Summary
Payroll accounting in Germany involves preparing a detailed payslip for each employee covering gross earnings, taxes and social security contributions. Gross pay includes the base salary or wage plus bonuses, allowances and non-cash benefits. From this amount you deduct wage tax, church tax (if applicable) and the solidarity surcharge. In addition, you must deduct and pay employee and employer contributions to health insurance, pension insurance, unemployment insurance and long-term care insurance. The employer must issue the payslip in text form at least monthly and retain it for a number of years.
Contents
What is payroll accounting?
Preparing payroll slips can take a significant amount of time. A payroll slip documents how an employee’s wage or salary is composed for a specific period. Its main purpose is to provide written proof of the employee’s pay and to show the individual components that make up the net amount.
Wage or salary?
In Germany, a clear distinction is made between wages and salaries. Both compensate employees for their work, but they function differently:
Wages are based on the actual hours worked. They are calculated using an hourly rate, so the total amount can vary from month to month.
Salaries are fixed monthly payments. They remain the same each month, regardless of how many hours the employee actually worked.
On every payroll slip, you must clearly indicate whether the payment is a wage or a salary.
Payroll slip: Abbreviations, translations and interpretation
Taxes and social security contributions
To prepare correct payroll slips, you need to understand which taxes and social security contributions apply and what each component means. Below is an overview.
Taxes
- Wage tax
- Church tax
- Solidarity surcharge
Social security contributions
- Health insurance
- Unemployment insurance
- Pension insurance
- Long-term care insurance
Wage tax
All employees must pay wage tax, which you withhold directly as the employer. The amount depends on the employee’s tax class. Germany has six wage tax classes:
- Class 1: Single employees without dependants
- Class 2: Single parents
- Class 3: Married employees whose partner is in class 5 or has no wage
- Class 4: Married couples with similar income (factor method possible)
- Class 5: Married employees whose partner is in class 3
- Class 6: Second employment (non-minijob)
Wage tax only applies once the annual tax-free allowance is exceeded.
Church tax
Employees who belong to a church or religious community pay church tax. It is calculated as a percentage of wage tax: 8% in Bavaria and Baden-Württemberg, 9% elsewhere. You deduct and transfer it automatically.
Solidarity surcharge
The solidarity surcharge (Soli) supports costs related to German reunification. It is 5.5% of wage tax, but only high earners have to pay it today.
Health insurance
Statutory health insurance has a contribution rate of 14.6%. Employer and employee each pay 7.3%. Many insurers also charge an additional contribution, paid by the employee. Family insurance is free for non-working dependants.
Unemployment insurance
Unemployment insurance protects employees if they lose their job. The total contribution is 3.0% of the wage, shared equally (1.5% each).
Pension insurance
All employees and trainees contribute to pension insurance. The contribution rate is 18.6%, split equally between employer and employee.
Long-term care insurance
Long-term care insurance covers part of the cost if an employee requires extended nursing care. The standard rate is 2.55%, split between employer and employee. In Saxony, contributions differ, and employees without children pay an additional 0.25%.
Contribution assessment limits
Social security contributions are only levied up to a legally defined contribution assessment limit. Income above this threshold is exempt from contributions.
Midi jobs
Midi-jobbers earn between a minijob salary and €2,000 per month. Within this transition zone, both employees and employers benefit from reduced social security contributions.
Example
This table shows the payroll contributions without additional contributions and discounts.
| Social security contributions | Total basic
contribution rate |
Employee
contribution |
|---|---|---|
| Solidarity surcharge | 5.5% | – |
| Church tax | Bavaria/Baden-Württemberg: 8%
Other federal states: 9 % |
– |
| Health insurance | 14.6% | 7.3% |
| Long-term care insurance
Persons without children 24 or older |
2.35%
2.60% |
1.175%
1.425% |
| Pension insurance | 18.7% | 9.35% |
| Unemployment insurance | 3% | 1.5% |
| Non-binding example of simplified payroll accounting for tax category I (Federal State of Hesse): | ||
| Date of birth | 1987 | |
| Gross monthly wage | €3,120.00 | |
| Tax category | I | |
| Number of tax-free child allowances | 0 | |
| Church tax deduction | 9% (Hesse) | |
| Pension insurance | Statutory (West) | |
| Health insurance | Statutory | |
| Long-term care insurance | Without surcharge, excluding Saxony | |
| Contributions to private insurance | €0.00 | |
| Additional contribution rate for statutory health insurance | 0 % | |
| Exempt amount | €0.00 | |
| Additional remuneration amount | €0.00 | |
The total social insurance contribution — consisting of pension insurance, long-term care insurance, unemployment insurance and health insurance — is transferred by the employer directly to the employee’s health insurance fund. The fund then forwards the respective amounts to the responsible authorities.
All social insurance contributions must be paid no later than the third bank working day of each month. The monthly income tax is transferred separately and sent directly from the employer to the tax office.
Conclusion
Ensuring accurate and timely payroll accounting is essential for legal compliance and employee trust. Make sure each payslip clearly shows the gross amount, all deductions and the net pay. Stay up-to-date with tax class changes, social contribution thresholds and benefits in kind. Whether you manage payroll in-house or outsource it, diligent execution of payroll accounting protects both your business and employees from legal risks.
