Episode 6: Payroll in Germany

Luisa Rollenhagen (00:08):

Hello everyone. Welcome to another episode of ADP Payroll around the world. I’m your host, Luisa Rollenhagen. This podcast is your comprehensive guide to understanding how payroll functions in various countries. We delve into the specifics of what makes each country’s payroll system unique, speaking with ADP experts on-site, as well as locals who share their insights on work and pay in their homeland. 

After all, payroll can’t really be global if it isn’t local as well. 

Today, we’re going to Germany. Fun fact, Germany is also the country with the most patent applications in Europe.

Thomas Zimmermann (00:50):

If you want to sell your product in Germany, then it’s good to have a presence, also when it comes to tax reasons, and certainly have the exposure of your product on the German market. So I think if a company is thinking about going to Europe, then Germany is definitely on the top three of the list in Europe.

Luisa Rollenhagen (01:10):

But Germany has also been struggling with a shortage of skilled labor. As such, payroll accuracy is crucial when it comes to attracting and retaining talent in a tight labor market.

Johannes Schwarzer (01:21):

Payroll is never isolated, but it’s always connected to each company’s workforce. So the highest value every company has: The employees.

Luisa Rollenhagen (01:30):

You’ve just heard Thomas and Johannes, our German payroll experts for this episode. They’re going to help us explore the nuances of payroll in Germany and tell us what multinationals need to know before opening up a business there. 

Germany is a country with a pretty robust social insurance system, which is also reflected in the complexity of its payroll. The system covers health insurance benefits, pension schemes, unemployment, and protection and support in case of accidents or illness. As far as employee protections go, Germany ranks pretty highly on an international level. One manifestation of this is the existence of workers’ councils, known as a Betriebsrat in German. They’re different from unions, which exist there as well. We’ll get into the exact details of these councils in a bit, but they’re a vital tool for employees to have their voices heard.   

Manuel (02:23):

I’ve been living in Germany for 12 years at this point, but I had no idea about the existence of workers’ councils. The idea resonated with me because it’s something that, well, it’s a group of employees that tries to represent the interests and the voices of other employees.

Luisa Rollenhagen (02:45):

That’s Manuel. He just formed a workers’ council at his workplace, and he’s going to tell us how a workers’ council operates from the employee side in a little bit. 

But first, I’d like to formally present our guides and ADP experts for this episode, Thomas and Johannes! Welcome, Thomas and Johannes! Would you please introduce yourselves? 

Thomas Zimmermann (03:05):

My name is Thomas Zimmerman. I’m the general manager of ADP in Germany and I’m based in Frankfurt.

Johannes Schwarzer (03:12):

My name is Johannes Schwarzer. I’m the manager of compliance for Germany and Poland, based in the German headquarters close to Frankfurt.

Luisa Rollenhagen (03:19):

Thanks for joining me. I want to get us started by asking you what makes payroll in Germany unique from other countries, specifically in an EU context?

Thomas Zimmermann (03:29):

I think the major difference definitely is the connectivity. So that’s the automatic transmission of payroll data to the authorities, to different authorities in Germany. I think that’s the major difference. So a payroll software in Germany needs to be certified to ensure that this connectivity is working and yeah, that’s connectivity to not only the tax office but also Social Security, Department of Health, and so on. So multiple authorities where you have automatic data transmission from a payroll system to their system, and I think it’s important to ensure that the legal and regulatory changes are reflected in the software you use and that the process and the payroll is done as defined on the German market, by the authorities. Johannes, maybe from your side, something to add.

Johannes Schwarzer (04:23):

So for example, for bigger companies you have union wages to take in mind. Also there’s a statutory minimum wage of 12.41 euro. Certain branches can even have a higher value for that. And what could be quite special for Germany too are so-called mini jobs where you can work up to 70 days per year, for example, and altogether you get an average salary of 538 euro per month. These are statutory regulated specialties for Germany.

Luisa Rollenhagen (04:50):

Oh, interesting. Tell me more about these mini jobs. In what kinds of situations would a mini job be relevant?

Johannes Schwarzer (04:56):

Mainly it comes into play for low budget activities or, on the other hand, for seasonal activities. As I said, you can work for up to 70 days per year and get an average salary of 538 euro, but these 70 days can be close to each other and the daily salary is quite high. You can count, for example, the Octoberfest.

Luisa Rollenhagen (05:19):

I see. I read that one of the aspects multinationals need to keep in mind when setting up their payroll in Germany is accounting for the different pay tariffs that exist. I didn’t really understand that, could you explain what that means?

Thomas Zimmermann (05:33):

So basically in Germany we have specific pay tariffs for different sectors. So it’s more than 20 different job categories and tariffs in Germany. So for example, you have a different tariff for example, for construction, and they get, to give you an idea, if you work in construction in Germany, there is a payment of a percentage in case of bad weather because you can’t work, you can’t work as you intended to, so it’s not your fault because of bad weather and you get a percentage of your wage for that. So that’s quite special to for example, construction. But there’s also for the health sector, a special tariff example for special payments, for call duty and overtime in that sector. 

So these tariffs, depending on the sector you work, these are the tariffs you are paid with and the payroll provider needs to know this tariff and needs to have a functionality in the software to pay with these different components. 

Luisa Rollenhagen (06:37):

Right. That’s another moving component that payroll departments need to stay on top of. Since we’re already on the subject, what else do you think multinationals need to know about running payroll in Germany?

Thomas Zimmermann (06:48):

The three most important things for Germany, I think one is location. So if someone is not German and comes from the outside, it’s very important because if you want to open shop in Germany, you certainly need access to the needed skilled workforce. And Germany, even if it’s not as big as the US or other countries, is very dispersed and very regional. So if you want to do banking and finance, Frankfurt would be the better place than going to Munich, for example. Then the second thing would be regulatory requirements like tax. So get help to ensure you follow the rules. This will save time and costs on your side. And the third one is definitely payroll. Also, same thing here, get support to ensure you follow the rules and you will pay your employees correctly and on time, which certainly also will help you to retain and attract talent if you do that right. And it keeps you out of jail as you need to do this stuff right.

Luisa Rollenhagen (07:52):

Tell me more about the importance of location when trying to find employees.

Thomas Zimmermann (07:57):

Most of the people know that German industry is known for car manufacturing and automotive industry. That’s more in the south of Germany, if you look at Munich or Stuttgart. So if you would look at workforce who is skilled in these type of things, you should rather go to the south than to the north. Do they have manufacturing sites in different places? In Germany, yes, but the majority would be in these locations. So that’s one thing. But Luisa, the other thing is also when it comes to universities because there are certain locations where you have the professions and the universities around that more than in other regions in Germany. 

Luisa Rollenhagen (08:41):

Certainly. That actually brings me to my next question. I mentioned earlier that Germany is experiencing a bit of a skilled labor shortage. What are your thoughts on that?

Thomas Zimmermann (08:51):

When it comes to the German labor market, I think that’s one of the biggest challenges we’re facing in Germany. If you think about payroll itself, some people might say, well that doesn’t sound too exciting or too sexy or whatever. They’re just doing payroll. I think it’s very exciting because if you look at this could make such a difference to you and to your business because, in short, you could be a winner in the war for talent. You could attract and retain your talent, make people happy and unleash their full potential. Why am I saying that? Look, I think for every one of us it’s important to get your financial information easily accessible, to plan your life easily.  

Luisa Rollenhagen (09:34):

Absolutely. We hear that a lot and it makes sense. After all, it’s people’s livelihoods that are at stake.

Thomas Zimmermann (09:42):

So ADP runs a People At Work study every year. And so that’s an annual report that examines the perception and thoughts of professionals around the world. So we basically ask them about their work, their employers, their wellbeing, and we ask them to tell us what they want and what their expectations are and what they get out of work in their company. 

We do that in 18 countries, it’s around 35,000 employees we ask. And in Germany specifically, we ask about 2,000 employees every year. And for what I mentioned earlier, that you be the winner of the war for talent or you attract and retain talent, I think it’s very important if you look at these reports and what people said, one of the questions to give you an idea is, how often are you paid incorrectly? 

And in Germany it’s about 17% of Germans who are always wrongly paid too little. I mean that’s only in Europe, that’s only topped by France and the number is 19.6 or so or 19.7 and the global average is 8.7. So we’re not as good as we think we are in Germany, or some people think, so therefore you could make a real difference in the way how you pay. I mean certainly that you pay and pay correctly, but also how you pay and the information you give to your employees. 

Luisa Rollenhagen (11:10):

Wow, 17% is a really high error rate.

Thomas Zimmermann (11:15):

In short, if you get the payroll right, you will attract whoever you want to attract.

Luisa Rollenhagen (11:20):

Does anything else come to mind that multinationals should be aware of when it comes to payroll in Germany?

Thomas Zimmermann (11:25):

I mean, if we look at this business in Germany and we’re looking at payroll, I think there’s no quarter in a year where there’s no change to regulations around salary. So you have to ensure you stay ahead of that, on top of that, that you have the recent information. So we have a department called Legal Watch to know all this and have this in advance so that we are in a position to make these changes and to fully adhere to these regulations. 

Maybe the last thing I want to make very clear on that is also when it comes to data. So I think we’re known globally to keep our customers’ data safe at all times. And this requires certainly a very rigid and very good privacy management. So all around compliance is key when it comes to payroll and it comes to our business. But as I said, the expert is on the call and Johannes I think could go on for two to three hours talking about compliance. So over to you Johannes. 

Johannes Schwarzer (12:24):

Thank you, Thomas. That would be possible of course for payroll Legal Watch, we have our own team, which is continuously monitoring legal changes by screening websites, by joining working groups together with the government. Also to give advice, we’re asked for. One of the purposes of these working groups is also to develop the laws further in the best case with the additional effect to reduce bureaucracy.

Luisa Rollenhagen (12:47):

Yes, bureaucracy. That is certainly a very hot topic in Germany. It seems like there’s some hope that with increased digitalization, there’s going to be some improvement when it comes to all the red tape that the country is famous for.

Speaking of digitalization, Germany’s digitalization levels are pretty modest compared to other countries with a similar economic size. In fact, the German Economic Institute’s Digitalization Index for 2023 described the country’s efforts as “stagnating.” 

What’s ADP doing to help clients so that they’re not left behind? 

Thomas Zimmermann (13:23):

We talk in Germany about digitalization and if you look how many clients and still also clients of us want to send in paper form… So you get your payslip in paper form with some cryptic abbreviations and charges and tax deductions. So you as a non-expert in payroll need explanation for that, right? While if you get it electronically—and everyone in ADP and certainly a lot of our clients get that from us electronically—where you have a pie chart for example, seeing this is my deduction, tax deduction this month and what’s part of it and how is it compared to last month, what are the changes and so on. So that makes it way easier back to my point earlier, to plan your financial, your life and your financials. 

I’m not even talking about the green footprint or the carbon footprint we’ll have due to that, but simply to get this data presented in a way you can easily digest and make decisions for yourself privately. That makes a huge difference. 

So do we help, as ADP, clients to go paperless to go to E-pay slip in Germany? Yes, definitely. That’s actually our standard we start with and then there are objections from clients very often, but we have to do this, we have to do this with, this has to go to workers’ council. We still have some pensioners and things we hear often, but we know answers to that. So we help our clients even if they’re not ready yet on the journey to get to paperless. And one is to certainly reduce the carbon footprint and not print and deliver and have the logistics around it. But as I said, also to present the data in the way I mentioned before and back, maybe also to give you some data points, again, out of the People at Work study, only 50% of the employees in Germany say that they have access to their pay information online. 

Luisa Rollenhagen (15:23):

Yeah, for sure. It’s definitely a journey. Thomas, you mentioned data privacy a little earlier. That’s also a very important topic in Germany. In fact, it seems to be so important that I read that companies are required to have something called a data privacy officer. Can you tell me a bit more about that?

Thomas Zimmermann (15:41):

That’s definitely Johannes’ sweet spot. So I give that to you, Johannes.

Johannes Schwarzer (15:45):

The data privacy officer or the requirement of a data privacy officer also depends on the size of the company, but not in the sense of a complete size. But as soon as 20 different people are regularly dealing with personal identifiable information, then you have to have a data privacy officer. If they’re dealing with the information throughout digital applications. So if they are dealing with paper, then actually you don’t need a data privacy officer. But in today’s time, probably most of the time it’s in digital applications. So then you have the requirement of a data privacy officer, a statutory reported data privacy officer. So for example, on the homepage of the company, the data privacy officer has to be named so that people from outside can know the address to call if they see the need for any clarifications in the sense of data privacy. 

Luisa Rollenhagen (16:37):

Yeah, this is an important point since, as we all know, payroll is a department that deals with high volumes of very sensitive information on a daily basis. 

I want to take a quick detour here. We’ve been talking about some of the challenges and requirements that employers in Germany need to be aware of. But in this series, we also highlight the voices of local employees on the ground in order to hear their perspectives on work and pay. Remember Manuel, who we heard from briefly at the beginning of the episode? He and some colleagues formed a workers’ council at the professional training institute he works at, where he’s a teacher. 

We asked him to tell us a little bit more about the process, and what the function of the council is. 

Manuel (17:20):

I’ve been living in Germany for 12 years at this point, but I had no idea about the existence of workers’ council.

The idea resonated with me because it’s something that, well, it’s a group of employees that tries to represent the interests and the voices of other employees. So usually people describe it in a very non-formal way, like it’s HR, but on the side of the employees, not on the side of the company.  

Luisa Rollenhagen (17:51):

After his workplace went through a series of layoffs, Manuel and his colleagues felt unhappy with the way the situation had been handled and wondered whether there was something they could do.

Manuel (18:02):

If the worker’s council is in place, well it cannot really stop layoffs from happening, but they can definitely, every time there is a decision to lay people off, the council can step in and definitely make sure that it’s done properly. So it can guarantee that the person that gets fired received a proper compensation, is aware of their rights and doesn’t just accept whatever the company’s offering that maybe is not good. 

Luisa Rollenhagen (18:36):

Manuel and his colleagues decided to take the plunge and look into forming a council. Once they started, they realized it really wasn’t as complicated as they had thought.

Manuel (18:47):

So the steps to create a workers’ council, so in Germany there are mostly three. And the first step is super easy, even though it could be also the trickiest one. Basically they say that to have a workers’ council, you simply need to want one. That’s kind of like the beauty of it, because it’s like an expression of a minority in the company. 

Basically three people need to get together. They need to sign a letter. So put their signatures on a paper and physically hang the letter in the office or in one of the working space where every employee, everyone from the company can see it. And that’s the first step.

So the second step is the election of something called the electoral board. And this is a purely bureaucratic step. So up to this point, the people that signed the letter are basically called the initiators of the process of the workers’ council. They have some protection, that’s the only thing that they get out of it. They can’t be fired for, they say for ordinary reasons, for a period of three months.

Normally you elect an electoral board of, or it’s called, also called electoral committee of three people, basically. And these three people that get elected get an extended protection from layoff, I think it’s six months protection. And during this period, they should get training paid by the company for learning some things related to labor law, related to the council. And they can have access to some data that normally the company doesn’t share with the employees. So for example, a list of employees divided by departments and other related things. Because the main task of this electoral board is to organize the second elections, which are the election for the workers’ council itself. At some point when the board is ready, they can announce the election with a six weeks’ notice.

Luisa Rollenhagen (21:02):

Although they’re just at the beginning of their journey, Manuel hopes that the workers’ council will be able to make meaningful change in the company.

Manuel (21:10):

Depending on the individual preferences, the council can take different directions. They can be more focused on, well on work policies like for example, holidays, like a better handle of the holidays or something related to working hours.

Luisa Rollenhagen (21:27):

The council can also have access to the salary ranges in the company.

Manuel (21:31):

So without checking the individual salaries, they can know, for example, more or less what’s the salary at management level, what’s the salary for, well, all the levels in the company. Something also, things that I personally would try to bring forward if I ever get to the council, is something related to inclusion policies, accessibility policies in the company, diversity policies. 

I think the council could try to implement stronger policies that have an actual impact. Maybe, well, we work with students for example. I think not many people are trained to handle certain things in a class environment if there is the need, for example. So maybe getting some training or some consultant, some expert. So real implementation of certain policies rather than just marketing. 

Luisa Rollenhagen (22:35):

I wanted to hear what Johannes and Thomas had to say about the workers’ councils and their role within a company, so I went back to ask them.

Johannes Schwarzer (22:42):

Workers’ councils are a topic as soon as you have a company, because as soon as you have more than five associates, the workers’ council can be elected by the associates. And as an employer you have to support this for example by allowing to use the rooms or to give time for meetings. So even if you do not want to have one, it’s the right of the associates. And if you have a bigger company, starting from a size of 200 associates, for example, the members of the workers’ council, so the elected ones, they have to be given working time to care for the tasks the workers’ council.  

And then of course there are the rights the workers’ council have. For example, they have to be informed in case of new hires or in case of switching a position. So if you tell something to switch his position internally in the company, you have to tell the workers’ council about it.

Thomas Zimmermann (23:31):

So as a company you need to adhere to that and to provide the workers’ council with information. They have an information right on things like terminations, new hires and so on. There’s no active role necessarily from the workers’ council, but you need to inform them that this is what’s happening in the company. And then the second one is the right to influence of the workers’ council in matters like system, for example, systematic salary approaches. So if you want to do a systematic approach over all employees in your company in Germany, then the workers’ council has the right to influence how this program is designed. 

Luisa Rollenhagen (24:06):

What do you mean by a systematic salary approach?

Thomas Zimmermann (24:09):

Well, if you say everyone in the company will get 5% more.

Luisa Rollenhagen (24:13):

Got it. And if you have to sum it up briefly, what would you say is the difference between a workers’ council and a union?

Johannes Schwarzer (24:20):

I think you can summarize it kind of that a workers’ council is inside one company and a union is inside a branch.

Luisa Rollenhagen (24:27):

Right, like a union represents workers within an industry, and the council is more about representing those within a company. Also important to point out is that a workers’ council can’t actually undertake wage negotiations. Only unions do that, but unions do support the formations of workers’ councils. Manuel had told us that he and his colleagues received significant support from various unions during the process of setting up the council at his company.

Speaking to Manuel and learning more about the rights of employees in Germany gives me the impression that the country is quite employee-centric. Johannes and Thomas, would that be a fair assessment?

Johannes Schwarzer (25:05):

Yes, I would say relatively unique in Germany or my feeling is that employees are highly protected in Germany, so it might even not show up in the employment clauses themselves, but that’s a statutory law that they are protected so strongly, that covers overtime working, that covers required breaks, vacation regulations, but also the company has to care for the wellbeing, the physical wellbeing, as well as the mental, and also regulations about the place of working.

And you even cannot change their scope of tasks without further notice. You have to ask them if they agree to change their tasks. And if you come to terminations for example, that also might differ from other countries. In Germany, you have a termination period of at least three months usually, and this even can be growing throughout the employment lifetime. So at the end you might have a termination period of more than a year, perhaps. Also employees under certain circumstances cannot easily be terminated at all. So if you are part of the workers’ council for example, that’s not easily possible. As well as during your parental leave, you cannot be terminated. 

Thomas Zimmermann (26:16):

I think every workplace should be employee-centric because that’s the biggest value you have. Without employees, it will be very hard to produce a product or to deliver a service. So I think every company should focus on their employees to ensure that their customers will get the service they want them to get. Because if I have employees who are not happy, they will not deliver a good service or good product.

Luisa Rollenhagen (26:44):

Absolutely. We’re nearing the end here, but I want to finish with one of my favorite questions: What do you personally find exciting about working in payroll?

Johannes Schwarzer (26:53):

If it would be easy, it would be boring and everybody could do it. And that’s definitely not the case. Payroll is a highly dynamic field with all the ever-changing statutory regulations, and some of them even can come up quite quickly. At the same time, these regulations are regulations, so the nature of them are rules. So each of the rules can be defined and translated into a technical way. And by that afterwards you can automate these calculations and that is what makes it interesting. It’s technical stuff, you can define it so you’re not tapping around blindly. You have clear rules, you can follow them and then you can make the best out of it, like automation for example. And on the other hand, payroll is never isolated, but it’s always connected to each company’s workforce. So the highest value every company has: The employees. So you also have the human touch that makes you feel at the pulse of the society. 

Thomas Zimmermann (27:48):

I think it’s very exciting because of these reasons, and it is certainly a very important job to do, a professional job, and to have the right people who are also equally excited about their job and their profession. So yeah, I think it’s a very exciting area to work in.

Luisa Rollenhagen (28:06):

Thank you so much to both of you for your thoughtful answers and your insights! I thought it was really interesting to learn more about the role of the workers’ council in German companies, and to chat about the ins and outs of payroll in Germany. Thomas and Johannes, thanks for joining! 

I hope you got a bit of a deeper insight into how payroll in Germany works today. If this episode has piqued your interest or your company is considering expanding into Germany and you want to learn more about payroll there, please go to the ADP Germany website de.adp.com.  

And don’t forget to subscribe to learn more about payroll around the world with each new episode. 

You’ve been listening to 
ADP Payroll around the World 

Produced by ADP and Storythings