German payroll explained: tax, social security and the payslip

Every month, German payroll takes the gross salary and works out three things: the income tax to withhold, the employee’s share of social insurance, and the employer’s share on top. The net amount goes to the employee, and the rest is paid to the Finanzamt and the health insurer, which distributes the social contributions.

A German payslip, the Lohnabrechnung, sets all of this out line by line.

• Gross salary for the month
• Lohnsteuer, plus solidarity surcharge and church tax where they apply
• The employee share of pension, health, long-term care and unemployment
• Net pay actually transferred
• The employer contributions shown for transparency

Lohnsteuer is the income tax withheld from wages. How much comes off depends on the employee’s tax class, the Steuerklasse, of which there are six. Class one is the default for a single employee with no children. The class sets the allowances the payroll applies before tax.

The 2026 tax-free allowance, the Grundfreibetrag, is 12,348 euro for a single person. Above it the rate starts at 14 percent and rises with income, reaching 42 percent from about 69,879 euro and 45 percent at the top. A solidarity surcharge of 5.5 percent of the income tax applies only above a threshold, so most ordinary salaries pay none of it, and church tax of 8 or 9 percent applies only to registered members of a church.

On top of income tax, the employee pays their half of the four social insurance branches. For 2026 the employee shares are pension at 9.3 percent, health at 7.3 percent plus a supplementary contribution of around 1.45 percent, long-term care at 1.8 percent, and unemployment at 1.3 percent.

There is one twist on the care contribution. Employees aged 23 and over with no children pay an extra 0.6 percent surcharge, so a childless employee pays 2.4 percent for care rather than 1.8. Taken together, the employee social deductions come to roughly 20 percent of gross, before income tax.

The employer pays its own share on top of the gross salary, and for the main branches it broadly matches the employee. The employer shares are pension at 9.3 percent, health at 7.3 percent plus about half of the supplementary contribution, long-term care at 1.8 percent, and unemployment at 1.3 percent.

The employer also carries a few levies the employee does not, including the U1 and U2 levies that fund sick-pay and maternity reimbursement, and a small insolvency levy. Added up, employer on-costs come to roughly 21 percent of gross.

Social contributions are not charged on unlimited salary. Each branch has a ceiling, the Beitragsbemessungsgrenze, above which no further contributions are due. For 2026 the pension and unemployment ceiling is 8,450 euro a month, which is 101,400 euro a year. The health and long-term care ceiling is lower, at 5,812.50 euro a month, or 69,750 euro a year.

The practical effect is that on higher salaries the percentage on-cost falls, because the contributions stop growing once pay passes each ceiling. The east and west split that used to apply to these figures was removed, so a single set of ceilings now covers the whole country.

Once the deductions are worked out, the employee receives their net pay by bank transfer and a payslip that itemises the gross, each deduction and the net. The employer files the monthly Lohnsteuer-Anmeldung with the Finanzamt and pays the social contributions to the employee’s health insurer, which forwards the pension and unemployment shares.

German salaries are quoted as an annual gross paid over 12 equal months. There is no statutory 13th or 14th salary, though some employers or collective agreements add a bonus month by agreement. Getting all of this right every month is exactly the part an employer of record takes off your plate.

Sources: 2026 contribution rates and ceilings published by Deutsche Rentenversicherung, the statutory health insurers (GKV) and the Federal Ministry of Labour and Social Affairs (BMAS). Figures reviewed July 2026.