What global businesses need to know about payroll in Germany.
Germany has now overtaken Japan as the third-largest economy in the world by GDP, behind only the United States and China. It’s the largest economy in the European Union, and the largest EU country by population at over 83 million. With more than half its exports going to other EU states, Germany is often considered the business heart of Europe.
Compared to most Western countries, the German economy’s dependence on services is relatively low at 62%. That’s because it remains an industrial powerhouse, backed by a large manufacturing sector and a historical reputation for organization and a strong work ethic. Germany has enjoyed political stability in the decades since reunification, and its geographical location (it shares land borders with nine other countries) also helps make it an attractive prospect for international businesses.
Germany is generally a welcoming country for overseas investment, but some of its employment and payroll requirements can be complex. Collective bargaining and work councils have strong influence in many industries, meaning payroll requirements can vary substantially from one sector to the next. This guide covers all the key basics from a payroll perspective around doing business in Germany.
Getting Started
If starting a business in Germany, you will probably be looking at setting up a limited liability company, known as a GmbH: this requires a minimum of €25,000 (approximately £20,700; $26,100) in startup capital.
To launch a business located in Germany, you must complete all applicable registrations to the country’s tax and social security authorities. That includes applying for an employer number – an eight-digit identifier for the name, address, and economy class of the company – that is necessary to hire employees and register them for social and health insurance.
The company must also apply for a dedicated tax number (as of 2021, this process must now be completed online) and for statutory accident insurance (also known as ‘Berufsgenossenschaft’). You will most likely also need to register your business with the trade office in order to receive a trading license.
It can take up to six weeks for all such registration information to be fully processed and the registration fees normally come to around €400 (approx. £330; $420). During that time, organizations should set up bank accounts. While it is not mandatory to pay employees from an in-country account, it is advisable for employers to have at least one German account where government entities can send any reimbursement payments. In agreement with their local work councils and local or global payroll providers, organizations must also determine the timing, place, and form of payments and payslips.
Employment Considerations
Germany’s Employment Law governs all the key requirements from an employment and payroll standpoint. For example, the law dictates that all employees have the option to join a union, work council, or collective labor agreement, which may decide issues relating to working decisions, working times, and wages. Collective bargaining has a strong influence in Germany across a number of industries, which can lead to many employment terms and conditions being varied by agreement.
The standard working week is 40 hours, spread across eight-hour shifts from Monday to Friday. The official maximums are 48 hours per week and ten per day, although the average working time shouldn’t exceed eight hours per day across a six-month period.
Work beyond these maximums is considered overtime, although working such long hours is relatively uncommon in Germany. There are no set rules around overtime pay, which means overtime pay terms are agreed through work councils and collective bargaining. In these cases, the extra remuneration tends to be small, at around 10-20%.
Probation periods in Germany are generally six months, with a notice period of two weeks during this time. Shorter probation periods are applied to apprentices. Notice periods start at one month for employees that have passed their probation, gradually rising to seven months for employees with at least 20 years’ service.
Compensation, Bonuses and Severance Pay
As of 2025, Germany’s national minimum wage is €12.82 per hour (approx. £10.70; $13.40). Exceptions apply based on employees’ age, status, or any applicable collective agreements, and as is the case in many countries, further upward revisions in the coming years are likely.
Discretionary bonuses at the end of a fiscal year are common in Germany, as a reward for good performance over the year, as are Christmas bonuses. Additionally, certain collective agreements enshrine a ‘13th month’ salary payment.
There is no legal requirement to provide severance pay in Germany, unless the employee is terminated without notice or made redundant. However, many employers choose to offer half a month’s salary per year of service to ease the severance process.
Tax and Social Security in Germany
Employers should be aware of the regulations regarding payment of salaries and wages, which are governed by Germany’s Civil Code, its Industrial Code, and various collective agreements. Payments to employees and third parties usually take the form of electronic bank transfers under the country’s standard File Transfer and Access Management (FTAM) protocol. Once an employer approves a given payroll, it can authorize its bank to release payments to all employees and make any other required contributions, such as payments to health insurance companies.
Germany’s income tax system is complicated. The first €12,096 earned each year (approx. £10,000; $12,600) is exempt, after which the initial rate of 14% kicks in. Earnings beyond this are subject to gradual rate rises, reaching 42% on earnings above €68,430 per year (approx. £56,500; $71,500). The top rate of tax is 45%, applied on earnings over €277,826 per year (approx. £230,000; $290,000). Married couples can have their incomes taxed together, with the above thresholds doubling in this case.
There is also a ‘solidarity surcharge’ of 5.5% of the income tax bill, if that bill exceeds €19,950 (approx. £16,500; $20,850) for a single taxpayer or €39,900 (approx. £33,000; $41,700) for a married couple being taxed jointly. Registered members of a church are also required to pay a church tax of 9% (or 8% in Bavaria and Baden-Württemberg).
Employers must withhold the appropriate amount from employees’ gross payments each month, then submit payment to the appropriate tax office by the 10th of the following month. Non-residents who are working in Germany are only subject to income tax on their German-earned income.
The following social security contributions are also required:
- Pension insurance: 9.3% employer, 9.3% employee
- Unemployment insurance: 1.3% employer, 1.3% employee
- Health insurance: 7.3% employer, 7.3% employee
- Long-term care insurance: 1.8% employer, 2.4% employee (employee rate gradually reduces if they have more children)
- Disability insurance: 0.64% employer
- Accident insurance: 1.5% employer
Holidays and Leave
Germany has nine days of nationwide public holidays each year, plus a selection of regional holidays that are observed in different states. Paid leave is 20 days per year, increasing to 24 for employees who work six days a week, although many employers offer as many as 30 days as an extra benefit. Collective bargaining agreements often lead to extra paid leave in some industries.
Sick pay is covered by employers for the first six weeks of illness at 100% of usual salary. After this, the health insurance fund takes over and pays employees between 70% and 90% of their normal rate.
Maternity leave is 14 weeks – six weeks before the due date and eight weeks after birth, funded by public health insurance. Paternity leave is considered part of unpaid parental leave, which can be a maximum of three years shared between the two parents. Parents are also entitled to 15 paid days off to care for an ill child, rising to 30 days for single parents.
| German Public Holiday | Date in Calendar |
| New Years Day | January 1st |
| Good Friday | Friday before Easter Sunday |
| Easter Sunday | Easter Sunday |
| Easter Monday | Monday after Easter Sunday |
| Labor Day | May 1st |
| Ascension Day | Forty days after Easter |
| Whit Monday | Seventh Monday after Easter |
| Day of German Unity | October 3rd |
| Christmas Day | December 25th |
| Second Day of Christmas or St. Stephen’s Day | December 26th |
In Summary
Germany is usually high on most businesses’ lists when looking for a European destination to expand into. However, the complexities of its income tax system, and the heavy influence of work councils and collective bargaining on employment law, make it essential to have access to local payroll and cultural expertise. Working with a global payroll provider can give you access to these experts, who can advise you on the best way to approach payroll in Germany, and help you achieve and maintain compliance in the long-term.
This guide is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional. Click here to see more country payroll guides from CloudPay