Steuerberater Elmshorn
Phone: 04121 / 464 38 13
Contact request

Payroll Accounting

1. Legal Situation

1.1 Labour Legislation

Work Contracts

  • Legal basis: Contract of service § 611 BGB (German Civil Code), written form not necessary  but useful for better legal certainty.

Job Protection

  • Depending on a company’s size, there are differentiated rules concerning the outplacement of employees. A dismissal can be subject to costly (varying with the duration of the employment relationship) severance agreements.

Wage Continuation in Case of Illness

  • If an employee gets ill, the employer will have to continue to pay the salary for six weeks. Only  then the Krankenkasse (compulsory health insurance fund) will start paying sickness benefits. In order to finance these continued payments, there is a system of sharing in the costs, into which monthly payments have to be made by the employer.

Maternity Protection

  • For pregnant women and mothers in their first years of motherhood a protection program exists, consisting of job protection, special safety regulations for their workplace and financial coverage, which in part is being financed by a system of sharing in the costs similar to the one that finances wage continuation in the case of illness.

Works constitution

  • Unlike most other countries Germany has an extensive statutory framework to reenforce the rights of employees at their place of work. There is even a certain amount of employee participation in entrepreneurial decisions. Some keywords: Employee participation in the board of directors, shop steward committee. These regulations have been introduced under allied pressure after the second world war in order to cut back the power of the “Ruhr Barons”. Often these regulations are not easily understood nor accepted by foreign investors.

Miscellaneous

  • In this short text I can only display the basic rules. In fact there is a wide array of labour legislation, that – unlike the universe – cannot be put in a nutshell.

1.2 Social Insurance System

Unemployment insurance

  • All employees
  • Social security contribution ceiling: € 5.600 monthly
  • The contribution is 3,0% of gross salary

Statutory Pension Insurance

  • All employees
  • Social security contribution ceiling: € 5.600 monthly
  • The contribution is 19,6% of gross salary

Compulsory Health Insurance

  • Compulsory for employees with an annual gross salary exceeding € 45.900
  • Social security contribution ceiling: € 3.825 monthly
  • The contribution is about an average of 15,5% of gross salary varying with fund membership (there is not
    only one, but many, among which every employee may chose)

Compulsary long term care insurance

  • Compulsory for employees with an annual gross salary exceeding € 45.900
  • Social security contribution ceiling: € 3.825 monthly
  • The contribution is 1,95% of gross salary + 0,25% increase for childless employees

Even Apportioning of Contributions between employers and employees

  • Since social security has been introduced in Germany about 100 years ago, with only small exemptions the contributions have evenly been shared by employers and employees. This principle is no longer unchallenged. There is a tendency to end this “social security pact” by making social security only the employee’s affair

Wage Withholding Tax

  • The employee’s income tax – irrespective of the amount of income – must be withheld at source by the employer. The employer has to report and pay the withholdings monthly to the appropriate local tax office. According to family status, employees have different wage tax classifications, which can mean some tax relief. The withholdings can be looked up in an official schedule, if not calculated by computer.

Company Pension Schemes

  • There is no obligation for an employer to have his own pension scheme or pay contributions of his own to any pension scheme an employee may be entitled to. The employer is, however, obliged to cooperate, if his employee wants to pay into such a scheme at his own expense.

Delegation of Employees by a German Employer into a Foreign Country

  • There are special rules for his case, too complicated to be explained in this short text.

Delegation of Employees by a Foreign Employer into Germany

  • There are special rules for his case, too complicated to be explained in this short text.

2. Organization

(concerning tax accountants using DATEV)

2.1 Monthly Procedures

Communication of salary data to tax accountant until the tenth day of the month by the employer

An early communication of salary data is necessary, if management wants early completion of the salary statements and early completion and payment in time do have absolute priority. Where these items are of lesser significance, there is no problem in later communication of data. Normally the completion of statements and the payment will be comfortably in time. Only in case of (rare) technical problems the completion (and thus payment) may be late a day or two.

Processing of Data

Data are being processed by tax accountant via the data processing service centre of DATEV e.G. (Nürnberg )

Salary Statements

Salary statements are sent by DATEV directly to company in bundled envelopes

Tax and Social Security Data

Data for social security and wage tax reports are reported online to the appropriate authorities.

A list of the book entries necessary for financial accounting and payment documents are sent to the tax accountant. The documents are sent by encrypted mail to the company’s management.

The management signs the payment documents and faxes them to the bank, thus authorizing payment. The payment of salariesshould, the payment of social security contributions must be paid until the third last banking day of the month. The wage tax must be paid until the tenth of the following month.

The bookkeeper makes the entries necessary.

2.2 Annual Procedures

The annual report to the Berufsgenossenschaft (Accident Prevention and Insurance Association) must be filed until January, 10th of the following year.

In January of the new year a Lohnsteuerbescheinigung (certificate of wage tax deduction) must be issued for the employee’s use in his income tax declaration.

The Lohnsteuerkarte (wage tax card) is now only needed to document family status and other taxation criteria of the employee. It must either be kept safe by the employer or transferred via the employee to the new employer in case employee takes over a new job during the fiscal year.

In years to come every german resident will have a “Steueridentifikationsnummer” (Tax payer’s identification  number). Like the american social security number this number is valid as long as the person lives. Then our good old Lohnsteuerkarte will go out of service.

The annual reports to the social security authorities concerning the employees, liable to social security deductions at years end, must be filed until April, 15th of the following year.