Payroll compliance in Germany
Germany, Europe’s largest economy, is widely seen as one of the most welcoming jurisdictions for overseas companies. There is generally a strong commitment to sharing the burden of social responsibility in the country. Payroll, income taxes and social insurance contributions are regulated by federal law, as well as by works councils.
Germany's labour laws are built around three main pieces of legislation: the Civil Code (which governs employment contracts), the Works Council Constitution Act (which regulates cooperation between employers and employees), and the Collective Agreements Act (which deals with collective bargaining agreements).
- Personal income taxes are levied on a progressive scale in Germany, ranging from zero to 45% of gross income. Certain high-earning employees must also pay the solidarity surcharge (to help fund Germany’s ongoing reunification costs).
- Employers are required to withhold the correct income tax each month and submit payment to the local tax office by the 10th of the following month. The penalty for late submission is up to 10% of the tax owed (up to a maximum of €50,000), with interest charged on the outstanding amount.
- In Germany, employees must be paid at least monthly, and are typically paid on or around the 25th of the month. It is also customary to make 13th month salary payments in December.
- Overtime payment rules are often included in collective bargaining agreements. Overtime pay typically starts at a 25% premium, and may be higher.
If you’re doing business in Germany and are looking to learn more about Germany’s labour laws, incorporation procedures, tax implications and compliance requirements, request a copy of our full country profile, Doing business in Germany
