Running payroll in Germany means operating two parallel systems every month: wage tax (Lohnsteuer) withheld from the employee's salary and remitted to the tax office, and social insurance contributions split between employer and employee across statutory health, pension, unemployment and long-term care insurance, plus accident insurance that the employer funds alone. The employer registers with the tax authorities and with each employee's chosen health insurance fund, which acts as the collection point for social contributions. The rates below come from the European Commission's official guide to social security rights in Germany; the employer's share is a genuine on-cost on top of gross salary, and any quote that ignores it understates German employment cost badly.
The social insurance stack and who pays what
The EU's official guide sets out the branches and rates. Statutory health insurance carries a general contribution rate of 14.6% of income subject to compulsory insurance, with the employer paying half (7.3%) and the employee the other half, plus a supplementary contribution that each health insurance fund sets on top and that is likewise shared. The pension scheme contribution for 2026 is 18.6% of earned income, in principle split in half. Unemployment insurance is 2.6%, shared the same way as pensions. Long-term care (nursing) insurance is 3.6%, and childless insured people born since 1940 pay a supplement of 0.6 contribution points from age 23. Statutory accident insurance sits outside this split: the employer pays those contributions in full for manual and office workers and trainees.
Wage tax and the monthly cycle
Alongside social insurance, the employer withholds wage tax from each salary payment based on the employee's tax class and remits it to the tax office, together with the solidarity surcharge and church tax where they apply. Contributions to the social funds are reported and paid through the employee's health insurance fund, which distributes them to the pension, unemployment and care schemes. Contribution assessment ceilings cap the income on which social contributions are calculated, and the ceilings are adjusted regularly, so the effective employer percentage falls on very high salaries. Payslips, registrations for new hires and deregistrations at exit are all mandatory, and errors surface quickly because the funds reconcile employer reports against payments.
Wage floors and employment law context
Germany has a statutory minimum wage; the Federal Ministry of Labour and Social Affairs describes its purpose as protecting workers in low-paying jobs from wage dumping, and the rate is adjusted over time on the recommendation of a standing commission, so the current figure should be checked against the ministry's own pages before an offer is priced. Beyond the wage floor, German employment sits on written contracts, notice periods that scale with service, works council rights in larger workplaces and strong dismissal protection once the Dismissal Protection Act applies. None of this is administered through payroll, but all of it lands on whoever is the legal employer, which is exactly the obligation an employer of record takes on.
Entity payroll or an EOR for Germany
A company with a German entity runs this machinery itself or pays a local payroll bureau to run it. A company without an entity has two realistic options: register as a foreign employer where feasible, which still leaves it operating German withholding and contribution law from abroad, or hire through an employer of record whose German entity already holds the registrations, runs Lohnsteuer and social contributions, and issues compliant contracts. The EOR fee, typically a few hundred dollars or euros per employee per month at the advertised tier, buys the whole apparatus above. At higher German headcount the fixed cost of an entity plus a payroll bureau usually wins. Statutory rates change; the sources below are the ones to re-check, and nothing here is tax or legal advice.
Questions people ask about payroll germany
What does an employer pay on top of gross salary in Germany?
Roughly half of each social insurance contribution: 7.3% for health plus half of the fund's supplementary contribution, half of the 18.6% pension contribution, half of 2.6% unemployment insurance, a share of 3.6% long-term care insurance, and the full accident insurance premium, per the EU's official guide. Contribution ceilings cap the assessable income.
Who collects German social insurance contributions?
The employee's statutory health insurance fund acts as the collection point: the employer reports and pays contributions there, and the fund passes the pension, unemployment and care shares on to the respective schemes. Wage tax goes separately to the tax office.
Is accident insurance really employer-only?
Yes. The EU guide states that the employer pays the accident insurance contributions for manual and office workers and trainees; employees contribute nothing to this branch. Premiums vary by industry risk class.
Can I employ someone in Germany without a German entity?
The common route is an employer of record: its German entity becomes the legal employer, runs wage tax and social contributions and issues a compliant contract, while the person works for you. Compare the monthly fee against the cost of an entity plus a payroll bureau at your expected headcount.