You’ve already heard about the benefits that Germany offers to you when you work there, but how does all of that actually work? Let’s walk through the social security system with you to help you to understand why gross salary in Germany is hard to compare with other countries.
First of all, everyone who has a job in Germany with a gross salary of more than 450€ per month is automatically a part of the social security system. This package is paid for via contributions by employees and employers and includes all costs for pensioners, the sick or unemployed, or those in need of nursing care. The system comprises the following five insurances:
- Health insurance
- Nursing care insurance
- Pension insurance
- Unemployment insurance
- Accident insurance
People with jobs must contribute to the first four parts. These contributions total about 40% of gross income, half of which is paid for by the employer, making the effective employee contribution roughly 20% of their income. The accident insurance is paid for completely by the employer. The employer is also the one handling all of your social security contributions, so you don’t have to do anything as the percentage of your gross income is automatically deducted from your salary before you receive it.
In Germany there are two different types of health insurance: public (Gesetzliche Krankenversicherung = GKV) and private (Private Krankenversicherung = PKV). Depending on your income and type of employment, you may be able to choose between the two. If you earn less than 4,950€ per month, only the public health insurance is available. The contribution amount for health insurance is 14.6% (possibly plus 1% additional contribution) of your gross salary up to a maximum monthly income of 4,425€. This means that if you earn more than this amount, your premium doesn’t increase. The employer pays half of it, or 7.3%. The insurance covers hospital stays, dental care, routine doctor visits (excluding private doctors or surgeons), drugs, eyeglasses, immunizations, x-rays etc.. Statutory health insurance allows children and spouses to also be insured free of charge with a family insurance policy. Tell your employer early enough if you want to choose the insurance provider. There are several non-profit associations administering the governmental health policy, for example Techniker Krankenkasse, DAK Gesundheit, and AOK Bayern. Please note that a lot of services from the public health insurance system have been downgraded or cancelled in recent years, so you might consider getting additional private insurance to cover some services like 1 or 2-bed rooms in hospital, faster treatment, or operation by the head doctor. A private travel insurance includes emergency evacuation from places outside Germany.
If you are self-employed, a civil servant, or earn more than 4,950€ per month, you can opt for private health insurance. This covers a wider choice of medical and dental treatment and in more foreign countries. Furthermore, you can often request a doctor that speaks your mother tongue. If you want to have your dependents covered as well, you need to pay for each of them. As for all of the contributions in the social security system, your employer will pay roughly half of its cost. Please inform your new employer’s HR department if you want a private insurance because they may automatically enroll you in the governmental system.
Nursing care insurance
Everyone who is health insured is automatically member of the long-term nursing care policy (Pflegeversicherung). The contribution is 2.55% or 2.8% of your gross salary (you pay half of it) and it covers some of the costs of personal needs such as feeding or bathing if you become disabled.
The current retirement age in Germany is 65, and it will be increased to 67 over the next 20 years. To ensure that you will still have a regular income when you retire, the social security system in Germany includes pension insurance (Rentenversicherung). There are three pillars to the German retirement system: 1) government-run Retirement Insurance (also called Statutory Pension Insurance), 2) private company plans and 3) private individual retirement investments.
The Statutory Pension Insurance is mandatory for employees and the contribution is 18.7% of the monthly gross wage (half employer’s, half employee’s contribution). The prerequisite for receiving a German pension when reaching the official retirement age is to have paid into the fund for more than 60 months. In addition to the periods of contributory employment, many other periods are considered such as child-rearing and raising periods and others. The maximum payout is 67% of your average net income during your working life.
The second pillar, the company plans called bAV (betriebliche Altersvorsorge) are a supplement to the Retirement Insurance and are now becoming more important. Government tax breaks and subsidies will encourage companies and employees to invest in private plans. The pensions from these company plans usually also start at 65. Benefits can be received outside Germany, but premiums are not always refunded when you return to your home country.
The third possibility that has recently gained significance as a supplement are individual investments e.g. the Riester pension. You pay a certain annual amount and this determines how many tax advantages and benefits from government subsidies you get. For more information you can read this blog. There are diverse plans with different payment methods, payout schemes etc. Since Retirement Insurance in general is quite complicated regarding the determination of the amount of pensions, early retirement, increased benefits for working longer than the age of 65 and other exceptions, the best way to know for sure is to consult a financial advisor.
If you return to your home country and paid contributions to the German pension insurance for at least five years, you will get an old-age pension. Even for a payment period shorter than 5 years the pension from your country will increase provided there’s a social insurance agreement with Germany. If not you can ask to get back your employee contributions two years after you return home.
Everyone with a paid job must contribute to the unemployment insurance (Arbeitslosenversicherung) apart from some groups like civil servants who don’t have to pay, but are still covered. This insurance ensures that in case of losing your job you will get benefits for a certain period depending on how long you paid contributions. The contribution of 3% split equally between employee and employer goes up to a contribution assessment ceiling of EUR 72,600 per year in western Germany and EUR 62,400 per year in eastern Germany. To receive the money you must have paid contributions for at least one year during the last 5 years. You must immediately register with the Labor Office (Bundesagentur für Arbeit), actively look for work, and accept any job found for you if it’s consistent with your training and experience.
Employees, trainees, university students, schoolchildren and many other groups are covered by the statutory accident insurance (Unfallversicherung) which pays costs of medical treatment and rehabilitation after an accident or illness caused at work and on the way to and from, at the place of study or on the way to school. Additionally, it includes pensions in the event of invalidity and covers funeral costs in the event of death. There are no contributions for the employee since it is fully paid by the employer.
Other social benefits of the system are social assistance (Sozialhilfe) for people on low incomes, including accommodation heating and additional child benefit (Wohngeld, Beitrag zu den Heizkosten, Kinderzuschlag) and social indemnity paid by the state for disabled war veterans, war widows, orphans, soldiers with service-incurred health problems and the victims of violent crime.
This explanation of the social security system helps you to understand that German salary cannot be easily compared to other countries. In addition to the contributions to the four insurances your salary will be decreased by the income tax.
Based on your marital status and other criteria you will be put in one of the six tax classes. Class I is for example for singles, Class II for single parents living alone with their children and if you have two jobs at once you will be put in Class VI for one of them. The taxation also differs for single people and married couples. For a single person it is as follows:
- income < 9000€ tax-free
- 8,820€ ≤ income ≤ 54,949€ progressively increasing from 14% to 42%
- 54,950€ ≤ income ≤ 260,532€ 42%
- Income ≥ 260,533€ 45%
On top of this, there is a solidarity surcharge (Solidaritätszuschlag) of 5,5% of the tax, initially introduced for the integration of the states of former East Germany.
The wage tax (Lohnsteuer) is collected at source from compensation and paid directly to the tax office (Finanzamt) whereas the income tax (Einkommensteuer) covers income from other sources like self-employment, rent collections, and investments and must be paid by the individual.
For further information about the German social security system you can consult for example expatica or how-to-germany or contact a financial advisor.
Your Getsafe Team
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