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GPMI Education


Payroll in Germany Contains Unique Elements

By Kerry Cole

Germany can rightly lay claim to inventing the modern payroll function, as Chancellor Otto von Bismarck introduced compulsory social insurance programs in the 1880s.

In the three-day Global Payroll Management Institute (GPMI) class “Payroll in Germany,” international payroll expert Tim Kelsey explained that Bismarck set in motion a robust, complicated payroll system that today includes six tax classes, a church tax, and a solidarity surcharge. The class is available on demand.

Kelsey has more than 20 years of global payroll processing experience and owns Kelsey Payroll Services in the U.K.

Tax Classes

To determine personal allowances for an employee working in Germany, Kelsey said, employers must know which of six classes the employee belongs in:

  • Class I—single/separated people not in class II/III
  • Class II—single/separated with a child
  • Class III—married employee based on married couple tariff
  • Class IV—married employee where both partners work
  • Class V—same as class IV but the other member of the couple claims class III
  • Class VI—person for whom this is his or her second job

Church Tax

Kelsey noted that a feature unique to German payroll is the withholding of church tax for employees who are members of Catholic and Protestant churches or Jewish synagogues. The rate is usually 9% of the wage tax but depends on the company’s location.

Solidarity Surcharge

Germany also has a surcharge of 5.5% of the wage tax levied on each employee to finance the reunification of Germany and rebuild the east German infrastructure.

“All employees are liable for it,” Kelsey explained. “It’s no good for someone in the far west of Germany to say, ‘I don’t live anywhere near the former East Germany and I never wanted them to come back in anyway, so I don’t want to pay for them.’ That’s not part of the deal.”

The class also details reporting and making regular tax, social insurance, and health insurance payments in Germany.

German Business Culture

In addition, Kelsey provides pointers on working with Germans, noting, for instance, that a meeting will not conclude without specific tasks, deadlines, and next steps assigned.

“The Germans prefer you to say it as you see it,” he said of their direct communication style. “If you have something to say, say it straight away. Don’t beat around the bush.”

He also affirmed the Germans’ reputation for being prompt, explaining that being a few minutes late to a meeting might result in the meeting being rescheduled. Leaving the office promptly is important, too.

“You will notice the vast majority of staff leave the office on time,” Kelsey said. “There will not be many people left in a German office after five o’clock. There is no merit in working after your set hours in German business. The prevailing attitude would be not that you’ve given something extra to the company. The attitude would be that you must be inefficient. You haven’t been able to do your job in the allotted time.”

KerryColeKerry Cole is Senior Editor of Membership Publications for the American Payroll Association and the Global Payroll Management Institute.