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Germany is Europe's largest economy and has one of its deepest talent pools, especially in engineering, manufacturing, and software. For many companies expanding into the EU, it's the first market they hire in.
It is also one of the more demanding countries to run payroll in. Employer social security costs add roughly a fifth on top of gross salary. Tax is withheld differently depending on each employee's tax class, church membership, and number of children. Leave and sick pay are generous by law, and the rules change every January. Foreign employers who budget for salary alone tend to get caught out at the first payroll run.
This guide covers what you'll pay, when you'll pay it, and the rules that most often trip up companies new to Germany payroll. It is current as of October 2026.
How Employee Compensation in Germany Is Structured
Most packages have three layers: the monthly salary, the contributions and benefits the law requires, and the extras employers add to compete for talent.
| Compensation Component | Typical Practice |
|---|---|
| Base salary | Fixed, paid monthly |
| Annual performance bonus | Common, usually discretionary |
| 13th-month salary / Christmas bonus | Common, especially under collective agreements |
| Pension insurance | Mandatory |
| Health insurance | Mandatory |
| Long-term care insurance | Mandatory |
| Unemployment insurance | Mandatory |
| Accident insurance | Mandatory (employer only) |
| Insolvency levy | Mandatory (employer only) |
| Annual leave | Statutory minimum, based on working days per week |
| Company pension (bAV) | Employees have a legal right to salary conversion |
| Public transport ticket or meal allowance | Optional, often tax-advantaged |
Many employers also offer subsidised Deutschlandtickets, tax-free benefits in kind of up to €50 a month, supplementary health insurance, training budgets, and leave above the legal minimum. For skilled hires these extras are often what tips the decision, because German candidates compare packages closely.
Employees can also deduct a home office allowance of €6 a day (up to €1,260 a year) on their own tax returns. This is a personal tax deduction, not something the employer pays.
Salary Payments in Germany
There is no single wage payment law in Germany. The rules come from the Civil Code, the Trade Regulation Act, the Minimum Wage Act, and the Working Time Act (Arbeitszeitgesetz). In practice, employers need to:
- Pay at least €13.90 an hour in 2026, rising to €14.60 from 1 January 2027. Some sectors have higher minimums under collective agreements.
- Pay monthly. Salaries are normally paid at the end of the month, on the date set in the contract.
- Put salary terms in writing. Under the Evidence Act (Nachweisgesetz), the employee must receive the key terms of employment, including pay, in writing.
- Give a payslip in text form each time salary is paid, showing gross pay, deductions, and net pay.
- Respect working time limits. Normal working time is capped at 8 hours a day. It can go up to 10 hours if it averages out to 8 over six months. Employees need 11 hours' uninterrupted rest between working days, and Sunday and public holiday work is generally banned, apart from exceptions such as healthcare and transport. Employers must also record their employees' working time.
Two deadlines shape the payroll calendar. Social security contributions are due on the third-to-last banking day of the month the work is done, so you pay them before or along with salary. Wage tax is reported and paid by the 10th of the following month.
Mandatory Employer Contributions
Social security is where most of the extra cost comes from. Contributions are charged on gross salary up to an annual ceiling (Beitragsbemessungsgrenze). Above that ceiling, no further contributions are due.
| Contribution | 2026 Rate | 2026 Annual Ceiling | Who Pays |
|---|---|---|---|
| Pension insurance | 18.6% | €101,400 | Employer 9.3%, employee 9.3% |
| Unemployment insurance | 2.6% | €101,400 | Employer 1.3%, employee 1.3% |
| Health insurance | 14.6% + insurer's additional rate (average 2.9%) | €69,750 | Split equally |
| Long-term care insurance | 3.6% | €69,750 | Employer 1.8%, employee 1.8% |
| Accident insurance | Varies by industry | Varies | Employer only |
| Insolvency levy (U3) | 0.15% | €101,400 | Employer only |
| Sick pay and maternity levies (U1/U2) | Varies by health insurer | Varies | Employer only |
A few points on long-term care insurance:
- Employees aged 23 or over with no children pay a 0.6% surcharge, which brings the total rate to 4.2%. The employee pays the surcharge alone.
- Parents with two or more children under 25 pay a lower rate.
- In Saxony the split is different: employers pay 1.3% and employees 2.3%.
The U1 levy, which reimburses employers for sick pay, applies only to employers with up to 30 employees. The U2 levy, which covers maternity pay, applies to every employer.
Changes coming in 2027: The federal cabinet has approved higher ceilings for 2027. The pension and unemployment ceiling rises to €106,200 and the health and care ceiling to €76,500, subject to final approval by the Bundesrat. Health insurers also set their additional rates for 2027 in late autumn, so budget for possible increases.
Bonuses in Germany
German law doesn't require bonuses. They only become mandatory when promised in an employment contract, a collective agreement, or a works agreement. In practice, they are a normal part of pay in most industries.
- Annual performance bonuses are the most common type. They're usually tied to individual targets, company results, or both. If you set targets, set them in writing and on time. German courts have awarded employees full bonuses when the employer failed to agree targets.
- 13th-month salary and holiday pay. Many employers, particularly those bound by collective agreements, pay a Christmas bonus (Weihnachtsgeld), holiday pay (Urlaubsgeld), or both. Once these are in the contract or collective agreement, they must be paid. Paying them without a clear reservation for several years in a row can also create an entitlement.
- Commission and sales incentives are common for sales roles. Write the commission plan down in detail, including how it's calculated and when it's paid, because commission disputes are common.
All bonuses are treated as one-off payments for payroll. They are subject to wage tax and to social security contributions up to the annual ceilings.
Mandatory Employee Benefits in Germany
Annual Leave
The Federal Leave Act (Bundesurlaubsgesetz) sets a minimum of 24 working days for a six-day week. For other working patterns the minimum is calculated in proportion:
| Working Pattern | Statutory Minimum Annual Leave |
|---|---|
| 6-day week | 24 days |
| 5-day week | 20 days |
| 4-day week | 16 days |
| 3-day week | 12 days |
| 2-day week | 8 days |
Most employers offer 25 to 30 days. Severely disabled employees are entitled to 5 additional days.
Sick Leave
When an employee is ill, the employer continues to pay 100% of salary for up to 6 weeks per illness. After that, the employee's health insurer pays sick pay (Krankengeld) of 70% of gross salary, capped at 90% of net, for up to 78 weeks within three years for the same illness.
Employees need a doctor's certificate if an illness lasts more than three calendar days, though the employer can ask for one from the first day. Certificates are now electronic, and employers download them from the health insurer.
Parents can also take paid days off to care for a sick child under 12. In 2026, each parent gets 15 days per child per year (30 for single parents), up to a maximum of 35 days (70 for single parents). The health insurer pays these days, at around 90% of net pay.
Maternity Leave and Miscarriage Protection
Maternity protection covers 6 weeks before and 8 weeks after the birth. The 8 weeks after are compulsory. This extends to 12 weeks after the birth for premature or multiple births, or if the child has a disability. During this time the employee receives her full average net pay. The health insurer pays up to €13 a day, and the employer tops it up. The employer is reimbursed through the U2 levy.
Since 1 June 2025, employees who have a miscarriage from the 13th week of pregnancy are also protected. They are entitled to 2 weeks of leave from week 13, 6 weeks from week 17, and 8 weeks from week 20. They can choose to keep working if they want to.
Parental Leave
Germany has no separate paternity leave. Instead, both parents can take up to 3 years of parental leave (Elternzeit) per child, and up to 24 months of it can be taken between the child's third and eighth birthdays. The employer doesn't pay salary during this time. The state pays parental allowance (Elterngeld) of €300 to €1,800 a month, based on previous net income.
Public Holidays
Germany has 9 nationwide public holidays:
- New Year's Day
- Good Friday
- Easter Monday
- Labour Day (1 May)
- Ascension Day
- Whit Monday
- Day of German Unity (3 October)
- Christmas Day
- Second Day of Christmas (26 December)
The states add their own, such as Epiphany, Corpus Christi, Reformation Day, and All Saints' Day. Bavaria and Baden-Württemberg have the most. If your team is spread across Germany, set up a holiday calendar for each state.
Payroll Taxes and Employee Deductions
| Payroll Item | What It Is |
|---|---|
| Wage tax (Lohnsteuer) | Income tax withheld monthly, based on the employee's tax class (I–VI) |
| Solidarity surcharge (Solidaritätszuschlag) | 5.5% of wage tax, but only for high earners. Most employees no longer pay it |
| Church tax (Kirchensteuer) | 8% of wage tax in Bavaria and Baden-Württemberg and 9% elsewhere, for members of registered churches |
| Social security | Employee shares of pension, health, long-term care, and unemployment insurance |
The employer gets each employee's tax class and church membership electronically from the tax office (the ELStAM system). Payroll has to use this data, not what the employee says on a form. Late or incorrect filings lead to late-payment surcharges, interest, and, in serious cases, social security audits.
Common Payroll Mistakes Foreign Employers Make
- Using last year's numbers. Contribution ceilings, the minimum wage, and health insurers' additional rates change every January. Payroll set up with 2025 figures will be wrong in 2026, and 2026 figures will be wrong in 2027.
- Not recording working time. Under German case law, employers must record their employees' working time. Ignoring the 8-hour daily limit or the 11-hour rest period also exposes you to fines.
- Using a flat "20 days" leave policy. Twenty days is the minimum only for a five-day week. Employees on a six-day schedule are entitled to 24, and most candidates expect 25 to 30 anyway.
- Accidentally creating bonus entitlements. Paying the same bonus several years in a row without a written reservation can turn a discretionary bonus into a contractual one.
- Keeping poor records. Missing payslips or incomplete records make social security audits and employment disputes much harder to defend.
How Slasify Simplifies Payroll in Germany
Running payroll in several countries means following several sets of employment law, tax rules, contribution schemes, and currencies. Slasify brings international hiring onto one platform.
With Slasify, you can:
- Hire employees in Germany without a local entity through our Employer of Record (EOR) service.
- Run compliant global payroll in Germany and more than 150 other countries.
- Pay in 130+ currencies from one place.
- Let us handle wage tax, social security, health insurer registrations, and the yearly rate changes.
- Manage onboarding, contracts, and the full employee lifecycle in one system.
Ready to Build Your Team in Germany?
Whether it's your first engineer in Berlin or a sales team covering the DACH region, Slasify takes care of the employment and payroll compliance so you can start hiring quickly. Book a free consultation to see how our Employer of Record and global payroll solutions work in Germany.
FAQs
1. Can a foreign company hire employees in Germany without a local entity? Yes. An Employer of Record becomes the legal employer in Germany and runs payroll, tax, and social security, while you manage the employee's day-to-day work. In Germany, these arrangements are generally regulated as employee leasing under the Temporary Employment Act (AÜG). That means the EOR or its local partner needs a license, and the law limits how long one employee can be placed with the same client.
2. What is the minimum wage in Germany? €13.90 per hour in 2026, rising to €14.60 per hour on 1 January 2027.
3. How much does it cost to employ someone in Germany on top of salary? Employer social security contributions add roughly 21% to 22% of gross salary, up to the contribution ceilings. On top of that come accident insurance, the U1/U2/U3 levies, and any benefits you offer.
4. Are bonuses mandatory in Germany? No, unless the contract, a collective agreement, or a works agreement promises them. A bonus paid the same way for several years without a written reservation can become an entitlement, though.
5. Who pays sick leave in Germany? The employer pays full salary for the first 6 weeks of an illness. After that, the health insurer pays sick pay of about 70% of gross salary.
6. When are salaries paid in Germany? Usually at the end of each month, on the date set in the contract. Social security contributions are due on the third-to-last banking day of the same month.