Payroll accounting in Germany: Obligations for foreign employers

Companies from abroad that employ or second employees in Germany must comply with the German wage tax and social security system. The Payroll accounting is a central aspect here. Errors in billing can lead to high back payments, penalties or legal problems lead.

1 Who has to prepare a payslip in Germany?

Principle:
As soon as an employee in Germany is subject to social security contributions or German wage tax, a German payroll accounting be created.

- Payroll accounting is mandatory for:

• German companies with employees
• Foreign companies with a branch or permanent establishment in Germany
• Employers from other EU countries who employ workers permanently in Germany

Practical example:
A Polish construction company opens a branch in Germany and hires construction workers. As the employees work in Germany and are subject to social security contributions, the company must prepare German payroll statements.

2 What must a payslip in Germany contain?

Payroll accounting is required by law and must contain certain mandatory information. These include:

• Employer data: Name, address, company number
• Employee data: Name, tax ID, social security number
• Gross income: Basic salary, supplements, bonuses
• Deductions: Wage tax, social security contributions, church tax (if applicable)
• Net earnings: Final amount received by the employee
• Payment date and bank details

Important:
Payroll accounting must monthly and made available to the employee.

Practical example:
A French company hires a sales representative in Germany. Every month, he receives a payslip with details of his gross and net salary, tax deductions and social security contributions.

3.When do foreign employers have to pay income tax in Germany?

-Wage tax liability exists if:

1. The employee must usual place of work in Germany has.
2. The employee receives his salary from Germany.
3. There is no A1 form for a posting from another EU country.

Important:
Even if an employer is not based in Germany, it may be obliged to do so, Paying wage tax in Germany.

Practical example:
A Dutch company has no registered office in Germany, but has a German sales team. The company must pay income tax in Germany and pay a Company number request.

4 How do foreign employers register for payroll and social security?

1. apply for a company number
With the Federal Employment Agency - necessary for registration for social insurance.

2. payroll tax registration with the tax office
Employers not based in Germany must register with the relevant tax office.

3. registration of employees with a health insurance fund
The chosen health insurance fund takes over the registration with the pension, unemployment and long-term care insurance.

4. prepare monthly payroll accounting and transfer taxes

• Wage tax to the tax office
• Social security contributions to the health insurance company

Practical example:
A Belgian company with employees in Germany applies for a company number and registers with the tax office in order to carry out payroll accounting correctly.

5. sanctions for errors in payroll accounting

-Missing or incorrect payslips can be expensive:

• Penalties for incorrect payroll tax accounting: Back payments + fines of up to €50,000
• Social security contributions not paid: Penalties + back payments up to 4 years retroactively
• Missing reports to customs (for minimum wage occupations): Penalties of up to €500,000

Practical example:
A Czech construction company pays wages without withholding tax. After an audit, the tax office demands €250,000 in back taxes and a penalty.