Getting Familiar With Some Basic Aspects Of The German Payroll System

Germany has gained much popularity as a preferred market for business expansion for overseas organizations. However, for most such organizations, establishing a successful business operation in the country depends on a variety of factors. The most important of these factors is their knowledge and understanding of the German payroll system. Despite the relative ease with which foreign businesses can start functioning in Germany, implementing the country’s payroll system can prove quite challenging. The complex rules and nuances that form a part of this system, make assessing the average cost of employee in Germany, quite a difficult task for overseas organizations. One way to make the process easier is by getting familiar with the below discussed key aspects of the German payroll system. 

Payroll System And Employment Law

Several aspects of the German payroll system are defined by the various nuance of the employment law followed within the country. According to one provision of the employment law, the employees are eligible for a minimum wage of €8.84 per hour, with some exception to this rule. In addition, the law also provides the employees the freedom to join a union, work council or even a collective labor agreement. The law also entitles the employees to a minimum, legal time off amounting to 24 working days per year and can be extended to a maximum of 48 working hours per week.

Regulation With Respect To Employee Payments

The regulations for the payment of salaries and wages of the employees in Germany are governed by the county’s Civil Code, Industries Code, and several other collective agreements. The employers need to approve a given payroll before they authorize the banks to release employee payments and wages through electronic bank transfers. The employers are also expected to pay a full month’s pay as a year-end bonus to their German employees, who have worked continuously for all the 12-months. This is often referred to as the 13^th  month or thirteenth salary payment.

Income Tax Collection

Proper collection of income tax forms an integral part of executing the  German payroll system. According to the law, the German employers are responsible for making the tax assessment of each of their employee based on their specific tax class. The employers are also responsible for handing over the deducted tax amounts to the appropriate authorities before the 10^th of every month. A penalty of a maximum of 10% of the assessed taxis levied for late payment of the taxes along with annual interest of 6%.

Contributions Towards Social Insurance

Under the system of payroll Germany, it mandatory for the employers as well as the employees to have the membership and contribute towards the country’s statutory social insurance schemes. Te employers are also expected to withhold a specific percentage of the total monthly salary of each employee for contribution in various insurance schemes. These schemes include pension insurance, unemployment insurance, and nursing care insurance. The total amount of contributions are generally split between the employer and the employee in a pre-defined manner. In addition, these contributions need to be handed over to the proper authorities by the third-to-last working day of each month to avoid any issues of late payment.