Salaries, Payslips and Minimum Wage in Germany
Last updated: 17 May 2020 / by Sam Williams
Salaries in Germany are a complex affair as there is far more involved than just a basic wage.
Whether you are on the receiving end of the income or your business that will be paying out, there are lots to learn about Germany’s salary.
Our guide covers the essentials, from the minimum wage you should expect right through to the deductions you will find on a payslip.
What is the Minimum Wage?
The minimum wage sets out the lowest amount that an employer can pay their workers who are over 18 years old. The German government created the minimum wage structure in 2015, introducing legislation to protect it (Gesetz zur Regelung eines allgemeinen Mindestlohns). The minimum wage was set at €8.50 in 2015.
A permanent committee decides on the correct level for the minimum wage and decides when to increase it. The maximum length of time the minimum wage can go without any changes is two years. However, the committee typically increases it annually; from 2015 to 2020 it has risen three times.
The last increase took place in January 2020 when the German minimum wage rose by 1.7% to €9.35. Not all campaigners are happy with the current minimum wage and some continue to press for a rise to €12.00 or more. This is the minimum living wage calculated by experts, and many believe this should match the minimum wage.
The minimum wage applies to most employees working in Germany, including those in a probation period, foreign workers and those on part-time hours. It also applies to interns, subject to certain additional conditions.
Any overtime worked must also be paid at the minimum wage (or higher). If your employer wants you to take time off lieu, they must specify it in your contract.
The German government has a hotline dedicated to the minimum wage (Mindestlohn-Hotline) and a special calculator to check your hours and income – here.
The only exceptions to the minimum wage are a contract and temporary workers. However, they have their own minimum wage structure. Unlike the regular minimum wage, it is not set at the federal level. It is usually higher than the regular minimum wage but varies depending on location. For example, in 2018 the minimum rate for temporary and contract workers was €9.27 in east Germany and €9.47 in western Germany.
Impact of the Minimum Wage
Before the minimum wage was introduced, there was much debate in Germany about the impact that it may have. Those who opposed it suggested that it would lead to higher unemployment levels with employers priced out of the market.
The Institute of Social and Economic Research carried out a study into the minimum wage and found that there was no evidence of a link to unemployment. Quite the reverse was true: unemployment levels dropped after the introduction of the minimum wage.
Other effects included large increases in salaries in certain industries such as gardening/landscaping, catering, construction, meat and security. There were also significant hikes in the wages of unskilled or low-skill workers, plus part-time workers.
Are There Any Exclusions From the German Minimum Wage?
Many workers benefitted from the minimum wage and continue to do so.
While it covers almost all employed workers, those who are freelance or self-employed are excluded from the regulations.
The other primary exclusion is for interns who are working as part of a university course or where the placement lasts less than three months. Volunteer work and apprenticeships are also excluded.
If you are out of work for an extended period and fall into the category the German government classifies as long-term unemployed (Langzeitarbeitslose), you can be paid less than the minimum wage. This only applies for the first six months after you return to work.
What To Do If You’re Being Paid Less?
The minimum wage is not just a relaxed suggestion in Germany, it’s a law that is strictly enforced.
When the minimum wage first came into being in 2015, the Tax Enforcement Unit for Undeclared Work (Finanzkontrolle Schwarzarbeit) expanded. This was to deal with firms caught flouting the laws around the minimum wage.
Worker unions and councils are also vigilant in monitoring the rate of pay at an industry level. Any worker who believes they are underpaid should first try and resolve the issue directly with their employer but can refer the matter to their union or another third party if there’s no change.
You have up to three years to lodge a claim for underpayment from a German employer, but the law is on your side. Employers caught underpaying their staff face fines of up to €500,000.
The Average German Salary
Of course, the minimum wage is not the same as the average salary in Germany and it’s useful to know what to expect. Although taxation in Germany is far higher than in other European countries, the average salary is higher too.
Figures released by the Organisation for Economic Co-operation and Development (OECD) in 2020 showed that Germany’s unemployment rate was just 3.1%. This is much lower than most other European countries and indicative of the strong labor market in Germany.
Other data shows that working conditions in Germany are favorable. Although there remains a gender pay gap, the overall salary is higher than average at €4035 per month (figures from January 2020).
Salaries increased by an average of 1.5% in 2019 compared to 2018, but some industries attract higher wages than others.
Average Salary by Industry
Although your income will depend on your location, experience, qualifications and seniority, it is possible to give an average per industry. These are the industries in Germany that command the highest salaries:
- Medicine €77,359
- Finance €72,222
- Banking €64,152
- Consulting €63,717
- Engineering €62,802
- IT €62,278
- Law €61,690
- Marketing €60,468
- Sales €58.020
- HR €57,593
- Research – scientific €56,317
- PR €56,000
- Insurance €55,874
Technical occupations – varied €53,292
- Purchasing, logistics and transport €47,907
- Design €47,058
- Administration €43,919
- Skilled trades and craft €43,919
Average Salary by Location
Your location in Germany can be a significant contributing factor to your wage. Generally, larger cities offer higher salaries, but you will need to offset this against the higher cost of living. Eastern Germany still tends to be lower than western German areas. The list below shows the average difference in salary for the state compared to Germany’s overall average:
- Hesse +14.1%
- Baden-Württemberg +8.6%
- Hamburg +5.9%
- Bavaria +5.1%
- North Rhine-Westphalia +0.8%
- Rhineland-Palatinate -1.7%
- Bremen -4.2%
- Saarland -5%
- Berlin -5.5%
Lower Saxony -8.2%
- Schleswig-Holstein -11.7%
- Thuringia -19%
- Saxony -20.1%
- Brandenburg -21.1%
- Saxony-Anhalt -21.1%
- Mecklenburg-Vorpommern -24.1%
Understanding Your Pay Slips
If you are not familiar with German payslips and the various deductions you will find, it can seem very confusing. Most payslips include a long list of abbreviations, so it is not easy to work out what all the figures refer to.
You will have a gross salary (Bruttogehalt), which is the amount your employer should have specified in your contract. This is not the amount you will take home as there will be deductions. The amount you receive after the deductions is your net salary (Nettogehalt).
Below is a list of the deduction abbreviations you will probably find on your payslip, and what they mean.
The top section of your payslip contains your personal information and describes your tax and social security classification:
- Arbeitnehmer Nummer – Employee number
- Eintrittsdatum – Date you commenced work
- Freibetrag or Steuerfr. Bezug (Steuerfreibezug) – Tax-free allowance
- Geburtsdatum – Date of birth
Ki.Frbtr. (Kinderfreibeträge) or ZKF (Zahl der Kinderfreibeträge) – Number of tax exemptions for children (you received 1 per child)
- KK (Krankenkasse) – Health Insurance
- Konfession or Rel. (Religion) – Religion (RK = Roman Catholic; EV = Protestant; — = No specified religion
- Steuer-ID or Lohnsteueridentifikationsnummer (IdNr.) – Tax ID
St. Tg. (Steuertage) – Tax days (for a full working month this is usually 30)
- StKl. (Steuerklasse) – Tax class
- SV-Nummer (Sozialversicherungsnummer) or Versicherungsnummer – Social Security ID
SV Schlüssel (KV/RV/AV/PV) – Social Security codes (indicating your level of contribution)
Sv. Tg. (Sozialverischerungstage) – Social security days (for a full month it is usually 30)
While the top part is all about you personally, the middle section is about your salary and deductions. (You can find out more about these deductions further down this guide).
AV (Arbeitlosenverischerung) Beitrag – Your contribution to unemployment insurance
- Bezeichnung – Description
- E. (Einmalbezug) – Bonus or lump sum payment
- Gehalt – Monthly basic sum
- KiSt. (Kirchensteuer) – Church tax
- KV (Krankenversicherung) Beitrag – Your contribution to statutory health insurance
- LSt. (Lohnsteuer) – Income tax
- Nettoverdienst or Auszahlung – Net salary paid
- PV (Pflegeversicherung) Beitrag – Your contribution to long-term care insurance
- RV (Rentenversicherung) Beitrag – Your contribution to pension insurance
- Sachbezug or Geldwerter Vorteil – Benefits in kind
- Solidarität Zuschlag – Solidarity surcharge
- St.Btto (Steuer-Brutto) or GB. (Gesamtbrutto) – Total gross salary (taxable sum)
- SV (Sozialversicherung) – Social security
- Urlaubsgeld – Holiday pay
- Zusatzbeitrag – Additional contribution
The bottom part of your payslip is simple compared to the top and middle. It contains cumulative totals and how much your employer is contributing to various schemes.
- Jahreswerte or Jahressumme – Annual figure
- KV/PV/RV/AV Beitrag-AG – Your employer’s contributions to health insurance/long-term care insurance/pension insurance/unemployment insurance
- Monatswerte or Monatssumme – Monthly figure
- Verdienstbescheinigung – Statement of earnings
Your payslip may include some further entries not listed here and may not include all of these. Every employer will be slightly different, but some parts are mandatory and universal (such as your Social Security contributions).
More About Your Deductions
Understanding the abbreviations on your payslip is a helpful starting point. However, some of these amounts may come as a surprise if you are not familiar with the German payroll system or Social Security. You also might not understand exactly what each of the deductions is for.
Here is a brief overview of each of the deductions on your payslip:
Unemployment insurance is a compulsory deduction. The total rate of 3% is split between you and your employer on an equal basis. This payment ensures that should you lose your job, if you register with the employment office (Bundesagentur für Arbeit) the government will pay you a proportion of your previous salary for between 6-24 months.
Not everyone will have an entry for this on their payslip as it relates to benefits in kind. If your salary is made up of a simple salary or wage, there are no benefits in kind to calculate.
If you receive “extras” as part of your package, such as a mobile phone, company car or non-contributory shares, the tax office will class them as benefits in kind. A financial value will be attached to the benefits you receive, and you will be taxed on them as if you’d received them in your salary. The calculation for this can be quite complex, depending on the benefit. For example, a company car is taxed at 1% of its value (inclusive of VAT).
The church tax will be a foreign concept to many and is a voluntary tax. The precise sum deducted depends on your location but for Berlin it is set at 9%. This tax is deducted by the tax office on behalf of religious institutions in Germany. You will not have to pay church tax if you confirm you have no religion. You can do this during your Anmeldung by ticking the box which states “keine religion”. It is possible to change after your Anmeldung, but it’s more complicated. By declaring it correctly at the start, you will save a lot of hassle.
If you declare that you have no religion, you won’t be banned from entering churches. No-one will check if you pay church tax. However, if you want to use professional church services such as christenings or weddings, you might find it more difficult.
This is a hefty deduction but covers the cost of paying into a health scheme. The costs are split evenly between you and your employer. If you are in a public scheme will be 14.6% in total.
If you have switched to a private scheme, then the deductions will depend on the tariff you have agreed. Private insurance isn’t charged at a universal percentage. You will also see an entry on your payslip AG-Zuschuss, which credits you with money. This is your employer’s contribution to your health scheme. Private healthcare contributions aren’t deducted at source so you must pay the full monthly sum due, including the portion from your employer.
The amount of income tax you will pay depends on your tax class and how much you are earning. You won’t need to pay income tax until you are earning at least €9000. Tax rates rise progressively with salary, starting at 14% and climbing to 45% for very high earners. (See the tax classes below).
Long-term care insurance is paid by both you and your employer at a total cost of 2.88% (if you are publicly insured). If you have children, the rate drops slightly to 2.55%.
For most people, pension insurance will be the second-largest deduction from their pay-packet, swallowing up an eye-popping 19.6% of gross income. There is some good news: your employer will be splitting the costs and paying half.
The German pension system differs from some other European countries because your payments do not create a personal fund for your retirement. Instead, they fund the retirement payments for current pensioners. It should not be considered a personal pension, but it guarantees that you will receive an old-age pension. It also covers you if you become incapacitated.
The solidarity surcharge first appeared in 1991 and was intended to help with the reunification costs. From 2020 the solidarity surcharge has been stripped back and will now only apply to much fewer workers on a higher salary.
As income tax makes up such a large proportion of the deductions, a bit more information about the various tax classes may be useful. Your marital status heavily influences your tax class, a system that may seem rather outdated to some. The classes are:
Class I: If you are single, permanently separated, divorced, in a civil partnership or your spouse lives overseas.
Class II: Single parents who are not cohabiting with a partner.
Class III: Widowers in the 12 months following their spouse’s death or married people who have a higher salary than their spouse. Their spouse must be in Class V.
Class IV: Married people on similar incomes.
Class V: Married people with an income lower than their spouse. Their spouse must be in Class III.
Class VI: Not dependent on marital status. Class VI is for anyone with a second job. The employer paying the lower income should use Class VI.
Read more about Personal Taxation in Germany here.