Payment of employees in Germany
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Composition of non-wage labor costs

They are made up of social security contributions, apportionments and various allowances. As they increase total wage costs, they are also referred to as indirect labor costs.

Statutory share

  • Social security contributions
  • Allocations
  • Wage and salary continuation payments


Variable portion

  • Cost of professional clothing
  • Reimbursement of moving expenses
  • Costs for training and continuing education
  • Allowances under collective agreements
  • Other industry-specific benefits


Voluntary share

  • Allowances and bonuses
  • Allowances
  • Voluntary social benefits


Statutory non-wage labor costs for employers

For each employee hired, the employer must pay contributions to the statutory social insurance. The SI contributions and other apportionments account for an average of 21 percent of the gross salary. In addition to the employer's contribution, the employee must also pay social security contributions. For almost all levies, the employer pays half of the contribution due; only the contribution to accident insurance is paid in full by the employer.



Withholding of statutory non-wage labor costs

All social security contributions (employer and employee shares) are withheld by the employer and transferred directly to the insurance carriers. The employee's social security contributions are deducted directly from the gross wage and paid to the insurance company, i.e. the employee does not receive any payment in advance. For employed persons, all deductions are itemized in the monthly wage or salary statement. This statement is one of the employee's duties.



Contribution assessment limits for social security contributions

Contribution assessment limits determine the income level up to which insurance contributions are paid. This means that all income above this income threshold is no longer taken into account for the calculation of social security contributions. To this end, the legislature has set two different thresholds: one for statutory health and long-term care insurance and another for statutory pension and unemployment insurance. In addition, different contribution assessment thresholds apply to the old federal states than to the new federal states due to historical economic differences.

Contribution assessment thresholds 2021
  • Statutory health and nursing care insurance: 58,050 euros per year
  • Statutory pension and unemployment insurance:
  • 85,200 euros a year (old federal states)
  • 80,400 euros per year (new federal states)

The applicable contribution assessment limits are redefined each year.


Social security contributions

The social security contribution includes in detail contributions to health insurance, nursing care insurance, pension insurance and unemployment insurance.


Health insurance

In principle, every employee is compulsorily insured with a statutory health insurance fund. As an employer, you pay half of the contribution rate, the other half is paid by the employee. Above a certain income limit, private health insurance is also possible. If one of your employees is privately insured, you pay a tax-free subsidy. This subsidy may not be higher than the employer's contribution that you pay for a legally insured person. The amount is set differently for each private health insurance company.



Long-term care insurance

As a rule, the employer pays half of the total contribution. Childless persons over the age of 23 are charged a higher rate than employees with children. Furthermore, those doing military or civilian service are exempt from the childless supplement.


Pension insurance

Pension insurance contributions are used, among other things, to finance old-age pensions and rehabilitation benefits. Here, too, employers pay half of the contribution.


Unemployment insurance

In principle, all employees are compulsorily insured with the unemployment insurance. However, there are some exceptions to the compulsory unemployment insurance:

  • Students
  • mini-jobbers
  • soldiers
  • civil servants
  • pensioners (however, the employer's contribution must be paid)



Accident insurance

In order to provide for an employee in the event of an accident at work or an occupational disease, you must make contributions to accident insurance. As a rule, one of the commercial employers' liability insurance associations is the accident insurance provider. The employer must pay the membership fee, which is changed every year, as a total sum. The contribution sum is calculated annually in retrospect and depends on the following factors:

  • Gross remuneration of the employee
  • Risk of accidents in companies in your industry
  • Amount of the expenses of the employers' liability insurance association




The apportionments U1 and U2 as well as the insolvency allowance apportionment (colloquially also apportionment U3) are fully financed by the employer. The respective employee's health insurance fund is responsible for the apportionment procedures.

While the U2 levy is mandatory for all employers, the U1 levy is only relevant for companies with up to 30 employees. Severely disabled employees are not counted in the calculation, and part-time employees are only counted on a pro-rata basis. The insolvency benefit levy is mandatory for all employers except for companies under public law.

The contribution rates for U1 and U2 differ depending on the health insurance fund. Only the contribution rate for the insolvency allowance is a flat rate of 0.06 percent and is reset every year.



 Special cases for non-wage labor costs

For some types of employment, special rules apply to the employer's non-wage labor costs.


Variable and voluntary fringe benefits

In addition to fringe benefits, which are required by law, every company is free to pay voluntary benefits to employees. This can be in the form of allowances, benefits in kind or discounts.


Individual social benefits

Employees can subsidize or completely cover social benefits that their employees take advantage of. The extent to which the company subsidizes the benefits is determined by the employer.

Individual benefits include

  • Sick pay subsidy
  • Dental prosthesis
  • Company pension and health care
  • Allowance for medical services, spa treatment, rehabilitation measures
  • Allowances for childcare costs
  • Death benefit for the employee's surviving dependents




Allowances, special payments, bonuses or gratuities are all voluntary. If they are independent of performance or defined targets, they are often agreed in works agreements so that every employee is entitled to them. Employers may not exclude individual employees or groups of employees from receiving such an allowance. Otherwise, they risk violating the General Equal Treatment Act.

  • Vacation allowance
  • 13th salary
  • Performance bonuses
  • Allowance for company anniversary
  • Other special payments



Non-cash benefits

Non-cash benefits are voluntary remuneration in the form of non-cash benefits that are individually agreed with the individual employee. These include, for example:

  • Relocation expenses
  • Allowance for initial equipment
  • Employee discounts
  • Work clothing
  • Company car
  • Company cell phone
  • Health prevention training
  • Meal expenses
  • Fuel vouchers
  • Training and further education costs
  • Travel expenses
  • Rent incl. electricity and water costs
  • Cleaning costs



Calculation of the employer gross amount

The so-called "employer gross amount" is made up of the employee's gross remuneration and the ancillary wage costs. In order to determine the personnel costs correctly, you must calculate this employer gross amount for each of your employees individually.



Purpose of the non-wage labor costs

The mandatory payment of non-wage labor costs serves to provide social security for every employee. The non-wage labor costs thus finance the basic social security of our society.

Voluntary non-wage labor costs are primarily intended to promote, reward or relieve employees. At the same time, special benefits can increase your attractiveness as an employer and maintain it in the long term.