It has been estimated that approximately 90% of the population within Germany contribute to the German social security scheme. The German social security welfare system covers a nation-wide pension plan, healthcare for the public, nursing care, benefits for the unemployed, aid for welfare and insurance for work-related accidents.
The welfare system in Germany is partly supported by taxes, however the bulk of the funding is deducted from payrolls. Employers and employees share this responsibility, with collections administered in ‘self-governed funds’.
Contributing to the German social security system is fundamentally compulsory. Contributions are always based on the amount of income you earn and therefore automatically deducted from your gross salary should you be an employee. The majority of self-employed individuals will also have to contribute financially to various insurance funds. Nearly everybody in Germany is entitled to social benefits too, of course.
This also includes many expatriates. Such as, for example, expatriate families in Germany who can apply for a ‘Kindergeld’ (child allowance) from the German authorities. If you work in Germany over a longer period of time then you can accumulate a pension or retirement benefits, you can then receive these even if retiring abroad. In order to receive benefits from the German social security system you must contribute to the pot, sometimes needing to brave a certain waiting time period.
Types of German Social Security
The German social security system has evolved for over 120 years. However, having been developed in a chaotic fashion, there are three main categories in terms of benefits funds. There are funds paid solely by the employer, welfare funds (where the employee and the employer share the costs) and tax-based benefits.
German Social Security: Employer- Financed Benefits
In this section; Unfallversicherung (work-related accident insurance) is a hugely important fund. The cover extends to work-related illnesses and any accidents that occur on the way towards, or while at, your place of work. Any resulting disabilities, however, are covered by a separate fund.
Benefits Shared by Employers and Employees
The most expensive parts of the German social security system are shared between the employee and the employer. The most expensive sectors being Rentenversicherung (healthcare and pension insurance).
All employees fund a percentage of their gross income towards the pension and retirement fund. Health insurance follows with nursing care also taking a percentage. Your employer contributes the same amount, roughly.
Unless you are classed as self-employed, these social security contributions are deducted automatically from your salary or wages every month. The amount that is deducted from your gross salary is recorded on your payslip. Depending on how long you contribute to the funds, you could receive up to 67% of your average net income; as a pension when you retire. The retirement age in Germany is currently 65, a criticised moved due to Germanys aging population.
For more information on German Social Security, German Payroll, Working in Germany or Contracting in Europe visit the Euro Accountancy & Finance Services website.