Payroll germany

How Payroll Accounting Works in Germany

Introduction: For foreign corporations and companies with subsidiaries, branches, or individual employees in Germany, understanding the payroll accounting system is crucial. This guide provides an overview of the essential elements and processes involved in payroll accounting in Germany.

Definition and Scope: Payroll accounting (Lohnbuchhaltung) in Germany involves recording, calculating, and booking employee wages and salaries. This includes both statutory and voluntary deductions. Companies must comply with mandatory payroll accounting due to their obligation to pay wage taxes.

Core Tasks:

1. Maintaining Payroll Records:

  • Each employee must have a payroll account detailing personal data, tax class, and other relevant information.
  • Payroll lists compile all employee payroll data for a given period.

2. Managing Employee Data:

  • Personal data (e.g., name, birthdate, address) must be kept up to date.
  • New employees are registered with social security authorities, and relevant data is reported to the Federal Central Tax Office.

3. Compliance with Legal Reporting Requirements:

  • Companies must register new hires and deregister departing employees with social insurance agencies.
  • Monthly tax and solidarity surcharge reports must be submitted to the tax office.
  • Social insurance contributions and sick pay reimbursements must be reported to relevant authorities.

Distinction Between Wages and Salaries:

  • Salaries: Fixed monthly payments regardless of actual work performed.
  • Wages: Payments based on actual hours worked, including potential overtime and shift premiums, leading to variable monthly amounts.

Who Can Perform Payroll Accounting?

  • Companies must handle payroll accounting if they have employees. The responsible personnel must have strong knowledge of labor, social, and tax law. Companies can either manage payroll internally using software or outsource it to external service providers like tax consultants.

Cost Considerations:

  • Costs vary depending on the method chosen. Manual handling using spreadsheets is cost-effective but prone to errors. Outsourcing to a tax consultant or using payroll software is more reliable but incurs additional costs.

If you are interested in collaborating with us or have further questions, please feel free to send us an email at info@payrollgermany.de.