As a thriving European market, Germany is a great place to expand your business operations. Before you start to hire employees, it's important to familiarize yourself with local labor laws and payroll...
Read MoreAs a thriving European market, Germany is a great place to expand your business operations. Before you start to hire employees, it's important to familiarize yourself with local labor laws and payroll regulations to stay compliant, avoid costly fines, and reduce unnecessary downtime.
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As a thriving European market, Germany is a great place to expand your business operations. Before you start to hire employees, it’s important to familiarize yourself with local labor laws and payroll regulations to stay compliant, avoid costly fines, and reduce unnecessary downtime.
Germany has various local tax laws that can be confusing for those living outside the country. As you set up your Germany payroll, pay attention to individual income tax (IIT) for employees, social and health insurance costs, payroll tax, sales tax, withholding tax, and business tax.
The corporate income tax in Germany is 15% plus a 5.5% surcharge of that tax. The country operates under a progressive income tax scheme where the tax rate varies from 0% to 45% for those making 274,612 EUR or more (as of 2021).
You’ll also need to contribute to the German Social Security System, which consists of five parts:
You will split these contributions equally with your employees — except for accident insurance, which is entirely covered by the employer. Plan to contribute a total of around 20.7% to the social security system on top of an employee’s salary.
Employers have several different Germany payroll options:
Setting up a business in Germany is a complicated process, partly because you need to make many different financial filings. If you plan to hire and set up a subsidiary on your own, a tax advisor can guide you on different Germany payroll options.
You’ll need extensive documentation from your employees to set up Germany payroll, including:
Germany also outlines particular data protection regulations relating to payroll. You can collect personal data and information for employment reasons, but you must keep that data safe and should pay employees using Germany’s File Transfer and Access Management (FTAM) protocol.
Your employees also have certain entitlement and termination terms you must outline before setting up payroll in Germany. For example, the nation prohibits employees from working on Sundays and public holidays apart from certain exceptions. Workers typically get either 24 or 20 days of vacation depending on if the employee is working a 5-day or 6-day work week, and the country has strict medical leave policies.
A best practice is to include clear termination terms in a written employment contract. You can only fire employees for specific reasons such as misconduct or redundancy, and you cannot fire disabled individuals, pregnant employees, or anyone on parental leave without government approval.
To learn more about a Germany payroll processing company, contact Globalization Partners today.
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