How does the Social Security System work in Germany?

Germany knows quite an extensive social security system. Both employers and employees in Germany are obliged to make compulsory contributions to this ‘Sozialversicherungssytem’ as they say in German. This also applies to expats living in Germany. What are the German social security contributions exactly? And what benefits does it bring for you as an employee or employer? 

How does the German social security system work?

All employees earning more than €450 per month are covered by the German social security system and must contribute to the system depending their income. With this extensive system, Germany sees to it that all German citizens, including expats, can live and work comfortably even if they’re sick, unemployed, disabled or retired. The contributions must be split equally between the employer and the employee, except for the contributions to the health insurance.

The employer is liable for the full payment of the contributions to the social security system. In addition, the employer must pay a contribution to the statutory accident, maternity, insolvency and severely handicapped insurances. This however, prevents the employee from claiming damages from the employer due to workplace accidents, unless these were caused by the employer intentionally.

The following contributions must be made in 2020:

• X = percentage depends on chosen insurance
• * = +0,25% for childless employees

The contributions for the health and care insurance are capped at a maximum salary of €4,437.50 per month. Those for the pension and unemployment insurance at €6,700 per month.

1. Health insurance.

When you’re working in Germany, part of the social security system is to participate in the health insurance system, called The Statutory Insurance, the Gesetzliche Krankenversicherung (GKV). About 85% of German citizens are covered by this national health insurance. It covers ranges from hospital stays, dental care, routine GP visits, drugs, eyeglasses, immunizations, and x-rays. It also compensates persons for loss of income due to illness after 6 weeks of the same illness.

The contribution rate for employees is 14,6% of gross salary, which is split between the employee and the employer (both 7,3%).

If your income is above €54,900 per year or when you are self-employed, you can opt for full private health insurance. Employers will still pay the same contribution, being maximum 50% of what the employee’s public health insurance would cost. Please note that private health is an alternative to public health, and does not come on top of it as in many countries. Private health can give the employee more choices, and can be either cheaper or more expensive than public health.

Benefits

Being insured in the statutory health insurance system means all costs of necessary medical treatments are covered. From medication, hospital stays, basic dental care, doctor’s visits, and eyeglasses to x-rays and immunizations. You’re also compensated for the loss of income due to illness.

Be aware of this

Please note that there is no coverage for private doctors or surgeons and a private room in the hospital. Alternative/homeopathic medical care is covered in the statutory insurance. Coverage for dental care depends on the health insurance company you are registered at. Non-working dependents living at your address in Germany are presently insured at no additional cost and simply need to be registered with the same health insurance as the employee as the paying member.

2. Pension insurance.

Employees in Germany contribute to the public pension insurance (Getsetzliche Rentenversicherung, GRV), however, there are other options such as private pension insurance. The contribution rate is 18.6% of your gross salary. This means that both the employee and the employer pay 9,3% of the contribution. This will be withheld from the employee’s income. When expats return to their home country, they remain entitled to the pension that was built up during the years worked in Germany. 

Benefits

The retirement age in Germany is currently 65 years and 8 months. This will be gradually increased to 67 years before 2031. The amount of the monthly pension largely depends on the total amount of contributions made during employment. The monthly pension of retired employees who have worked for 45 years and who have received the average salary, is currently around €30,000 per year, amounts to approximately €1,200. However, the state pension can be much lower.

Be aware of this

On the employee’s request, the employer must offer a supplementary pension scheme in the form of deferred compensation. Unless provided for in CBAs, the employer is not obliged to offer other supplementary pension schemes.

3. Unemployment insurance.

All citizens with a regular employment contract (except freelancers and certain civil servants) in Germany have to pay a contribution to the unemployment insurance fund, the ‘Arbeitslosenversicherung’. This concerns 2,40%, which is split between the employer and the employee.

Benefits

When contributing for twelve consecutive months to the unemployment insurance, as an expat you’re entitled to unemployment benefits by the German state. You have to be actively looking for work. Under these circumstances, the unemployment insurance will pay you an income for a certain period of time. The length of the payment (from six months to two years) depends on the former employment and the age of the candidate, and the fact whether the employee has children or not. The benefits are around 60% of the previous net salary. Training and help in finding a new job can be provided too when you’re receiving unemployment benefits.

4. (Long-term) care insurance.

Similar to the health insurance, the long-term care insurance, Pflegeversicherung,  covers the basic costs of home and residential care costs, should an employee ever be in need of nursing or household assistance. The employee and employer both pay an equivalent contribution of 1,525%.

Be aware of this

Anyone with statutory health insurance is automatically covered for long-term care insurance. If you have private health insurance, you may need to apply for care insurance. The contribution is higher for employees without children, 1,775%.

5. Accident insurance, insolvency charge, maternity leave.

For a couple of insurances, there is only a contribution from the employer-side, not for employees. Depending on the risk-characteristics of the job, employers can pay from as little as 0,5% of gross (for risk-free office jobs). But the higher the risk of the job (construction/factory workers) the contributions can be significantly higher. The benefit of this insurance is that the costs of medical treatment and rehabilitation after a work-related accident are covered. The employer also pays an insolvency charge of 0,6%. Depending on whether the employee is covered by statutory health insurance or private health insurance, the employer pays 0,5% for maternity leave (Mutterschaftsgeld). This contribution, for all employees (regardless of gender), makes sure that all pregnant mothers can enjoy 4 months of paid maternity leave.

How can we help you?

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