Foreign companies employing staff in Germany must stay up to date with annual changes in payroll-related regulations. In 2025, several important adjustments regarding wage tax (Lohnsteuer) and social security contributions have taken effect. Employers are required to consider these changes when calculating salaries and updating their payroll systems.
This article summarizes the most relevant updates for 2025.
1. Adjustment of Income Tax Brackets and Allowances (Wage Tax)
Higher Basic Tax-Free Allowance (Grundfreibetrag)
The basic tax-free allowance was increased in 2025 to €12,060 (previously €11,604 in 2024). Employees only pay income tax on amounts exceeding this threshold.
Adjustment of Income Tax Brackets
The progression zones of the income tax scale were shifted upwards to mitigate the effects of inflation. As a result, employees will face a slightly lower tax burden, especially in lower and middle income ranges.
Child Allowance (Kinderfreibetrag)
The child allowance was also increased to €6,612 for 2025, benefiting employees with children.
2. Changes in Social Security Ceilings (Beitragsbemessungsgrenzen)
In Germany, social security contributions are capped by annual ceilings. For 2025, these ceilings have been adjusted as follows:
| Social Security Branch | Western Germany | Eastern Germany |
| Pension & Unemployment Insurance | €7,550/month | €7,450/month |
| Health & Long-Term Care Insurance (nationwide) | €5,175/month | €5,175/month |
The ceilings directly affect:
- The maximum amount of contributions employers and employees pay.
- The gross salary used for calculating contributions.
Employers must ensure that these new thresholds are reflected in their payroll calculations starting January 2025.
3. Contribution Rates 2025
Most contribution rates remained stable, but small adjustments have been made:
| Branch | Contribution Rate |
| Pension Insurance | 18.6% (unchanged) |
| Unemployment Insurance | 2.6% (previously 2.4%) |
| Health Insurance | 14.6% plus average additional contribution of 1.7% (total 16.3%) |
| Long-Term Care Insurance | 3.4% (higher for childless employees) |
The increase of the unemployment insurance contribution from 2.4% to 2.6% is particularly relevant for employers.
4. Electronic Payroll Processes in 2025
From January 1, 2025, electronic pay slips (E-Payslips) became mandatory for most employers in Germany. Employers must:
- Provide pay slips digitally (PDF or via an employee portal)
- Ensure secure and verifiable delivery
- Comply with data protection and retention obligations
Foreign employers with German payrolls must adapt their systems accordingly.
5. Employer’s Action Points for 2025
Foreign companies employing in Germany should:
- Update payroll software to reflect new thresholds and contribution rates
- Review employment contracts and adjust if wage adjustments are linked to minimum thresholds
- Inform employees about changes in net pay due to contribution adjustments
- Implement secure electronic pay slip procedures if not yet in place
Expert Support from WW+KN and Baker Tilly
WW+KN, a Baker Tilly Company, supports international clients in implementing payroll changes smoothly and ensures full compliance with German wage tax and social security regulations. In addition, we collaborate with Baker Tilly’s specialized tax and legal advisors, enabling us to offer integrated support in complex situations.
Important Note
This article provides general information only and does not constitute legal advice. Please consult an expert to analyze your specific case.
If you have any questions regarding payroll, employment law, or HR compliance in Germany, please feel free to contact us.
We are WW+KN, a Baker Tilly Company.
You can reach us at info@payrollgermany.de.