Payslip in Germany: How does it work?
Trying to read a German payslip (or as they say in Germany: a Gehaltsabrechnung) for the first time? The cryptic calculation methods and bureaucratic German jargon can make it difficult to understand. However, it is very important to know what a payslip is and what factors determine the salary.
The German payslip is decisive for calculating income tax, as the gross and net wages, all allowances and deductions from the employee are derived from the gross and net wages. In Germany the income tax, church tax, solidarity surcharge and social security contributions for pension, unemployment, health, and long-term care insurance are deducted from the gross wage. The structure is basically always the same. We’ve broken down a general payslip in three sections. Let’s check it out, we’ll show you what it looks like.
1. Top of the German payslip
At the top of the payslip you will find the employee’s personal information. Think about the employee’s personal number, date of birth, but also religion and whether the employee is subject to church tax. We’ve picked out three terms in this section to keep an eye on.
1. Tax Bracket (Steuerklasse)
The tax bracket, or tax factor, is mainly dependent on the marital status of the employee. Here is a brief overview of the six different classes:
2. Personal information
This is personal data about the employee, such as name and address.
3. HR group
This section mainly specifies the job and provides information on insurance classification.
2. Middle part of the payslip
This is the most interesting part of the payslip. In this section, you can find the gross salary of the employee. The next part shows all the tax deductions and social security contributions.
4. Taxable payments
This list specifies the source of the payment. Apart from the salary (Gehalt), this might include bonuses, holiday, or Christmas payments. The letters define the paid taxes and are explained at the bottom of the sheet. Non-taxable payments are stated in a section below (see 6).
5. Paid social contributions and taxes
This part shows the paid social contributions and taxes, and what eventually comes out. The amount of the net wage ultimately depends on many variables. We’ll mention the most important ones:
- Wage tax (Lohnsteuer)
Every salaried employee in Germany has to pay income tax. Income tax on employment income is typically levied by tax withholdings calculated and deducted from salary by the employer. The amount of wage tax depends on the income and the wage tax class of the employee. The employees must additionally pay both:
- A solidarity tax for the costs of Eastern Germany’s reconstruction
- A church tax (Kirchensteuer) in the amount of income tax paid if employees are members of a church.
- HI/Health Insurance (KV/Krankenversicherung)
The employee has three options for Health Insurance while living in Germany, depending on his income:
- the government-regulated public health insurance system (gesetzliche Krankenkasse)
- private health insurance from a German or international insurance company
- a combination of these two
You can opt for full private plans if your income is above a certain threshold (contribution assessment ceiling, 2020: EUR 4,687.50 per month) or when you are self-employed. Being insured in the government health insurance system means all costs of necessary medical treatments are covered. From doctors’ visits to medication and hospital costs and basic dental care.
- PI/Pension Insurance (RV/Rentenversicherung)
The amount of monthly Pension Insurance largely depends on the total amount of contributions made during employment. The state pension can be much lower. As a rule, the regular retirement age is 67.
- UI/Unemployment Insurance (AV/Arbeitslosenversicherung)
When contributing for at least twelve months in a two-year period to the Unemployment Insurance, any employee is entitled to unemployment benefits by the German state. Those benefits are around 60% of the previous net salary and the duration of the payment depends on the former employment and the age of the candidate.
- CI/Care Insurance (PV/Pflegeversicherung)
Similar to Health Insurance, the Care Insurance will cover the basic costs of home and residential (long-term) care costs, should an employee ever be in need of nursing or household assistance.
3. Bottom of the German payslip
In the lower part of the payslip, you can find the final salary (net pay) and the bank account number where the salary is deposited. There is an overview of total numbers in salary, taxes, and contributions. In addition, the lower part of the payslip describes an exception to the contributions and taxations earlier in part 5. We’ll tell you more about it:
6. Non-taxable contributions
Contributions for Health Insurance and Care Insurance can appear in two places: section 5 or section 6. This depends on the height of the salary, whether it’s a taxable or non-taxable payment.
- In section 5 next to PI and UI:
In case the gross income is lower than the German threshold/ceiling distinguishing, the employee is entitled to opt for private health (EUR 4.237,50), the employee’s contribution is shown in these lines.
- In section 6, non-taxable-contributory payments, and deductions section:
If the gross income is higher than this health insurance threshold, the HI and CI contributions are shown underneath the NET income, in this way:
- AG-Ant freiw. Krankenvers: This is the employer’s part of the HI contribution, added to the net income
- Gesamtbetr. Freiw. Krankenv: This is the total HI contribution, deducted (the net effect being the employee’s contribution)
Can we help you out?
We have used a general payslip to explain the German payslip in broad terms. Any personal adjustments or situations are not considered in this blog. Do you need help reading or drafting a payslip? Our HR experts in Germany are happy to help you out! Fill out the contact form and we will be in touch!