German payroll is a huge and vital part of working in Germany. Not only is it law, but also in order to work successfully, you need to grasp an understanding.
For any multinational organisation undergoing expansion, Germany is a hospitable business climate. Being the most populated nation within the EU, the country provides large-scale access to a highly educated and plentiful workforce alongside millions of potential customers. As an added benefit, the German economy is one of the most robust, being the forth largest in the world.
While Germany can offer several advantages to those looking to develop a global standing, employers have to ensure that they meet with a number of challenges when establishing themselves within the country. Straight from the off with registering the business with the relative authorities, understanding the responsibilities and ensuring the correct payment amounts are received alongside the appropriate contributions, employers are required to be able to grasp all of the complexities involved with and surrounding hiring or working in Germany.
Any person or company that fails to comply with the various and far reaching regulations and laws will have huge penalties and fines to face. It is therefore imperative that the distinctions of working in Germany are understood.
German Payroll: Getting Started
When starting a business or starting work in Germany, you can only hire employees after you apply for and receive a company number from the German centre of employment. This eight-digit identification number is a principle measure to record your name, address and economy class of your company. For registering employees for social and health insurance, the number is also needed.
The company is also required to source a tax number, supplied by the appropriate tax office (each tax office being based on the company trade). Finally, a bank account is needed and, with agreement alongside the local work council, determines the place, time and form of payments.
German Payroll: Employment Law
A further key to operating successfully in Germany is to gain an understanding of the attributes around Germanys employment law, as this defines and dictates the policies surrounding German payroll. As an example, the employment law states ‘that all new employees have the option to join a union, work council or collective labour agreement’. This can resolve issues related to working decisions, times of work and compensations over wage. The law also defines the minimum wage amount, which varies depending on the industry while also covering collective agreements. The employment law also covers the legal entitlement to leave and time off, currently at least 24 working days per year.
German Payroll: Employee Payments
Employers also have to be aware of the regulations in relation to the payment of wages and salaries, governed by the civil code and industrial code of Germany paired with various collective agreements.
It is usual practice for payments to be transferred electronically via Germanys standardized file transfer and access management protocol (FTAM). Furthermore, after the employer approves the current payroll, they can authorise their bank to release payments to all employees, alongside all other necessary contributions (such as payments for health insurance companies).
A further important factor to bear in mind is the 13-month (or bonus payment) payments, as it is common practice for the whole of Germany to provide employees with a year-end bonus, alongside a bonus paid when an employee takes a vacation.