Navigating the waters of payroll can be tricky when you wish for an employee to work for you in Germany. The good news is that whether you have a German entity or not, it is possible to have an employee on payroll with no extra accounting required.
You will, however, need to determine when said employee becomes taxable in order to function within the law. Luckily the rules regarding the situation are quite straightforward. This type of employee taxability centers around the country’s 183 day rule.
What is the 183 Day Rule?
The basic concept behind the 183 day rule is that those who live in Germany for less than 6 months (under 183 days) are not considered tax residents and are therefore only taxed on income earned in Germany. If, however, the individual lives in the country for 6 months or more (over 183 days), he or she is to be taxed on all income earned.
The purpose of the 183 day rule is to provide guidelines on taxation for employment income that crosses national borders.
What does Payroll Involve in Germany?
If you’ve decided to go ahead and hire within the country, you will need to set up payroll.
Depending on your agreement with your employee, you will set up payroll for him or her on a wage or salary basis. If the wage basis is selected, the employee will be paid by the hour. In other words, you will pay them for the number of hours they worked during a specific pay period at the decided upon rate. Given the nature of this payment system, the total amount paid per pay period may fluctuate.
If, however, you choose to pay your employee on a salary basis, you will pay them a set amount per pay period, whether they worked more hours or less.
As an employer in Germany, your are required to calculate income taxes for your employees, withhold said amounts, and provide them to the authorities at the correct time. Furthermore, you must contribute to Germany’s social security system. A specific amount must be withheld by law to cover various insurance forms within the system, such as pension and unemployment insurance.
Further information regarding regulations on paying employees in Germany can be found in the country’s civil code.
Hiring in Germany is no simple task. It is therefore recommended that you employ the services of an experienced consulting firm to guide you through the necessary steps and to help ensure you are in legal compliance.
At Consultinghouse, we help small to medium sized companies expand into the German market in compliance and in the most advantageous manner possible, including by providing payroll services. If you are seriously considering hiring in Germany without establishing a legal entity in the country, email us at firstname.lastname@example.org or call +49 (0) 6181 250 330 today.