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 13th 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 10th 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.
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