Germany presents a welcoming business climate to those looking to expand globally. Alongside a strong economy and a large educated workforce, Germany offers the potential for millions of new customers.
However, the advantages aside, those starting work or a company in Germany have a number of challenges to face. Ranging from the proper registration of the business to ensuring a new employee receives timely payments with the correct amount. Besides the attributes listed in our previous post, there are several others that need to be taken into consideration.
German Payroll: Income Tax Collection
A largely important factor to bear in mind when conducting German payroll is to make sure that the correct amount of income tax is collected. It is the responsibility of the employer to calculate each employee’s income, based on his or her specific class of tax. For example, employees considered to be high earners (with a salary of over €250,731 for a single person and €501,462 for a married couple) are going to be required to pay the highest rate of tax – currently 45%.
The employer has to ensure that they hold back this amount from the gross payment for each individual every month and then submit the payment to the appropriate tax office by the 10th of the following month.
German Payroll: Social Security Contributions
Employers must also work with the social security system and the mandatory principle insurance. Contributions are obligatory by law. Employers and employees alike must contribute to the scheme, including pensions, health insurance, and unemployment insurance and nursing care. While the employer is obliged to contribute 0.9% more than the employee for health insurance, the other contributions are split equally. Solely, the employer pays contributions for Accident Insurance.
Furthermore, contributions from both employees and employers need to be paid to the relevant and proper authorities by the deadline of the third-to-last working day of each month.
German Payroll: Sick Pay
The employment law in Germany orders the rules in relation to continued payment in the event of sickness. According to these rules, employees who have been employed for a minimum of 4 weeks are qualified to receive sick pay, so long as they inform the employer immediately to the illness in question. The individual must also provide a medical attestation if their illness lasts for longer than three days with their final absence due to the same illness dating back a minimum of three months.
German Payroll: Maternity Leave and Child Care
According to Germany’s Maternity Protection Act, employers are required to supply employees with maternity leave and continued wage payment of six weeks before the birth or delivery and eight weeks after (or 12 weeks following a premature or multiple births). Furthermore, employees who take care of and educate their children can qualify for parental time right up until the child’s 4th birthday. This results in working time being reduced to anywhere between 15 and 30 hours per week. During this time, the employer is not permitted to give the employee notice of termination.
The ability to understand the payroll rules and regulations in any country can be tricky – Germany is no exception and provides some unique challenges. The persons that work with Euro Accountancy & Finance Services can relax, as with access to our vast industry knowledge and expertise in Germany, alongside our industry leading services, we can help make your operations in Germany as smooth as possible.