What Employer Taxes Do Companies Pay in Germany?

Last Updated on 2 days ago by International Employment Specialists

Hiring an employee in Germany involves more than agreeing a gross salary.

For employers, the actual employment cost includes statutory social security contributions, accident insurance, payroll-related levies and, depending on the company and workforce structure, additional mandatory charges.

This is why international businesses should not calculate German hiring costs on salary alone.

A €70,000 annual salary does not mean the employer’s annual cost is €70,000. The company must also budget for its share of pension, health, unemployment and long-term care insurance, as well as other employer-side employment costs.

For foreign companies entering Germany, understanding these obligations before making an offer is essential for accurate workforce planning.

Employer Taxes in Germany: What Does the Employer Actually Pay?

Germany does not have a single flat “employer tax” applied to payroll.

Instead, employers are responsible for several statutory social insurance contributions connected with each employee.

For most standard employees, the main employer-side contributions include:

pension insurance;
statutory health insurance;
unemployment insurance;
long-term care insurance;
statutory accident insurance;
insolvency levy;
U1 and U2 reimbursement levies where applicable.

Most core social insurance contributions are shared between employer and employee, while statutory accident insurance is financed by employers.

The final employer cost therefore depends on salary, health insurance fund, company size, industry and certain employee-specific circumstances.

Pension Insurance

Germany’s statutory pension insurance is one of the largest employer payroll costs.

In 2026, the general pension insurance contribution rate is 18.6% of contributory earnings.

For standard employment, the cost is normally divided equally:

Employer: 9.3%
Employee: 9.3%

The contribution is not calculated indefinitely as salaries rise.

For 2026, the contribution ceiling for general pension and unemployment insurance is:

€8,450 per month
€101,400 per year

Income above this level is generally not subject to additional pension contributions.

This ceiling is particularly important when employers calculate the cost of senior executives and highly paid specialists.

For example, an employer hiring someone on €150,000 a year does not pay pension insurance on the full €150,000. The contribution is capped at the applicable contribution assessment ceiling.

Statutory Health Insurance

The general statutory health insurance contribution rate in Germany is 14.6% in 2026.

For most employees, employer and employee each bear half of this base rate:

Employer base share: 7.3%
Employee base share: 7.3%

However, employers must also account for the health insurance fund’s additional contribution, or Zusatzbeitrag.

The official average additional contribution for 2026 is 2.9%, but the actual rate can vary depending on the employee’s health insurance fund. The additional contribution is also generally shared between employer and employee.

Using the average rate for illustration, the employer health insurance burden would therefore be approximately:

7.3% + 1.45% = 8.75%

But employers should not automatically use 8.75% for every employee, because the actual Zusatzbeitrag can differ between health insurance providers.

For 2026, health and long-term care contributions are calculated only up to:

€5,812.50 per month
€69,750 per year

That ceiling prevents the health insurance cost from increasing indefinitely for higher salaries.

Long-Term Care Insurance

Germany’s statutory long-term care insurance, or Pflegeversicherung, also forms part of the employer payroll burden.

The standard contribution rate in 2026 is 3.6%.

In most cases, this is split equally:

Employer: 1.8%
Employee: 1.8%

Employees aged 23 or older without children generally pay an additional surcharge themselves. The standard employer share remains 1.8%.

The employee share may also be reduced depending on the number of eligible children.

For employer budgeting, however, the usual starting point is the 1.8% employer share, subject to the applicable German rules and regional exceptions.

Unemployment Insurance

The unemployment insurance contribution rate in Germany is 2.6% in 2026.

It is normally divided equally between employer and employee:

Employer: 1.3%
Employee: 1.3%

Like pension insurance, unemployment insurance is subject to the 2026 annual contribution ceiling of €101,400.

For salaries above that threshold, the employer’s unemployment insurance contribution does not continue rising on the excess income.

Statutory Accident Insurance

Statutory accident insurance is different from the other main social insurance contributions.

It is financed by employers rather than being split with employees.

There is no universal flat percentage applicable to every business.

The premium depends on factors including:

total payroll;
the company’s industry;
occupational risk;
the relevant Berufsgenossenschaft;
the applicable risk category.

Germany’s statutory accident insurance institutions calculate contributions according to their financing requirements and the risk profile of the relevant sector.

An office-based consultancy will therefore not necessarily have the same accident insurance cost as a construction, industrial or logistics employer.

Over the longer term, DGUV indicates that employer accident insurance premiums have averaged around 1.3%, although the actual company rate can be materially higher or lower.

For workforce budgeting, foreign employers should therefore treat accident insurance as a variable cost rather than assume one national rate.

Insolvency Levy

Employers may also be required to pay the Insolvenzgeldumlage, commonly referred to as U3.

This levy finances insolvency payments that protect employees when an employer becomes insolvent and is unable to pay wages.

For 2026, the insolvency levy shown in current employer contribution schedules is 0.15%.

Although small compared with pension or health insurance, it should still be included in payroll cost calculations.

U1 and U2 Employer Levies

Germany also operates reimbursement schemes known as U1 and U2.

U1: Sickness Reimbursement

U1 helps eligible smaller employers recover part of the cost of continued salary payments when employees are absent due to sickness.

The applicable contribution rate is not universal.

It depends on the health insurance fund and the reimbursement level selected or applicable to the employer.

Different insurance funds may therefore apply different U1 rates.

U2: Maternity Reimbursement

U2 finances reimbursement of qualifying employer costs connected with maternity protection.

Again, the levy is set by the relevant health insurance fund rather than through one single nationwide percentage.

For example, AOK Bayern applies a U2 rate of 0.49% in 2026, illustrating why payroll calculations should use the employee’s actual insurance fund rather than a generic national assumption.

These levies are relatively small individually, but they matter when calculating employer cost across a larger workforce.

What Is the Typical Employer Contribution Rate in Germany?

For an employee whose entire salary falls below the relevant contribution ceilings, the main employer-side social insurance burden starts approximately as follows:

Using the national average health insurance Zusatzbeitrag of 2.9%, the core employer contribution before accident insurance and U1/U2 is roughly 21.25% of contributory salary.

That calculation is:

9.3% pension

8.75% health insurance
1.3% unemployment
1.8% long-term care
0.15% insolvency levy
= 21.30%

The actual total may differ because health insurance funds, U1/U2 rates and accident insurance costs vary.

This is why employers often budget approximately 20–25% above gross salary for statutory payroll costs for employees below the applicable ceilings, before adding broader employment costs such as benefits, equipment, recruitment and HR administration.

Example: Employer Cost for a €60,000 Salary

Consider an employee earning:

Gross salary: €60,000 per year

Because the salary is below both the pension and health contribution ceilings for 2026, the full salary is broadly within the contribution base.

Approximate employer costs could include:

Pension:
€60,000 × 9.3% = €5,580

Health insurance:
Using an illustrative employer rate of 8.75% = €5,250

Unemployment insurance:
€60,000 × 1.3% = €780

Long-term care insurance:
€60,000 × 1.8% = €1,080

Insolvency levy:
€60,000 × 0.15% = €90

Before accident insurance and U1/U2, the statutory employer burden in this simplified example is approximately:

€12,780

That means:

Gross salary: €60,000
Core employer contributions: approximately €12,780
Indicative cost before other payroll and employment expenses: approximately €72,780

The actual figure will depend on the employee’s health insurance fund and the employer’s applicable levies.

Example: Employer Cost for a €100,000 Salary

Higher salaries require more careful calculation because different social security contribution ceilings apply.

In 2026:

Health and long-term care insurance are capped at €69,750 of annual contributory earnings.

Pension and unemployment insurance are capped at €101,400.

Therefore, for an employee earning €100,000, health and care contributions do not apply to the full salary.

This means employer payroll costs do not increase in a straight line with gross salary.

That is important for budgeting senior hires.

A company cannot simply take a percentage such as 21% and multiply it by every salary regardless of level. Once an employee exceeds the statutory ceilings, the effective employer contribution percentage decreases.

What About Employees Earning More Than €101,400?

For employees with salaries above €101,400 in 2026, both major contribution ceilings become relevant.

Pension and unemployment contributions stop increasing once the applicable pension contribution ceiling has been reached.

Health and long-term care contribution ceilings are reached even earlier, at €69,750.

As a result, a €150,000 employee does not generate 2.5 times the statutory social insurance cost of a €60,000 employee.

This is why salary-level-specific calculations are essential when comparing the cost of hiring senior executives, specialists and highly paid technical professionals in Germany.

Do Employers Pay Income Tax for Employees?

German wage tax, or Lohnsteuer, is generally an employee tax.

The employer calculates, withholds and remits it through payroll, but it is deducted from the employee’s gross salary rather than normally representing an additional employer payroll cost.

The same distinction applies to other employee-side deductions where applicable.

This is an important point for international finance teams.

A payroll item appearing in the employer’s payroll process does not automatically mean it is an employer cost.

Companies need to distinguish between:

employer contributions, which increase total employment cost;

and

employee deductions, which the employer withholds and remits on the employee’s behalf.

Why the Contribution Ceilings Matter

Germany’s contribution ceilings can significantly affect total employment cost.

For 2026, the key thresholds are:

Health and long-term care contribution ceiling:
€69,750 per year / €5,812.50 per month

Pension and unemployment contribution ceiling:
€101,400 per year / €8,450 per month

Statutory health insurance compulsory insurance threshold:
€77,400 per year / €6,450 per month

These thresholds perform different functions and should not be confused.

The contribution ceiling determines the maximum salary base on which the relevant contribution is calculated.

The compulsory insurance threshold determines when an employee may, subject to the applicable rules, become eligible to leave compulsory statutory health insurance.

For international employers, confusing these two figures can produce incorrect payroll budgets.

Employer Taxes Are Only Part of the Cost of Hiring in Germany

Payroll taxes and social contributions should not be treated as the full cost of employment.

A realistic hiring budget may also need to include:

paid annual leave;
continued salary during sickness;
statutory public holidays;
recruitment costs;
occupational pension arrangements where applicable;
supplementary benefits;
bonuses;
company equipment;
payroll administration;
HR support;
onboarding;
termination-related costs;
company car or mobility benefits where provided.

For senior employees, these additional expenses can materially affect total employment cost.

The employer should therefore calculate total cost of employment, not simply gross salary plus payroll contributions.

What Foreign Employers Commonly Get Wrong

One common mistake is applying one percentage to every employee.

Germany’s system contains several contribution ceilings and variable rates, so the employer cost percentage differs depending on salary.

Another mistake is using the national average health insurance Zusatzbeitrag as though it were a fixed rate. The actual supplementary health contribution depends on the employee’s insurance fund.

Foreign companies can also underestimate accident insurance because it is not shown as a standard employee deduction.

Finally, companies entering Germany sometimes budget only for payroll contributions and overlook the broader cost of employment administration, statutory leave and continued remuneration obligations.

These errors can become significant when hiring multiple employees.

How Should Employers Budget for Hiring in Germany?

A more reliable approach is to calculate employment cost employee by employee.

Start with the agreed annual gross salary.

Then apply:

pension insurance up to the relevant ceiling;
health insurance up to the health contribution ceiling;
the employee’s actual health insurance Zusatzbeitrag;
unemployment insurance;
long-term care insurance;
accident insurance;
U1, U2 and insolvency levies where applicable;
contractual benefits and additional compensation;
payroll and HR administration costs.

For workforce planning, companies should then model different salary scenarios rather than rely on a universal employer-cost multiplier.

This becomes especially important when comparing Germany with other European hiring markets.

Hiring in Germany Without a Local Entity

Understanding employment costs is only one part of entering the German market.

A foreign company also needs an appropriate structure for employing local staff. For businesses looking to Hire Employees in Germany Without an Entity, this question becomes particularly important because recruitment, payroll, social security contributions and employment compliance still need to be managed locally.

Businesses planning substantial long-term operations and larger teams may decide to establish their own German legal entity. This can provide greater operational control but also introduces entity formation costs, local payroll infrastructure, accounting requirements and ongoing administrative responsibilities.

For companies making their first hires, testing the German market or building a small local team, an Employer of Record in Germany may provide an alternative. The EOR becomes the legal employer and generally manages employment contracts, payroll, statutory employer contributions and employment administration, while the client company directs the employee’s day-to-day work.

This allows international businesses to hire employees in Germany without an entity while avoiding the need to establish a local employing company solely for the first few hires.

The commercial comparison should therefore consider more than the EOR service fee. Employers should compare the total cost of EOR employment with the cost of entity formation, payroll setup, accounting, HR administration and ongoing compliance.

For many companies, the appropriate model will also change as the German operation grows. An EOR can support initial market entry, while establishing a local entity may become more economical once headcount and long-term business activity reach sufficient scale.

FAQ

What taxes does an employer pay in Germany?

German employers generally pay their share of statutory pension, health, unemployment and long-term care insurance, as well as accident insurance and additional payroll levies such as U1, U2 and the insolvency levy where applicable.

How much are employer payroll taxes in Germany?

For employees below the relevant contribution ceilings, core statutory employer contributions are commonly around 20% or more of gross salary. The final percentage depends on the health insurance fund, accident insurance and employer-specific levies.

What is the employer pension contribution in Germany in 2026?

The employer generally pays 9.3%, representing half of the total statutory pension contribution rate of 18.6%.

What is the employer health insurance contribution in Germany?

The employer generally pays 7.3% of contributory salary plus half of the employee’s health insurance fund-specific Zusatzbeitrag, up to the applicable contribution ceiling.

The annual contribution ceiling is €69,750 for health and long-term care insurance and €101,400 for general pension and unemployment insurance.

Does the employer pay German income tax?

Income tax is generally an employee liability that the employer calculates, withholds and remits through payroll. It is normally not an additional employer contribution on top of gross salary.

Is accident insurance paid by the employer in Germany?

Yes. Statutory accident insurance is financed by employers, and the premium varies according to payroll, industry and occupational risk.

Can a foreign company employ someone in Germany without opening an entity?

Depending on the structure and circumstances, a foreign company may consider an Employer of Record in Germany to employ workers locally without first establishing its own employing entity.

Conclusion

Employer taxes in Germany are substantial, but they are also structured by clear contribution rates and statutory ceilings.

For 2026, employers generally contribute 9.3% to pension insurance, 1.3% to unemployment insurance, 1.8% to long-term care insurance and 7.3% plus half of the applicable Zusatzbeitrag to statutory health insurance.

Additional costs include statutory accident insurance and payroll levies such as U1, U2 and the insolvency contribution.

The important point for employers is that these costs cannot be reduced to one universal percentage.

Salary level, contribution ceilings, health insurance provider and company-specific factors all influence the final number.

Foreign businesses should therefore calculate the total cost of hiring in Germany before finalising compensation packages, particularly when recruiting multiple employees or senior professionals.

How Brain Source International Can Support Employers in Germany

Brain Source International supports international companies with recruitment in Germany, workforce expansion and employment solutions.

For companies building German teams, we can help with international recruitment, executive search and, where appropriate, Employer of Record in Germany services.

This allows employers to assess talent availability, compensation and employment costs as part of one workforce strategy rather than treating recruitment and payroll as separate decisions.

Planning to hire in Germany? Brain Source International can help you structure recruitment and employment around your expansion plans.