German Payslip Explained
Overview
Table of Contents
Introduction
Many expats living and working in Germany think they will earn 5.000€ Salary every month when they sign their employment contract with 5.000€ salary every month. Leaving them surprised that they only get 3.000€ out of their 5.000€ salary Transferred to their Bank Account. What happened in between that almost half of your salary is gone? 🤔
The answer can be found in your German payslip. A pretty confusing piece of paper with a lot of additions, deductions (like Taxes & Social Security), and abbreviations that you probably never even looked at in detail. There’s usually no reason to examine your German payslip as the German government and your employer are taking care of almost everything.
But there might be some things on your payslip that you might want to take off, or even have to take care of yourself (e.g. Private Pensions or Disability Income Insurance). Let us see how you can read and Understand your German payslip in this article. All payslips in Germany look more or less the same, so grab your German payslip to follow along.
Personal Data on Top of Your German Payslip
First things first. The top of your German payslip shows some important personal data and some not so important data about yourself. The data with lesser importance include your birthday, vacation days, Tax ID, the date you started working for your company, your Social Security Number, address, etc. Just check and see if these numbers are correct.
The important information on top of your German payslip include:
- Tax Information: Your Income Tax Class, your tax factor, child allowance, DBA (double taxation agreement)
- Health Insurance Information: Health insurance provider, percentage of your Salary you are paying for health insurance, BGRS code (0xxx or 9xxx: You can switch to private health insurance, 1xxx: Forced member of public health insurance)
(Forced) members of German Public Health Insurance pay 14,6% of their Gross Salary in health insurance contributions as well as 3,xx% for long-term care insurance (3,05% if you have kids, 3,3% if you don’t have kids). On top of that, ALL public health insurances charge an additional contribution that ranges from 0,2% to 2,7% depending on their efficiency.
So members of the German Public Health Insurance System are paying a maximum of 10.042€ for health insurance + 1.915€ for long-term care insurance in 2021 (contributions rise every year). Switching to a more efficient public health insurance or switching to the private health insurance system can Save You a Lot Of Money every month.
More about Taxes as well as Health Insurance further below once we progress through your payslip. If you would like to see other tips to increase your net income in Germany without increasing your gross salary, check out our 5 Tips For More Net Income In Germany.
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Different Parts of Your Gross Salary in Germany
The one number that is probably most important for everyone Working In Germany is their salary. Some employees in Germany earn a “Gehalt” as salary and some employees earn a “Lohn” each month as salary. But what is the difference between those 2 types of getting paid from your employer? 🤔
- Gehalt: Every month the same, not dependant on some form of measurement
- Lohn: Varies every month depending on the measurement (e.g. hours worked, units sold, etc)
Some employees in Germany also have a company car that they may be allowed to use also for private trips. If so, 1% of the new car price will be added as fictional value to your Gross Salary so you can be Taxed on that amount later on. Our example employee in our YouTube Payslip Video gets 287€ added to his gross salary every month, so his company car is worth 28.700€ when it is brand new (1% company car rule).
Last but not least your employer can also pay you for your journeys between your home and your place of work in 2 different ways. Journeys to your place of work can be accounted with a “P” meaning you have to “pay” Taxes and social security on that amount. Or with an “F” which means the payment is “free” of Social Security (the government still wants taxes 😉).
After all additions, our example employee in our German Payslip Video earns a total of 4.902€ every month in Gross Salary before the 2 big deductions: Taxes and Social Security. In order to increase your payout again, you can utilize our 5 Tips For More Net Income or see our 10 Tips For Financial Success in Germany.
1st Big Deduction From Your German Payslip: Taxes
Based on Your Gross Salary (4.902€ in our example) you are now taxed accordingly with your Income Tax Class 1 to 6. Your income tax class is determined by your family status and will influence how much Taxes you have to pay each month from your payslip. In general: The Higher Your Income, the more income tax you have to pay in Germany.
Our example employee in our Payslip Video has to pay 3 kinds of Taxes:
- 485€ Income Tax based on his gross salary of 4.902€
- 38€ Church Tax which equals to 8% or 9% of your income tax based on the state you live in
- 26€ in Solidarity Tax that was partly abolished in the tax cut for most German employees
About 90% of the German population should not pay Solidarity Tax any more thanks to the tax cut of 2021. With the Official Solidarity Tax Calculator of the German Ministry Of Finance, you can calculate yourself and see how much solidarity tax you should be paying (if any).
2nd Big Deduction From Your German Payslip: Social Security
The second deduction from your German payslip is by far the largest deduction: Social security. Good news for all Employees in Germany: Social security for all 4 (actually 5) pillars of the German Social Security System are capped with a maximum threshold. No matter how much you earn, you have to contribute maximum the threshold.
The threshold varies for some pillars of Social Security and increases usually year over year so that High-earning Employees have to pay more into German social security every year. In 2020, the maximum gross salary subject to Health Insurance & long-term care insurance is 58.050€, and for German Public Pension & unemployment insurance 85.200€ gross salary.
Our video Explaining the German Payslip show the following deductions for Social Security:
- 367€ in Public Health Insurance (because the salary is above threshold)
- 456€ in Public Pension (see also Private Pensions in Level 1, Level 2, or Level 3)
- 73€ in unemployment insurance
- 83€ in long-term care insurance (because the salary is above threshold & no kids)
All these Social Security Contributions amount to a total of 980€ for a Gross Salary of 4.902€. And your employed is paying the same amount on top because social security is split 50:50 with the company you work for. Your employer also pays for the 5th pillar of German social security alone (that’s why it is not on your payslip): Accident insurance.
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Bottom of Your German Payslip
After Taxes (like Income Tax, Church Tax, and Solidarity Tax), as well as Social Security (like Health Insurance, long-term care insurance, Public Pension, and unemployment insurance), are deducted from your gross salary, you are left with 3.370€ net salary out of your 4.902€ Gross Salary.
But before your net salary is Transferred to your Bank Account, further deductions are happening: The 1% for your company car as well as your journeys to work. Remember: Both were added as fictional values to your gross salary earlier so you have to pay Taxes & Social Security on these employer benefits.
So employees in Germany with a Monthly Gross Salary of 4.902€ are actually left with a net payout of 2.868€ each month. In order to increase our net payout you can talk to your boss or HR department about Capital-forming Benefits (Vermögenswirksame Leistungen or VWL in German).
This is one of many tips to Make The Most Of Your Financial Situation In Germany. Try to keep the most of your gross salary, because it is money that you earned fair and square. If we can help you to Improve Your Financial Future, feel free to book a Free Meeting or text us on WhatsApp.
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Income Tax in Germany Explained - PerFinEx
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