An Overview to German payroll Module 4

An Overview to German payroll Module 4

What we ll cover : Expenses and Benefits Net Pay and Making Payments to Employees Year End Record Keeping Links

expenses and benefits including payrolling and annual reporting

Fringe benefits Sometimes these are given as necessary tools of the job or as incentives and are goods and services provided to employees The value of benefits in kind is set out in the Social Insurance Income Ordinance and the official non-cash benefit values set by the superior tax authorities apply Benefits in kind are subject to tax and social security They include goods and services available to an employee at less than the market price i.e. the price charged to customers

Fringe benefits The category fringe benefits includes: Employer contribution to private pension plans Reimbursement of seasons tickets on public transport Subject to normal liability, however this is often paid by the employer

Fringe benefits Company car (classed as taxable income in Germany) Liability is calculated on the list price of the car including specialist equipment and sales tax The benefit is either calculated by splitting the cost between business journeys and private journeys The more usual calculation is the list price of the car x 1% and this is used for new, used and lease cars Any employee contributions towards the cost of the car/use of the car are deducted from this amount

Fringe benefits Employer contribution to private pension plans Reimbursement of seasons tickets on public transport Subject to normal deductions The employer will often pay the liability

Fringe benefits Housing A benefit arises where the employee doesn t pay the published rent

Fringe benefits Stock options Subject to deductions in the same way as salary where the amount exceeds 360. The employer must withhold tax and social security in the month that the options are exercised and acquired. The value is added to the salary for deduction purposes The employee will receive a huge non cash benefit but the cash benefit (the income) will not be sufficient to cover the liability The employer still needs to apply the minimum limits of salary exemption, which must be paid to the employee

Fringe benefits Stock options The only way around this is to sell sufficient stock to meet the liability on the same day The employer must be authorised to sell the stock on behalf of the employee and withhold the amount to fulfil the liability

Mobile Phones Fringe benefits If the company has provided a corporate mobile phone plan, all standard mobile phone plan expenses should bear the company name. This is not taxable to the employee as long as the company is the owner of the mobile phone and the invoice is addressed to the company in country. In all other cases, payroll taxes have to be paid for the reimbursement and the company can t deduct the Input VAT of the expenses. In other words, it s a problem to reimburse telephone or internet costs to employees, if the costs were invoiced to and/or signed by the employee.

Fringe benefits Mobile Phones As most employees don t have separate invoices for internet (they are flat rates which also include telephone expenses), it s laborious to tease out which part of the phone bill is reimbursable and which is taxable. One solution offered by German tax rules is a 20% reimbursement of the internet fee, without proof, but with a ceiling of 20.

Restaurant Vouchers Fringe benefits The liability for this is dependant on the value of the voucher, however this does not apply if the employer pays a lump sum tax of 25% If the employee pays the listed price for the meal there is no benefit Insurance Minor benefits up to an agreed value per month are not subject to social security contributions

Salary attachments Salary attachments are a legally binding method of obtaining defaulted payments on third party loans and/or debts including child maintenance and are regulated in the code of civil procedure The employer is bound to calculate the payable amount on a monthly basis and pay said amount to the appropriate body The amount for calculation purposes is the net pay after tax and social security has been deducted The calculation method is clearly defined in the code of civil process, but is nevertheless an additional responsibility for the employer

Travel expenses Travel expenses are part of the payroll since any items paid over and above the amounts stated in the income tax laws are considered to be taxable income The employer can reimburse any costs for job-related trips that are not trips between home and the "primary place of work" tax-free Costs incurred by the use of public transportation can be refunded up to the actual amount paid

Travel expenses Alternatively, travel costs can still be reimbursed using a flat kilometre rate The applicable rates are indicated in the respective "Bundesreisekostengesetz" (Federal Travel Expense Act) and depend on the type of vehicle used Additional allowances for the job-related carriage of further passengers are not listed in the "Bundesreisekostengesetz" and cannot be refunded tax free

Travel expenses Consideration needs to be given to what is considered as the primary work place as this will affect expenses such as home to work travel and mileage claims for business trips The primary workplace is a fixed facility of the employer, an affiliated company, or in exceptional cases a third party specified by the employer to which the employee has been permanently assigned

Travel expenses For mileage claims a decision needs to be made on whether there is a gathering place or extensive work area Standard allowances can only be claimed tax-free for the first 3 months of a business trip, however a break of 4 weeks or more from the assignment results in the 3 months starting again

Travel expenses The travel expenses laws cover: Per diems which are divided into domestic and international rates and these are in place to cover the additional expense incurred for meals etc. when an employee is travelling For domestic travel, the per diem totals 24 which is broken down into: 12 for travel days of more than 8 hours 24 for travel days of 24 hours (with overnight stay)

Travel expenses Example: The employee starts a three-day business trip from his "primary place of work and spends two nights on business at a different location. On day three he returns home. The standard allowances he can claim are : First Day/Arrival: 12 (regardless of the duration) Second Day: 24 Third Day/Departure: 12 (regardless of the duration) Total: 48

Travel expenses Cost of travel (planes, trains, public transport etc.) Hotel bills, whereby a deduction is made for meals which are included in the hotel price If the meal (e.g. breakfast) is included in the price of the room, then the per diem will be reduced by 20%. If the meal is shown as an extra on the bill, the amount will be deducted from the bill Internet charges, telephone charges

Travel expenses If an employee uses their private vehicle for company business, they can claim up to 30 Cents per kilometre for the distance driven Claims for kilometres should be backed up with a print out from a route planner All items claimed must be backed up with an appropriate receipt which in turn must show the VAT percentage rate (up to 200) or the VAT amount (over 200)

Travel expenses To avoid confusion regarding taxability of benefits, it s good practice to address all invoices, including those for hotel stays and suppliers, to the company s corporate address, rather than to an employee s address. This will prevent confusion on whether the company has reimbursed private invoices from the employee. The use of company-issued corporate credit cards may help alleviate confusion on this issue. The travel expense legislation is quite detailed and should be adhered to in order to avoid tax penalties

Travel expenses Forward all original back-up documents for the travel expenses to the company s local address in Germany for storage. Under German law, these documents have to be physically located in Germany For an invoice to qualify as an entertainment expense, a third party must be entertained. This is not possible amongst colleagues or employees who belong to the same company.

Travel expenses Please take care that these invoices must be filled out correctly with the following necessary details: Name of employee or employees attending Entertained persons Reason for the business entertainment Place, date and signature

net pay and making payments to employees

how to read a payslip

Payslip Payslips are mandatory for Germany and must have a format as defined in the 2013 salary statement regulations (Entgeltbescheinigungsverordnung) The payslip must include Employer name and address Employee name and address Employee social security number Employee tax ID number Name of medical insurance Tax class, number of children Salary month All gross pay items

Payslip cont. For hourly paid employees : hourly rate, number of hours worked, gross amount paid For salaried employees: monthly salary full time or part time indicators All social security deductions All tax deductions Private pension scheme deductions if applicable Bank details Many companies still use paper payslips since the electronic version falls under stringent data protection regulations

Payslip cont. Translating some terminology: Leistungsentgeld = fixed salary Zulage ergebnis abhängig = commission based on result like a bonus etc. Steuer = Taxes SV = Sozial Versicherung (Social deductions)

Payslip cont. Translating some terminology: KV = Kranken Versicherung (Health insurance) PV = Pflege Versicherung (Care insurance) RV = Renten Versicherung (Pension plan) AV = Arbeitslosen Versicherung (Unemployment insurance) Gesetzliche Abzüge = Mandatory deductions

Lohnsteuer = Payroll tax Payslip cont. Solidaritätszuschlag = Unified Germany tax Arbeitslosenversicherung = Unemployment insurance Sonstige BE-/Abzüge = Other additions and deductions AG-Zuschuss KV = Arbeitgeber Zuschuss Krankenversicherung (Employers contribution to health insurance) AG-Zuschuss PV = Arbeitgeber Zuschuss Pflegeversicherung (Employers contribution to care insurance)

Payslip cont. Abgef. Beitrag freiw. KV = Abgeführt Beitrag Freiwillige Krankenversicherung (Voluntary contribution paid to health insurance) Abgef. Beitrag freiw. PV = Abgeführt Beitrag Freiwillige Pflegeversicherung (Voluntary contribution paid to care insurance) Nachverrechnung aus Vorm. = Corrections from last month

special types of employees/employments

Redundancy payments Subject to normal tax deductions Not subject to social security unless the notice period has been shortened, in which case part of the payment is treated as salary. PILON is treated as salary, not as a severance payment PILON requires an employees consent

Redundancy payments There is no legal entitlement for redundancy pay in Germany However, for the past few years the Employment Protection Act has stated that employees have the right to claim for compensation if the termination notice specifies strong operational reasons and the employee is provided an opportunity for redundancy payments The redundancy payments are in this case calculated by reference to half a months salary per year of employment with the company

year-end

Monthly Reports and Returns: Compliance Social security returns: due latest 24 th of the current salary month which in most cases involves a pre-calculation on non-recurring salary elements Late filing incurs quite high penalties with a further charge levied in cases of late payment It is advisable to consider the possibility of direct debit (the tax authorities prefer this) for the social security payments The alternative would be direct deposit as the tax authorities do not accept cash and also advise against cheque payments

Compliance Monthly Reports and Returns: Reimbursement claims (U1 or U2) Social security registration (starters) and de-registration (leavers) Income tax returns: due latest 10th of the following month Relatively high penalties are levied for late filing and even higher penalties are levied for late payment

Compliance End of year form Submission date Authority Who is responsible Method of delivery Document signed by Social security statements 31 st March Individual social security companies Employer Electronic to authorities Hard copy to employee & employer Employer Annual wage statements 31 st March Individual tax authorities Employer Electronic copy to authorities Hard copy to employee & employer Employer

Compliance End of year form Submission date Authority Who is responsible Method of delivery Document signed by Remuneration statement for accident prevention and insurance association 11 th February BG Employer Hard copy to authorities and employer Employer BG - Berufsgenossenschaft

Compliance End of year form Submission date Authority Who is responsible Method of delivery Signed by Annual statement for disability contribution 31 st March Employment Office Employer Electronic copy to authorities and hard copy to employer Employer Employee annual return 31 st May can be extended to 31 st December if prepared by tax consultant Individual tax authorities Employee Electronic or hard copy to authorities Employee

Compliance Annual Reports and Returns: Annual employee tax certificates Annual social security certificates Annual state accident insurance return Annual return under the disabled persons law All of the above will normally be generated by the payroll system and are transferred electronically to the appropriate authorities. Printed copies of the tax and social security certificates must be handed to the employee.

Record Keeping

Record keeping Businesses have to keep their business accounting and finance records for 10 years Payroll records have to be kept for 6 years

data protection highlights

Useful Links http://www.existenzgruender.de/englisch/ http://www.learn4good.com/settingup-business/germanyregistering-a-company.htm http://www.gtai.de/gtai/navigation/en/invest/investmentguide/establishing-a-company.html http://www.sachsen.de/en/1452.htm

Useful Links http://www.howtogermany.com/pages/maternity_protection.html http://www.consultinghouse.eu/fileadmin/colleteral/brochures/consultin ghoues_information_sick_leave_germany.pdf http://germany.angloinfo.com/working/eu-factsheets-working/annualleave-eu/ http://ehoganlovells.com/cv/ae9d50177d4ae49bc9cac9f388bcdb6b27ce2 5dc/p=5511514 http://www.export.gov/germany/doing_business_in_germany/germanho lidays/index.asp http://germany.angloinfo.com/family/toddlers/parental-leave/

Useful links http://www.iuslaboris.com/files/documents/public%20files/publications/ 2010_Publications/compensation-and-benefits-reference-guide.pdf http://www.toytowngermany.com/wiki/german_taxes http://www.gesetze-im-internet.de/englisch_ao/ http://www.bdo.de/uploads/media/produktblatt_travel-expenses.pdf http://www.radiusworldwide.com/knowledge/countryupdates/2014/4/germany-managing-employee-travel-expenses http://public.deloitte.no/dokumenter/2013_deloitte_internationaldismiss alsurvey.pdf

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