Introduction to German Payroll
A German employment contract must contain; employer and employee names and address, starting date of work, job description, working hours, salary, date of payment and annual leave entitlements. The probation period may last up to six months; however, this is at the discretion of the employer. The minimum wage in Germany is €9.35 an hour since January 2020. The standard workweek is 40 hours and must not be greater than 48 hours.
An employee must inform his or her employer immediately of absence because of illness, and he/she must provide a Doctor’s note after three days of illness. Still, the employer can ask the employee to hand in a Doctor’s note earlier than this. In general, an employee is entitled to receive 100% of his or her salary for up to six weeks as sick pay and the national health insurance will compensate employers for 80% of the gross for companies with no more than 30 employees. For an illness longer than six weeks, the federal health insurer pays the employee at 70% of the employee’s salary for a period of up to 78 weeks.
Minimum holiday entitlement is 24 days paid leave at full remuneration. However, 25-30 days a year is usually granted, and holiday entitlement begins after the employee has worked for six months. Annual leave must be taken during the calendar year, and any unused holiday can be carried forward until the 31st of March of the next calendar year. Such is allowed if the employee could not take a holiday due to operational or personal circumstances. If, at the end of employment, the employee has a holiday not taken, can claim financial compensation for these days.
Maternity Leave & Parental Leave
Pregnancy gives the employee right for a Maternity Leave (ML) period comprising six months before and another eight months after the birth of the child. The employee has the right to receive the average salary of her last three months before the ML. It is illegal to terminate employment during the pregnancy except with consent from a competent public authority. But the pregnant woman’s right to quit her remains unrestricted.
Both parents have right to up to 24 months Parental Leave (PL) at the same time or separately within the three years after the childbirth that they can delay utilising before the eighth birthday of their child. From the 1st of July 2015, the government grants the “Parental Allowance Plus” to cover PL for 24 months or 28 months to share between parents when both parents decided to be on PL at the same time. Parents receive 67% of the average of their last 12 months’ salaries before the childbirth. An employee on parental leave may be employed part-time for a maximum of 30 hours per week.
The retirement age starts typically at 65 years and nine months and due to increase to 67 by 2029. There are three pillars to the German retirement system; 1) the government-run Retirement Insurance system, 2) private company plans and 3) private individual retirement investments. Employees must pay into pension schemes while working; the 2020 rate is 18.6% of monthly gross salary up to a maximum of 6,900 euros (82,800 euros a year) in the west of Germany and 6,450 euros (77,400 euros a year) in the east. Early retirement is possible at 63 years if the employee has contributed for 45 years and the possibility to retire with a reduced pension after 35 years’ contribution.
Severance, Redundancy & Accidents
The employer, when terminating the employment relationship, must follow the four weeks crucial dismissal notice period that increases depending upon the seniority of the employee. For every company, the employment agreement can provide for more extended notice periods while the collective bargaining agreements can provide for shorter notice periods.
Although there is no statutory severance, employees are entitled to severance payments under a social plan or under a collective bargaining agreement. Usually, many employers and employees agree on 50% of the monthly salary per year of service as severance pay provisions to avoid lengthy court proceedings concerning the effectiveness of the termination.
The employer pays the premiums for the employee statutory accident insurance; that offers protection and assistance in the event of mishaps at work, or on the way to and from work.
The insurance covers
- Any job-incurred illnesses
- The costs of treatment and recuperation
- Pensions, in the event of invalidity
- Funeral costs in the event of death and
- Provides the same for children at school or on their way to or from school
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