Lohnabrechnung & Gehaltsabrechnung: How does payroll accounting work in Germany?

Payroll accounting serves not only as proof for the employee but is also necessary for tax returns, when looking for a flat, and when applying for a loan. In this article, you can find out what it needs to contain and what the abbreviations mean.


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Definition: What is payroll accounting?

Preparing payroll slips can cost employers a lot of time. Payroll slips document the composition of an employee’s wages or salary for a certain period of time. The main purpose of payroll is to record an employee’s salary entitlement in writing, which then provides proof of wages or salary and shows the employee the individual components of his or her net wage/salary.

Wage or salary?

In Germany, a clear distinction is made between wages and salaries. Both are a way of remunerating an employee financially for work done. Yet there is a crucial difference that you as an employer must take into account:

  • Lohn (wages) are calculated based on the actual hours worked. The final sum is usually calculated based on an hourly wage, which is why the amount of the wage can fluctuate and isn’t necessarily the same every month.
  • Gehalt (salary) is paid monthly as a fixed amount. How long and how much the employee actually worked is not relevant. As an employer, you must clearly show in every payroll slip whether it’s for wages or a salary.

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What do the abbreviations on the payroll slip mean?
The many abbreviations on payroll can be a bit confusing. Here you will find an overview of all abbreviations for German terms used in payroll accounting, as well as their English translations:
Abbreviation Term Translation
A Abfindung Compensation
AV Arbeitslosen-


Unemployment insurance
B Arbeitnehmer-

anteil Seekasse

Employee contribution, marine fund
BGRS Beitragsgruppen-


Contribution group key
E Einmalbezug One-time payment
F Frei Exempt
GB Gesamtbrutto Total gross
H Hinzurechnungs-


Additional remuneration amount
J Bestandteil des Gesamtbruttos Part of the total gross amount
Ki.Frbtr. Kinderfreibetrag Child allowance
KK Krankenkasse Health insurance provider
KK % Maßgeblicher Beitragssatz zur KV inkl. Zusatzbeitrag Decisive contribution rate for health insurance incl. additional contribution
KV Krankenversicherung Health insurance
L Laufender Bezug Current cover
LSt Lohnsteuer Wage tax
M Mehrjährige Versteuerung Taxation over several years
N Nachberechnung Recalculation
MFB Mehrfach-


Concurrent employment
P Pauschalierung Consolidation
PGRS Personengruppen-


Person group key
PV Pflegeversicherung Long-term care insurance
RV Rentenversicherung Pension insurance
S Sonstiger Bezug Other earnings
St Steuer Tax
Tax ID Persönliche Steuer-Identifikations-


Personal tax identification number
StKl Steuerklasse Tax category
SV Sozialversicherung Social insurance
Um Umlageverfahren Apportionment procedure




Previous year
VKZ Verarbeitungs-


Processing indicator
W Wertguthaben Credit Balance
Einschl. Beitragszuschlag zur PV für Kinderlose Incl. premium surcharge for PV for childless persons

Sachbezüge: What are the benefits in kind in payroll?

A benefit in kind is a benefit to the employee that does not consist of the transfer of wages. However, it still offers the employee a “non-cash” advantage. A ‘non-cash’ benefit is a benefit that the employee receives at better conditions than usual because he or she receives it ‘in kind’.

The employee receives tax deductions for the benefit in kind, which are also deducted from the wage or salary. However, he or she receives the corresponding benefit at better conditions than if he or she were to pay for it “normally.”

For German employees, the most important benefits in kind are (as of 2021):

  • €44 de minimis limit (Bagatellgrenze): Gifts up to a value of €44 per month remain tax-free for both parties, employees and employers (goods vouchers, gas vouchers, etc.)
  • Discount allowance up to €1,080 per year: If employees can claim free or discounted goods or services from their employer, they can take advantage of an annual discount allowance of €1,080 (e.g. staff purchases in retail)
  • Work clothes: Workwear with a company logo can be financed tax-free by the employer.
  • Meals on the premises: In the company canteens or the like, the employer must pay a tax of €3.47 for lunch/dinner and €1.83 for breakfast (max. €263 per month)
  • Free accommodation: The employee receives free accommodation (e.g., a furnished room) from his employer. The maximum benefit in kind is €237 per month
  • Company events: An annual allowance of €110 per employee applies to attendance at relevant events (only applies if all employees can attend the event)
  • Provision of a company car for private use
  • Low-interest loans from employers
  • Job tickets for discounted trips on public transport
  • Bicycle rental
  • Reimbursement of travel expenses
  • Childcare
  • Further education
  • Moving costs
  • Zukunftssicherungsleistungen
    (future security benefits)
  • Health promotion

Employers also benefit in kind. They don’t have to pay social security contributions for non-cash benefits, and they can also claim purchases like a company car for tax purposes. The employee can continue to save if the legal limits for allowances are not exceeded. Moreover, no social security contributions and wage tax are incurred for benefits in kind.

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Beitragsbemessungsgrenze: What is a contribution assessment limit?

The contribution assessment limit is the maximum amount at which social insurance contributions can be levied. Any income exceeding this limit is exempt from contributions. The contribution assessment limit is legally enacted by the Federal Government every year by ordinance.

 Werte 2021
Contribution assessment threshold for statutory health insurance (Krankenversicherung) €58,050 per year

€4,837.50 per month

Compulsory insurance threshold for statutory health insurance (Krankenversicherung) €64,350 per year

€5,362.50 per month

Contribution assessment threshold for pension insurance (Rentenversicherung) West: €7,100 per month

East: €6,700 per month

Contribution assessment threshold for miners’ pension insurance West: €8,700 per month

East: €8,250 per month


Übergangsbereich: What is a transitional zone

The Übergangsbereich (transitional zone)—formerly Gleitzone—concerns so-called midi-jobbers, who earn more than mini-jobbers but less than permanent employees, i.e., between €450.01 and €1,300 per month.

Since 1.7.2019, the upper limit of midi-jobs has been raised from €850 to €1,300. This income range designates the transition between the reduced contributions of mini-jobbers and the full social security contributions for permanent employees. Midi-jobbers and employers still benefit from the reduced social security contributions within this zone.


What needs to be included in the payroll slip?

You should know in advance what needs to go into payroll slips for wages and salaries and what the individual components mean. Here’s an overview:


1. Lohnsteuer (wage tax)
2. Kirchensteuer (church tax)
3. Solidaritätszuschlag (solidarity surcharge)

Social security contributions

4. Krankenversicherung (health insurance)
5. Arbeitslosigkeitsversicherung (unemployment insurance)
6. Rentenversicherung (pension insurance)
7. Pflegeversicherung (long-term care insurance)


While we’re on the topic of accounting:

Want to know about double-entry bookkeeping as well?


1. Lohnsteuer: Wage tax

All non-independent employees must pay Lohnsteuer (wage tax). As an employer, you must calculate this directly. The wage tax’s amount depends on the wage tax category and can be taken from the wage tax tables for each wage category.

There are six wage tax categories:

  •  Category 1: Generally for employees who are single with no dependents
  • Category 2: Generally for single-parent employees
  • Category 3: For married employees with a partner classified in wage tax category 5 or who doesn’t receive a wage
  • Category 4: Generally for married employees whose partner also receives a wage or salary (work-factor method also possible)
  • Category 5: Generally for married employees with partners in wage tax category class 3
  • Category 6: if two employment relationships exist simultaneously (not minor)

Good for employees: in 2018, the basic tax-free allowance was increased to €9,000 per person per year. The double tax-free allowance of €18,000 applies to life partners or spouses. Wage tax is not due until this amount is reached.

2. Kirchensteuer: Church tax

Everyone belonging to a church or religious community in Germany must pay Kirchensteuer (church tax). The church tax is directly linked to the wage tax, so if the wage increases, the income tax also increases. The church tax is accounted for directly during the payroll. The employer then transfers the church tax directly to the tax office, which then forwards the money to the responsible religious communities. The level of church tax is 8% in Bavaria and Baden-Württemberg and 9% in all other federal states.

3. Solidaritätszuschlag: Solidarity surcharge

The Solidaritätszuschlag (solidarity tax), also known in Germany as the Soli, was introduced to cover the additional costs of German reunification. The tax is generally 5.5% of wage tax but only some people have to pay this.

The German government raised the income threshold for the solidarity tax significantly: from €972 to €16,956 for singles and from €1,944 to €33,912 for married couples. This change means that around 90% of German taxpayers don’t have to pay this tax. Only those with high incomes will continue to pay the surcharge.

4. Krankenversicherung: Health insurance

The Krankenversicherung (health insurance) companies ensure that we receive medical care in the event of illness. Every employee must pay health insurance, and contributions are paid via payroll. The basic contribution rate for statutory health insurance has been 14.6% for full-time employees since 2015.

Employees do not have to pay the full percentage alone but rather share the contribution with the employer. The employee and the employer each pay 7.3%. Employees can also take out family insurance for family members who are not working. No separate contribution will be charged for them.

As of 2015, any health insurance company can also demand an additional contribution. This contribution varies from company to company and must be paid by the employee.

5. Arbeitslosigkeitsversicherung: Unemployment insurance

If an employee should lose his or her job, Arbeitslosigkeitsversicherung (unemployment insurance) is there to guarantee an income even during unemployment. Since 2011, the contribution of unemployment insurance has amounted to 3.0% of the contribution assessment basis. The contribution assessment basis is generally the employee’s pay.

Employers pay contributions to unemployment insurance, together with contributions to health, long-term care, and pension insurance, to the health insurance funds as a total social insurance contribution. The collection offices then forward the contributions designated for unemployment insurance to the Bundesagentur für Arbeit (Federal Employment Office). Employers and employees pay half of the contribution, i.e. 1.5% each, in unemployment insurance.

6. Rentenversicherung: Pension insurance

When an employee’s working life comes to a close, it’s important to be insured. That’s why all employees and trainees in Germany have to pay Rentenversicherung (pension insurance). The contribution is currently 18.6%. Half of the contribution is paid by the employee and half by the employer for this as well.

7. Pflegeversicherung (long-term care insurance)

In Germany, Pflegeversicherung (long-term care insurance) covers employees if they should require nursing care over an extended period. If an employee needs nursing care, part of the long-term care can be covered with the money from long-term care insurance. The contribution rates have been 2.55% since 2017. 1.275% are paid pro rata by the employee and employer.

The state of Saxony has a separate regulation: Employees pay 1.775% and employers 0.755% for long-term care insurance. Persons without children must pay a premium of 0.25% into the long-term care insurance if they have reached the age of 23 and were born after 31.12.1939.


The numbers at a glance

This table shows the payroll contributions without additions and discounts. The additional contribution has not been calculated to simplify matters.

Social security contributions Total basic

contribution rate



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







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 0.0
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 0.00 %
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 directly to the health insurance companies, which then pass on the remaining amounts to the responsible authorities. All contributions must be paid no later than the third bank working day of the month. The monthly income tax is transferred directly from the employer to the tax office.

What is an activity key?

An activity key is not found on the payroll slip but on the social insurance registration form. Employers can use an activity key to transfer information about an employee’s education and training level, current activity and contract form to social insurance. The 9-digit activity key is divided into different elements; the first five digits represent the activity is done, and numbers 6 and 7 are the school leaving certificate and training qualification. Number 8 is relevant for temporary employees, who are distinguished from “regular” employees. The last figure represents the form of contract (full-time/part-time, limited/unlimited).

Activity key payroll accounting


Ausgeübte Tätigkeit – Work done
Schulabschluss – School certificate
Ausbildungsabschluss – Apprenticeship
Zeitarbeit? – Temp work?
Vertragsform – Contract type

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