You can see the difference between the gross and net salary in Germany. Sometimes the difference could be surprising for many expats because the taxation in Germany is quite different from your home country. First, you need to understand the difference between the gross and net salary; only then can you know the tax deductions in your pay slip.
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What is Gross Salary?
This term is relatively easy to understand. Once you start working in Germany on a salary basis, your gross salary is the amount before any deductions. You can calculate the amount on a monthly and annual basis. You can see the exact amount in your employment contract.
What is Net Salary?
Now let’s go through the net salary. Your net salary is the amount that has been transferred from your employer every month directly to your bank account. The net salary amount is after deducting all taxes, other costs, and social security contributions. You can see the net salary amount after the deductions on your employment contract, along with the gross salary. Your employer will always discuss the salary amount based on gross salary. Going through the gross and net salary amounts during the salary negotiation with your employer is advisable to manage your expenses in Germany according to the net salary amount.
How to Calculate Net German Salary?
The calculation is straightforward. The income taxes and social security contributions will take around 35% of the gross salary. For example, you have a gross salary of 5.000 euros monthly, so after the deductions, you’ll get the amount of 3.250 euros per month as a net salary. You can use the German salary calculator to calculate the net wage according to your gross income.
What are Bonuses and Remuneration Packages?
Some employers in Germany offer additional remuneration packages to their employees. These can be the 13th month, commission, summer or Christmas salaries, and performance-based bonuses. The company-provided benefits also include company cars, mobile phones, and computers. You must be aware these “benefits in kind” are subject to income tax. The people recruited from abroad by the international companies may be offered more generous remuneration packages. Most of the employees are getting the money to cover the expense of relocation, short-term accommodation, private health insurance, and their children’s school fees. The net salary, bonuses, and benefits equal your total net pay.
How to Understand the German Pay Slip?
Employees in Germany are getting the monthly pay slip from their employer. The pay slip details the salary, taxation, and social security contributions. The information below will help you understand these breakdowns if you are unfamiliar with them.
- Personal Information – Top Section of the Pay Slip
The first top section in the pay slip is for the employee’s personal information. This section defines the various parameters used for the tax and social security contribution calculations.
- Date of birth
- Employee number
- Tax days (the relevant period and for a full month, it is 30 days)
- Tax class
- The number of tax exemptions for children (1 per child)
- Religion (EV = Protestant, RK = Roman Catholic & — = No religion)
- Tax-free allowance
- Date of hire
- Social security days (the relevant period and for a full month it is 30 days)
- Social security codes that indicate your level of contribution (1 = full contribution)
- Tax ID
- Social security ID
- Sickness fund (the employer is responsible for the health insurance)
- Salary Breakdown & Deductions – Middle Section of the Pay Slip
The middle section in the pay slip is for the salary breakdown and deductions. You can see the detailed analysis of the base salary, bonuses, benefits, taxes, and insurance contributions.
- Monthly base salary
- Benefits in kind
- Lump-sum payment (holiday or Christmas bonus)
- Holiday pay
- Total gross salary (taxable amount)
- Income tax
- Church tax
- Solidarity surcharge
- Social security
- Contribution to statutory health insurance
- Contribution to long-term insurance
- Contribution to pension insurance
- Contribution to unemployment insurance
- Additional contribution
- Net salary paid
- Additional Information – Bottom Section of the Pay Slip
The bottom section on the pay slip provides a summary. It includes the monthly and yearly totals, insurance contribution rates, and the employer’s contributions. You can see the following terms to understand the bottom section.
- Statement of earnings
- Monthly values
- Annual values
- The employer’s contribution to health, long-term care, pension, and unemployment insurance.
How much is the Average Salary in Germany?
According to the Federal Statistical Office of Germany, the average gross salary is 47.700 euros annually, which means 3.975 euros monthly. These numbers are subject to change as per the survey. Individual salaries can vary from this figure because they are affected by industry, age, seniority, geographical location, and working hours.
You can follow the source stepstone.de to get an idea about the average salary in Germany by industry.
The net salary you receive is also affected by the location where in Germany you live. Therefore, the larger cities offer higher wages to cover the higher cost of living in the country. Significantly, the people who are working in eastern Germany receive a lower net salary.
You can follow the source Gehalt.de to demonstrate how average annual wages in the different federal states deviate from the average salary in Germany.
The net salary you earn also depends on the type of qualification you have. However, Germany favors highly qualified workers. Undoubtedly, it is demonstrated by the difference in the entry-level gross annual salaries for the vocational and academic qualifications.
Additionally, you can follow the source Gehalt.de to get an idea of the net salary for recent graduates by federal states and qualifications.
Basically, the minimum wage applies to all workers who are over the age of eighteen. However, the minimum salary is reviewed every two years in Germany.
In a Nutshell
Now you can get an idea about the gross income in Germany accordingly to your education, skills, and location where you live in the country. However, there is a difference between the gross and net salary in Germany. To understand the difference, you must also understand the tax deductions and social security contributions. You can also file for the income tax return to reduce your taxable amount. You can also get help from tax consultants in Germany in case you are facing a problem while filing an income tax return.