | Yes |
Social security contributions for german employees
Social security (Sozialversicherung) adds significant cost to German payroll. Employer contributions across all pillars (pension, health, unemployment, long-term care, and accident insurance) typically add 20%+ on top of gross salary. Contributions are split approximately 50/50 between employer and employee, with accident insurance as the exception.
Pension insurance
Pension insurance (Rentenversicherung) funds Germany’s public retirement system. Both employer and employee contribute, with the combined rate currently 18.6% of gross salary, each paying 9.3%. The contribution ceiling adjusts annually. For 2026 it is €101,400.
Health insurance
Health insurance (Krankenversicherung) in Germany comes in two forms: public (gesetzliche) and private (private). Most employees earning below the annual threshold join the public system, where the base contribution rate is 14.6% plus a supplementary rate that varies by insurer. Employers cover roughly half, approximately 7.3% plus half the supplementary rate.
Unemployment insurance
Unemployment insurance (Arbeitslosenversicherung) protects workers who lose their jobs. The current contribution rate is 2.6% of gross salary, split evenly: 1.3% employer and 1.3% employee.
Long-term care insurance
Long-term care insurance (Pflegeversicherung) covers nursing care needs. The base rate is around 3.4%, with employers and employees each paying roughly half. Childless employees over 23 pay a higher employee rate.
Accident insurance
Accident insurance (Unfallversicherung) is the one social security contribution that falls entirely on the employer. Rates vary significantly by industry and risk classification, typically ranging from under 1% to over 3% depending on sector, with the highest-risk industries paying more.
| Contribution Type | Employer Pays | Employee Pays |
|---|---|---|
| Pension insurance | ~9.3% | ~9.3% |
| Health insurance | ~7.3% + half of supplementary | ~7.3% + half of supplementary |
| Unemployment insurance | ~1.3% | ~1.3% |
| Long-term care insurance | ~1.7% | ~1.7% (higher if childless) |
| Accident insurance | Varies by industry | None |
Contribution ceilings for 2026
Contributions are only calculated on salary up to these annual limits:
| Insurance Type | Annual Ceiling (2026) |
|---|---|
| Pension & Unemployment | €101,400 |
| Health & Long-Term Care | €69,750 |
For employees earning above these thresholds, contributions are not calculated on the excess. This caps your maximum employer contribution per employee.
Holidays, leave, and sick pay in germany
Paid time off directly affects your payroll calculations, particularly when employees take extended leave or fall ill.
Statutory annual leave
German law guarantees a minimum of 20 paid vacation days per year for employees working a five-day week (24 days for a six-day week). Many employers offer 25 to 30 days as standard practice. New employees complete a six-month waiting period before they’re entitled to their full annual leave allocation.
Public holidays by state
Germany has 9 federal public holidays, but individual states (Bundesländer) add their own. Bavaria and Baden-Württemberg have the most, with up to 13 public holidays annually. Your payroll system needs to account for which state each employee works in, as public holiday entitlements vary by location.
Sick leave and continued pay
When employees fall ill, German law requires employers to continue paying full salary (Lohnfortzahlung) for up to six weeks. After that, the employee’s health insurance takes over with sick pay (Krankengeld) at a reduced rate.
Employees must notify their employer immediately if they fall ill. A medical certificate (Arbeitsunfähigkeitsbescheinigung) is typically required from the fourth day of illness, though employers can request it earlier. Since 2023, most certificates are transmitted electronically to health insurers (eAU system).
How to set up payroll in germany as a foreign employer
Setting up compliant payroll in Germany involves several registration steps before you can process your first pay run.
Registering with german tax authorities
Register with the local Finanzamt to obtain a tax number (Steuernummer) for wage tax withholding. This process requires submitting company details and information about your expected payroll. Processing typically takes around two weeks for the tax number itself, though full setup can take longer depending on your business structure.
Opening a german bank account
A euro-denominated bank account simplifies salary payments and tax remittances. Some German banks require a local presence or German-registered company to open an account, which can complicate matters for foreign employers without an entity.
Choosing payroll software or a local provider
German payroll is complex enough that most foreign employers outsource to local specialists. Your options include:
- Certified payroll software: Approved for German tax calculations (ELSTER-certified)
- Local payroll bureaus: Handle calculations and filings on your behalf
- Global payroll platforms: Aggregate multiple countries but still rely on local partners for Germany
Payroll compliance checklist for germany
Monthly tasks:
- Submit wage tax declarations to the Finanzamt by the 10th
- Remit social security contributions by the third-to-last banking day of the month
- Issue compliant payslips to all employees
Annual tasks:
- Issue employee tax certificates (Lohnsteuerbescheinigung) by end of February
- File annual social security reports
- Reconcile and report any payroll adjustments
Ongoing requirements:
- Maintain working time records for all employees
- Update employee tax class changes promptly
- Store payroll records for at least six years (some documents up to 10 years under §147 AO)
Employer of Record and german payroll services
If setting up your own entity and payroll infrastructure sounds like too much overhead, many global employers choose alternative approaches to hire in Germany.
When to use an Employer of Record
An employer of record (EOR) becomes the legal employer for your German workers, handling all payroll, tax, and compliance obligations on your behalf. This approach makes sense when:
- Testing the market: You want to hire one or a few employees before committing to an entity
- Speed matters: You want to onboard someone in weeks rather than months
- Compliance confidence: You’d rather have experts manage German labor and tax law
The EOR handles employment contracts, payroll processing, tax withholding, social security registration, and statutory benefits. You maintain day-to-day management of the employee’s work.
Comparing payroll options in germany
| Approach | Best For | You Handle | Provider Handles |
|---|---|---|---|
| In-house payroll | Large teams with local HR expertise | Everything | N/A |
| Outsourced payroll provider | Established entity, want to reduce admin | Employment, HR decisions | Payroll calculations, filings |
| Employer of record | No entity, want full compliance coverage | Strategic decisions, daily management | Legal employment, payroll, compliance |
If you’re hiring in Germany alongside employees in other countries, a unified platform that handles EOR, contractors, and direct payroll can save significant administrative overhead compared to managing separate vendors for each market.
Simplify germany payroll with RemotePass
Running payroll in Germany doesn’t have to mean juggling multiple providers, navigating unfamiliar tax offices, or worrying about missed deadlines. RemotePass lets you hire and pay German employees through a single platform, whether you’re using EOR services or managing direct payroll alongside your global workforce.
You get compliant employment contracts, accurate payroll calculations, and on-time filings without building local expertise from scratch. Your German employees get a professional onboarding experience and reliable payments, while your finance team gets consolidated invoicing and clear visibility into total employment costs.
Book a RemotePass demo to see how global employers are simplifying Germany payroll.
FAQs about payroll in germany
How long does it take to set up payroll in germany for a foreign company?
Setting up your own German entity and payroll infrastructure typically takes 3 to 6 months, accounting for company registration, tax authority enrollment, and bank account setup. Using an employer of record can reduce this to 1 to 2 weeks, since the EOR already has the legal and payroll infrastructure in place.
Can employers pay german employees in a currency other than euros?
Salaries in Germany are paid in euros. Some platforms allow employees to convert their euro salary into another currency after payment, giving them flexibility in how they hold or spend their earnings.
What happens if an employer misses a german social security filing deadline?
Late social security contributions trigger penalty interest from the first day of delay. Repeated missed deadlines can result in audits from the Deutsche Rentenversicherung and additional fines. The authorities take compliance seriously, and a pattern of late filings raises red flags.
Do part-time employees in germany receive the same benefits as full-time staff?
Yes, part-time employees are entitled to the same benefits as full-time colleagues on a pro-rata basis. This includes paid vacation, sick pay continuation, and social security coverage. German law prohibits discrimination against part-time workers under the Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz).
How does german payroll handle remote workers who live in germany but work for a foreign company?
If an employee is tax-resident in Germany, German payroll rules apply regardless of where the employer is headquartered. The foreign company either establishes a German entity to run payroll, registers as a foreign employer with German authorities, or uses an employer of record. Paying someone as a contractor when they function as an employee creates significant misclassification risk under German law.
