How to run payroll in Germany

German employers are required to pay employees monthly. The standard pay date is the last working day of each month.

Most companies process payroll between the 25th and 30th of each month to ensure timely payment. You'll need to factor in bank processing times - typically 1-2 business days for domestic transfers.

Payment frequency and dates

German law requires monthly salary payments for most employees. Weekly or bi-weekly payments are possible but uncommon and create additional administrative burden.

Standard payment schedule:

• Salary employees: Last working day of each month
• Hourly workers: Can be paid weekly or monthly
• Overtime: Must be paid with the next regular payroll

If the last working day falls on a weekend or holiday, payment must be made on the preceding business day. You can't delay payment to the following Monday.

13th month payments

Germany doesn't legally require 13th month payments, but they're extremely common through collective bargaining agreements and employment contracts.

Christmas bonus (Weihnachtsgeld):

• Typically paid in November or December
• Usually equals one month's salary
• Subject to full income tax and social contributions
• Must be pro-rated for employees who started mid-year

Vacation bonus (Urlaubsgeld):

• Often paid in June or July
• Typically 50% of monthly salary
• Also fully taxable

Holiday and vacation pay

Vacation pay continues at full salary during annual leave. There's no separate vacation pay calculation - employees receive their normal monthly salary regardless of vacation days taken.

Key requirements:

• Vacation pay equals regular salary
• Paid in advance if vacation spans pay periods
• Unused vacation must be paid out upon termination
• Minimum 20 working days (4 weeks) paid vacation annually

Sick pay works differently. Employers pay 100% of salary for the first six weeks of illness, then statutory health insurance takes over at 70% of gross salary.

Payment methods

Bank transfer (Überweisung) is the standard and often only accepted payment method. Cash payments are heavily restricted and impractical for regular payroll.

Requirements:

• Employees must provide German IBAN
• SEPA transfers within EU are acceptable
• International wire transfers incur additional fees
• Payment must be in euros for German tax purposes

Most German banks process SEPA transfers same-day if submitted before 2 PM on business days.

Payslip requirements

German payslips (Gehaltsabrechnung) must include extensive detail. Employees have a legal right to receive itemized payslips each pay period.

Mandatory payslip elements:

• Employee personal data and tax ID
• Gross salary breakdown by component
• All deductions itemized (taxes, social contributions)
• Net pay amount
• Employer social contribution amounts
• Year-to-date totals

Payslips can be delivered electronically, but employees must consent to digital delivery. Many companies still provide paper payslips to avoid consent issues.

Language requirements:

• Must be in German
• Use standard German payroll terminology
• Include explanation codes for deductions

The payslip serves as official documentation for tax returns, loan applications, and benefit claims, so accuracy is critical.

Before your first payroll run in Germany, you'll need three tax registrations: a tax number (Steuernummer) from your local tax office, wage tax registration, and potentially a VAT number if your payroll exceeds certain thresholds.

Income tax brackets

Germany uses a progressive tax system with rates ranging from 0% to 45% for 2026. The basic tax-free allowance increases to €11,784 annually (€982 monthly) per employee.

Annual Income (€)	Monthly Income (€)	Tax Rate
€0 - €11,784	€0 - €982	0%
€11,785 - €17,408	€983 - €1,451	14% - 24%
€17,409 - €66,760	€1,452 - €5,563	24% - 42%
€66,761 - €277,825	€5,564 - €23,152	42%
€277,826+	€23,153+	45%

The middle brackets use a sliding scale formula, so rates gradually increase within each band. Most payroll software handles these calculations automatically.

Solidarity surcharge adds 5.5% on top of income tax, but only applies when annual income tax exceeds €18,130 (roughly €75,000 annual salary).

Withholding requirements

Employers must withhold income tax, solidarity surcharge, and church tax (if applicable) from every payroll. You're legally responsible for accurate calculations and timely remittance.

Monthly filing deadlines are the 10th of the following month. For example, January payroll taxes are due by February 10th. Missing this deadline triggers immediate penalties starting at €25 per employee.

Register for ELSTER (Germany's electronic tax system) immediately after receiving your tax number. All payroll tax filings must be submitted electronically - paper submissions aren't accepted.

Tax registration

New employers need a Betriebsnummer (establishment number) from the Federal Employment Agency and tax registration from the local Finanzamt (tax office). The process requires:

• Company registration documents
• Lease agreement or property ownership proof
• Estimated annual payroll amounts
• Expected number of employees

Processing takes 3-4 weeks minimum. Some tax offices require in-person appointments, so factor this into your timeline.

Special tax considerations

Non-resident employees face different withholding rules. EU citizens typically use the same brackets, but documentation requirements differ. Non-EU residents may qualify for tax treaty benefits that reduce withholding rates.

Church tax applies to employees registered with recognized churches (Catholic, Protestant, Jewish). The rate is 8% of income tax in Bavaria and Baden-Württemberg, 9% elsewhere. Employees can opt out, but this requires formal declaration.

Regional taxes don't exist in Germany - income tax rates are federal. However, trade tax may apply to certain employee benefits, though this typically affects employers rather than payroll withholding.

Common tax mistakes

Incorrect tax class application tops the list. Married employees can choose different tax classes (I-VI) that dramatically affect withholding. Always verify tax class with official documents - don't rely on employee statements.

Missing solidarity surcharge calculations for higher earners costs €500-2,000 in penalties per occurrence. The threshold changes annually, so update your payroll system each January.

Late ELSTER submissions happen when companies don't maintain their digital certificates. These expire annually and require renewal 4-6 weeks before expiration.

The biggest employer cost in Germany? Social insurance contributions at 19.325%. Here's what you'll actually pay on top of every salary.

Contribution breakdown

Germany splits social insurance costs between employers and employees, but you'll pay slightly less for long-term care insurance.

Contribution Type	Employer Rate	Employee Rate	2026 Cap
Health Insurance	7.3% + avg 1.7% supplement	7.3% + avg 1.7% supplement	€66,600
Pension Insurance	9.3%	9.3%	€90,600
Unemployment Insurance	1.3%	1.3%	€90,600
Long-term Care Insurance	1.325%	1.7% (1.95% if childless)	€66,600
Total Base Rate	19.325%	19.6%	-

The health insurance supplement varies by provider but averages 1.7% in 2026. You'll split this cost equally with employees.

Total employer cost example

For a €60,000 annual salary, here's your real cost:

• Base salary: €60,000
• Health insurance (9%): €5,400
• Pension insurance: €5,580
• Unemployment insurance: €780
• Long-term care insurance: €795
• Total employer cost: €72,555
• Cost multiplier: 1.21

You'll pay 21% more than the base salary for employees earning under the contribution caps.

Contribution caps and high earners

Both pension and unemployment insurance cap at €90,600 in 2026. Health and long-term care insurance cap at €66,600.

Once an employee's salary exceeds these thresholds, your contribution costs plateau. A €120,000 salary only costs you €15,141 in social contributions instead of the theoretical €25,200.

This makes Germany more cost-effective for senior roles than the headline rates suggest.

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Registration requirements

You'll need to register with several agencies before your first payroll:

• Bundesagentur für Arbeit (Federal Employment Agency) - for your employer number
• Deutsche Rentenversicherung (Pension Insurance) - for pension contributions
• Health insurance providers - separate registration for each employee's chosen provider
• Berufsgenossenschaft (Professional Association) - for accident insurance

Registration takes 2-3 weeks, so start early. You'll need your German business registration and employee contracts.

Payment deadlines and penalties

Social insurance contributions are due by the 15th of the following month. Miss this deadline and you'll face 1% monthly penalties plus 6% annual interest.

The employment agency automatically debits contributions from your registered bank account. Set up your banking relationship first - manual payments aren't accepted for ongoing contributions.

Late payments also trigger audits, so German payroll providers typically submit contributions 3-5 days early to avoid any processing delays.

Maternity leave in Germany is 14 weeks at 100% pay. Here's how it affects your payroll.

The Mutterschutzlohn (maternity protection wage) covers 6 weeks before birth and 8 weeks after. You'll pay full salary during this period, but health insurance reimburses you through the Umlageverfahren U2 - a mandatory insurance scheme all German employers pay into.

For longer parental leave (Elternzeit), parents can take up to 3 years off. The government pays Elterngeld (parental allowance) directly to employees - not through your payroll. You just need to grant the unpaid leave.

Annual leave

German employees get 25 working days minimum vacation for a 5-day work week. Most employers offer more - 28-30 days is standard.

Vacation pay calculation

Pay vacation at the employee's average earnings over the 13 weeks before the vacation starts. This includes regular overtime, shift premiums, and bonuses that would normally be earned during that period.

Don't just use base salary - German courts are strict about this. Include all regular pay components the employee would miss while on vacation.

Carryover and payout rules

Employees can carry over unused vacation until March 31 of the following year. After that, it expires unless the employee was sick or you prevented them from taking it.

When someone leaves, you must pay out all unused vacation days at their current daily rate. This includes carried-over days from the previous year if they haven't expired.

Sick leave

Employees get 6 weeks of full pay (100% salary) when they're sick. After that, health insurance takes over with Krankengeld at roughly 70% of gross salary.

Who pays what

You pay the first 42 calendar days at full salary. Health insurance pays from day 43 onwards. The Umlageverfahren U1 partially reimburses your sick pay costs - typically 40-80% depending on your company size.

Companies with fewer than 30 employees get higher reimbursement rates. You pay into this scheme monthly as part of your social insurance contributions.

Certification requirements

Employees need a doctor's certificate from day 4 of illness. Many employers require it from day 1 - that's allowed if stated in the employment contract.

The certificate shows the duration but not the illness details. Process it quickly because late certificates can affect reimbursement claims.

Parental leave

Maternity leave

14 weeks total: 6 weeks before due date, 8 weeks after birth (12 weeks for multiple births or premature babies). You pay 100% salary during Mutterschutz.

The U2 reimbursement covers your costs. Health insurance pays you back the full salary amount plus social insurance contributions. File claims promptly - there are strict deadlines.

Paternity and parental leave

Fathers get 10 days paid leave immediately after birth at full salary. This is separate from the longer Elternzeit (parental leave).

Elternzeit is unpaid leave up to 3 years per child. Parents can split this time and even work part-time during it. The government pays Elterngeld directly to employees - usually 65% of previous net income for 12-14 months.

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Public holidays 2026

Date	Holiday	Notes
January 1	New Year's Day	National
January 6	Epiphany	Baden-Württemberg, Bavaria, Saxony-Anhalt only
April 18	Good Friday	National
April 21	Easter Monday	National
May 1	Labour Day	National
May 29	Ascension Day	National
June 9	Whit Monday	National
June 19	Corpus Christi	Selected states only
August 15	Assumption Day	Bavaria, Saarland only
October 3	German Unity Day	National
October 31	Reformation Day	Selected states only
November 1	All Saints' Day	Selected states only
December 25	Christmas Day	National
December 26	Boxing Day	National

State-specific holidays vary significantly. Check your local state (Bundesland) requirements. Working on public holidays typically requires 150% pay (50% premium) unless covered by collective agreements.

Mandatory benefits affecting payroll

Christmas and vacation bonuses

Many collective agreements require 13th or 14th month payments. These aren't legally mandatory but become binding if agreed in contracts or consistently paid.

Vacation allowance (Urlaubsgeld) is common - typically 50% of monthly salary paid before summer holidays. Again, this depends on your collective agreement or company policy.

Company pension contributions

Betriebliche Altersvorsorge (occupational pension) isn't mandatory, but if you offer it, employees can contribute up to €3,408 annually tax-free through salary sacrifice.

You might also need to match employee contributions or provide minimum employer contributions based on your pension scheme setup.

Meal vouchers and benefits

Meal allowances up to €9.60 per day are tax-free. Many companies provide electronic meal cards or subsidized canteen meals.

Public transport subsidies are tax-free up to the actual cost. Company cars have complex benefit-in-kind calculations - typically 1% of list price monthly for private use.

Germany requires you to keep payroll records for 10 years. Lose them and face fines up to €25,000 per missing employee file during tax audits.

German payroll compliance centers on precise monthly filings, detailed employee documentation, and strict record-keeping. The penalties hit fast and hard - miss a deadline and you're looking at daily fines that add up quickly.

What monthly filings do you need to submit?

Social security contributions

Submit monthly social security reports through the DEÜV online portal by the 15th of each month. This covers health insurance, pension contributions, unemployment insurance, and accident insurance for all employees.

Late submissions trigger penalties of €25 per day per employee. For a team of 50 employees, that's €1,250 daily in fines.

The system requires specific data formatting - employee social security numbers, exact contribution amounts, and employment status codes. Get the formatting wrong and the entire submission gets rejected, counting as a late filing.

Wage tax advance payments

Transfer monthly wage tax payments to the tax office by the 10th of the following month. No separate filing required - just the payment with the correct reference number.

Missing this deadline costs 6% annual interest on the unpaid amount, calculated daily. For €10,000 in monthly wage tax, that's €50 per month in interest charges.

What annual reporting is required?

Year-end tax certificates

Issue Lohnsteuerbescheinigung certificates to all employees by February 28, 2026. These replace the old paper certificates and must be provided electronically through your payroll system or as secure PDF downloads.

Employees need these certificates to file their 2025 tax returns. Late issuance can delay employee refunds and creates liability issues for your company.

Annual social security reconciliation

Submit the annual Beitragsnachweisverfahren by March 31, 2026, through the DEÜV portal. This reconciles all monthly social security payments against actual wages paid.

Discrepancies trigger immediate audits. The system flags variances over €100 per employee automatically.

What employee documentation is mandatory?

Employment contracts

Every employment contract must include these elements in German:

• Exact job title and description
• Start date and probation period details
• Base salary and payment schedule
• Working hours and overtime policies
• Vacation entitlement calculation
• Notice period requirements
• Applicable collective bargaining agreement

Missing any element makes the contract legally invalid. Employees can claim additional compensation and benefits through labor courts.

Monthly payslips

Payslips must show detailed breakdowns in German, including:

• Gross salary components
• Individual social security deductions with rates
• Wage tax calculations
• Net pay calculation
• Year-to-date totals for all categories
• Employer social security contribution amounts

Record retention

Maintain these records for 10 years:

• Original employment contracts and amendments
• Monthly payroll calculations and supporting documentation
• Social security registration and deregistration forms
• Wage tax certificates and annual reconciliations
• Time tracking records and overtime approvals

Store records in Germany or ensure immediate access during audits. Cloud storage outside Germany requires specific data protection compliance.

What are the penalties for non-compliance?

Violation	Penalty	Frequency
Late social security filing	€25 per employee per day	Daily accumulation
Missing payslip elements	€500 per occurrence	Per employee affected
Incorrect wage tax withholding	20% of underpayment + 6% annual interest	One-time + ongoing
Missing employment contract elements	Up to €2,500 per contract	Per violation
Inadequate record keeping	€500-€25,000 per audit	Per missing document type
Late wage tax payment	6% annual interest	Monthly calculation

Which regulatory bodies oversee payroll compliance?

Federal Employment Agency (Bundesagentur für Arbeit)

Handles social security compliance and unemployment insurance. Access the DEÜV portal at sv-portal.de for monthly filings.

Contact: +49 800 4555500 (employer hotline)

Local tax offices (Finanzämter)

Manage wage tax compliance and annual reconciliations. Each location has its own tax office - find yours through the federal tax portal at bundesfinanzministerium.de.

German Pension Insurance (Deutsche Rentenversicherung)

Oversees pension contribution compliance and employee registration. Use their employer portal at deutsche-rentenversicherung.de for contribution queries.

The key to German payroll compliance is precision and timeliness. Set up automated reminders for the 10th and 15th of each month, maintain detailed German-language documentation, and never underestimate the 10-year record retention requirement.

Using 2025 tax brackets? You're withholding incorrectly. Here's what changed.

Germany's 2026 payroll updates focus on social contributions and digital compliance requirements. The changes affect every payroll, so here's what you need to update immediately.

Social contribution rate changes

Pension Insurance Contribution - Effective January 1, 2026

The statutory pension insurance rate increased from 18.6% to 18.8% for 2026. Employees and employers each pay 9.4% (up from 9.3%).

For a €4,000 monthly salary, this adds €4 per month in total contributions - €2 each for employee and employer.

Health Insurance Assessment Ceiling - Effective January 1, 2026

The health insurance contribution ceiling rose to €5,175 per month (€62,100 annually), up from €5,062.50 in 2025. This affects high earners who'll pay additional health insurance contributions on the increased ceiling amount.

New digital reporting requirements

Monthly Digital Payroll Reports - Effective March 1, 2026

All employers must submit monthly payroll data electronically to the Federal Employment Agency. Previous quarterly reporting is no longer sufficient.

You'll need to report employee hours, gross pay, and contribution calculations by the 15th of each following month. Late submissions incur €250 penalties per employee.

Most payroll software providers released updates in December 2025 to handle the new format requirements.

Parental leave calculation updates

Parental Benefit Base Calculation - Effective January 1, 2026

The parental benefit (Elterngeld) calculation now excludes overtime payments exceeding 20% of base salary from the 12-month average. This typically reduces benefit amounts for employees with significant overtime.

The maximum monthly benefit remains €1,800, but the calculation method affects employees earning between €2,000-€4,000 monthly.

Upcoming changes

Minimum Wage Increase - Effective January 1, 2027

Germany announced the minimum wage will increase to €12.82 per hour in 2027, up from €12.41 in 2026. Start reviewing contracts for employees near minimum wage thresholds.