Lohnabrechnung: the German payslip explained

Navigating the intricacies of a German payslip is a vital skill for employees in the country. Germany's legal framework ensures that employees receive detailed monthly payslips, outlining not just their salary but also breaking down taxes and social security contributions. In this exhaustive guide, we delve into the nuances of German payslips, addressing common questions and providing in-depth insights.

1. Legal Foundations of German Payroll Accounting:

Germany's payroll system is underpinned by the GewO (law on trade, commerce, and industry regulation), EStG (income tax law), and SGB (social security code). These regulations guarantee employees the right to receive a comprehensive payslip each month.

2. Essential Information on a German Payslip:

According to Section 108 (1) of the GewO, a German payslip must contain specific information. Comprising three key segments, a German payslip includes a header, middle, and a bottom part. In the header, personal and job-related information is presented. The middle section details salary, taxes, and contributions, while the bottom summarizes the net salary and offers bank information.

Header Information:

• Employer details: Name, address
• Employee details: Name, address, date of birth, job title
• Identification numbers: Health insurance, tax class (StKl. / Steuerklasse), tax ID (Lohnsteueridentifikationsnummer / IdNr.), employee number (Arbeitnehmer Nr.)
• Employment specifics: Start and, if applicable, end dates
• Certification period
• Additionnal: Health insurance (Krankenkasse / KK), KK contribution rate in %, vacation days, approved vacations year to date, religion / in the church

Central Information:

The middle section of the payslip is where things get interesting. Here is stated the gross salary, which is the total amount the employee earns before any deductions. It also outlines all the tax deductions and social security contributions.

Taxable Payments:

This section details where the money comes from. In addition to the regular salary (Gehalt), it may include bonuses, holiday pay, or Christmas bonuses. The letters on this list represent the taxes paid, explained at the bottom of the sheet. Non-taxable payments are also listed in a separate section at the bottom of the payslip.

Paid Social Contributions and Taxes:

This part reveals the social contributions and taxes that have been paid and what remains. The net wage, or take-home pay, depends on various factors. Key points include:

• Wage Tax (Lohnsteuer): Every German employee has to pay income tax, deducted from their salary by the employer. The amount depends on income and tax class.
• Solidarity Tax: Contributed for the costs of Eastern Germany's reconstruction.
• Church Tax (Kirchensteuer): If a person is a member of a church, an additional tax is levied.
• Health Insurance (KV/Krankenversicherung): Three options are available based on income, including public, private, or a combination. Public insurance covers all necessary medical expenses. Full private insurance is only allowed for employees with gross incomes higher than €5,550 as of 2023.
• Pension Insurance (RV/Rentenversicherung): Monthly amount depends on total contributions made during employment. The state pension might be lower, and the regular retirement age is 67.
• Unemployment Insurance (AV/Arbeitslosenversicherung): After contributing for at least twelve months in a two-year period, employees qualify for state unemployment benefits, typically around 60% of the previous net salary. Duration depends on employment history and age.
• Care Insurance (PV/Pflegeversicherung): It covers basic costs of home and residential. For example if an employee needs special care at home.

Bottom Information :

Towards the bottom of the German payslip, essential details are listed, providing a comprehensive overview of the financial transactions associated with the employment. This section serves as a financial snapshot, detailing the net pay and pertinent figures. It contains the net salary and the bank account of the employee, where the amount is paid. Additionally, it contains the non taxable contributions.

The payslip's lower section delves into nuances related to non-taxable contributions, particularly in sections 5 and 6. This distinction hinges on the salary's level, determining whether it falls under taxable or non-taxable classifications.

• If the gross salary is below €5,550:

  If the gross income falls below the established German threshold, allowing the option for private health insurance, specific lines in section 5 detail the employee's contribution.

• If the gross salary is above €5,550:

Should the gross income surpass this health insurance threshold, the payslip illustrates Health Insurance (HI) and Care Insurance (CI) contributions beneath the NET income. Here's the breakdown:

1. AG-Ant freiw. Krankenvers: The employer's portion of the Health Insurance contribution, amalgamated with the net income.
2. Gesamtbetr. Freiw. Krankenv: The total Health Insurance contribution, factored in as a deduction, ultimately representing the employee's contribution.

How Wages or Salaries Are Calculated:

In Germany, the calculation of wages or salaries involves a detailed breakdown of various components. The gross salary encompasses not only the basic monthly earnings but also additional elements like non-cash benefits, bonuses, and deductions. Here's a breakdown:

• Base Salary (Gehalt): This is your fixed monthly income.
• Non-Cash Benefits (Geldw. Vorteil or Sachbezug): These are benefits provided by the employer that are subject to taxation and social contributions.
• Bonuses (Einmalbezug or Einmalzahlung): Occasional bonuses, such as those for Christmas or holidays, contribute to your overall earnings.
• Tax-Free Benefits (ST-frei or Steuerfreie Bezüge): Certain benefits that are exempt from taxation.
• Total Gross Salary (Gesamtbrutto or Steuer-Brutto): This represents the taxable amount used for calculating deductions.

Break down of a salary in Germany:

• with employer contributions to your savings plan
• with extra payments (Zuschläge) such as overtime or night shifts
• with performance-related bonuses (Prämien) or commissions (Umsatzprovisionen)
• with additional perks such as holiday bonuses like Christmas bonus (Weihnachtsgeld) or holiday bonus (Urlaubsgeld)

= Gross income before tax and social insurance deductions

• minus Income tax (Lohnsteuer)
• minus Church tax (Kirchensteuer), if member os the Church
• minus Solidarity surcharge (Solidaritätszuschlag)
• minus Social insurance contributions (Sozialversicherungsbeiträge)
• minus Health insurance (Krankenversicherung)
• minus Pension insurance (Rentenversicherung)
• minus Unemployment insurance (Arbeitslosenversicherung)
• minus Nursing care insurance (Pflegeversicherung)

= Net income

For specific questions after noticing any discrepancies on an employee Payslip, the employer's payroll accountant is the best person to reach out to for clarification.

Income Tax Classes (Steuerklasse):

• Class 1: Single person.
• Class 2: Single person with at least one minor child.
• Class 3: Married, widowed, or common-law partnerships (with tax class 5).
• Class 4: Ideal for partners with similar incomes.
• Class 5: For partners when one chooses tax class 3.
• Class 6: Applies to individuals with two or more jobs.

Salary Deductions in Germany:

In Germany, salary deductions are substantial, amounting to around 40% of the gross salary. These deductions are highly individualized and depend on several factors, including:

• Income Tax (Lohnsteuer): Ranges from 14% to 42% and is calculated progressively.

  • Church Tax (Kirchensteuer): Applicable if the employee is a member of the Church, ranging from 8-9%.

• Solidarity Surcharge (Solidaritätszuschlag): Previously applicable to all, this was been changed in 2021. For the year 2024, it is applicable to individuals with incomes exceeding €18,130 per year (€36,260 for a couple).

• Social Security Contributions (Sozialversicherung):
• Health Insurance (Krankenversicherung): 14.6% state contribution plus an additional amount based on the health insurance fund.
• Pension Insurance (Rentenversicherung): 18.6%.
• Unemployment Insurance (Arbeitslosenversicherung): 2.4%.
• Long-term Care Insurance (Pflegeversicherung): 3.4-4%, depending on circumstances.

Employers cover around 50% of social security contributions.

Understanding these deductions is crucial for gauging your net salary and managing your finances effectively in Germany.

Frequently Asked Questions About Payslips in Germany:

What is the difference between "Gehalt" and "Lohn"?

In everyday language, "Gehalt" is often used for salaried employees, while "Lohn" is associated with hourly or waged workers. However, this distinction is less prevalent in current legal and contractual contexts. Ultimately, the terms more significantly reflect the nature and extent of the work performed rather than the type of employment.

Where to find the pension insurance number?

Your pension insurance number is typically located in the header information section of your payslip.

Where to find the tax ID?

Look for the tax ID (Lohnsteueridentifikationsnummer / IdNr.) alongside your personal details in the header section.

Where can I find my social insurance (SV) number?

The social insurance (SV) number is usually included in the header information section.

How can I check my remaining leave days on the payslip?

Look for "Url. Anspr." (Vacation days as per contract) and "Url. Tg. gen." (Approved vacation days year to date) in the personal information section.

How do I receive my annual statement, and where can I find information on travel expenses?

Annual statements are typically provided at the end of the fiscal year, but they can be sent until no later than April 15th of the following year.

Should I keep my Payslips?

Payslips are vital documents for proving work history and social security contributions. Even if not planning to stay until retirement, they are essential for annual tax returns.