Payroll accounting

Payroll accounting: All the important details about payroll accounting for employers

Payroll accounting is one of the most important documents in human resources. It serves as proof of which remuneration payments, payroll taxes and social security contributions have been calculated and paid. They are proof for employers and employees that all tax and labor law requirements have been met. In the following encyclopedia article, we explain important questions relating to payroll accounting.

What is a payslip? Why is it important?

A payslip is a document containing information on an employee’s remuneration over a defined performance period. By law, a payslip must be issued for each employee. A monthly payslip is often issued.

In payroll accounting, all payments are broken down clearly according to the payees involved, such as employee, employer and tax office.

What is the difference between wages and salary?

Salary is a fixed, constant and non-variable monthly remuneration of the employee. This means that an equal amount is paid each month. The employee owes the employer the provision of a defined target working time, e.g. 40 hours per week. The working hours are recorded in the form of a working time account. Care is taken to ensure that the hours balance shows few overtime or minus hours. This means that an employee may work slightly less in one month and still receive the same salary and vice versa.

In contrast, with wages, only the actual hours worked are remunerated. At the end of a performance period, e.g. month, all hours worked are totaled and paid out accordingly. This means that wage payments can sometimes be higher or lower. Piecework wages are a special form of wage.

What is the difference between gross and net remuneration?

The difference is the consideration of the payment in relation to the total remuneration compared to the amount of money ultimately paid to the employee. Gross remuneration is the total remuneration before deduction of taxes and social security contributions (also known as social security contributions or non-wage labor costs ).

Net remuneration is the actual, already taxed, amount of money that the employee receives in their personal account. This is the amount of money with which the employee can offset their private expenses.

What is the gross wage made up of?

The gross wage consists of several components. It is usually divided into

1. the basic wage
2. the variable additional wage, e.g. bonus, supplements or non-cash benefits

The reason for this distinction lies in the taxation of the individual salary components. Basic wages are taxed differently than, for example, supplements such as vacation pay, Christmas bonuses, meal allowances or a bonus.

What are the usual surcharges?

Common supplements include bonuses, commissions, monetary benefits, company cars, pursuit expenses, overtime compensation, hazard allowances, trainer allowances, Sunday, public holiday or night supplements or supplements from a collective agreement. Depending on which supplement it is, this results in different taxation and therefore a different gross salary.

How do I determine the net wage?

The net salary is calculated from the gross salary minus tax and social security contributions. The following deductions are usually due:

• Wage tax
• Health insurance contribution
• Long-term care insurance contribution
• Pension insurance contribution
• Unemployment insurance contribution
• Solidarity surcharge, if applicable
• Church tax, if applicable

How high the different contributions are depends on different tax rates and contribution assessment limits. For example, the income tax class or the total annual income count. All social security contributions are divided equally between the employer and the employee.

To calculate the net wage, the following formula can be used to carry out your own preliminary calculation:

Gross salary
+ Cash benefits/benefits in kind
+ Capital-forming benefits
+ Bonuses and allowances
+ Flat-rate taxed salary components
+ Company pension scheme
= Total gross amount

– Company pension scheme

= Social security gross
– Tax allowances

= Gross tax amount
– Wage tax
– Church tax
– Solidarity surcharge
– Employee’s health, pension, unemployment and long-term care insurance contributions

= Net pay
– Non-cash benefits
– Capital-forming benefits

+ Personal deductions
+ Expense allowances
= Amount paid out

Is payroll accounting mandatory for employers?

Employers are obliged to prepare a payslip. As soon as a company pays wages to its first employee, it is obliged to issue a payslip in accordance with § 108 GewO. In addition, the employer is obliged to pay social security contributions for their employees, taking into account the respective tax class.

Good to know: The GewO states that a proper statement can be omitted if the information does not change within the last statement. In practice, however, this is usually not the case. It is typical for every employee to receive a monthly statement in paper form or by email.

Which components are mandatory for payroll accounting?

According to § 108 para. 3, sentence 1 GewO, the payroll of an employee must contain the following information:

Information on the parties

• Full name and address of the employer and employee
• Date of birth of the employees:in
• Start of the employment relationship
• Settlement period
• Social security number of the employee:in
• Tax ID of the employee:in
• Tax class of employees:in

Information on the calculation of fees

• Gross wage
• Tax information e.g. income tax, church tax, solidarity surcharge
• Personal deductions
• capital-forming benefits
• Pension contributions
• Child allowance
• Overtime
• Tax allowances
• Capital-forming benefits
• Monetary benefits
• Surcharges
• Allowances
• Net wage Amount paid out in euros

What does a payslip look like?

You can see the previous information in the following sample graphic:

What happens if the pay slip is incorrect?

The correct calculation of wages and thus the calculation of taxes and social security contributions is precisely regulated by law. Errors may occur, but these may have consequences.

If you have paid too much income tax, you can have this refunded. Social security contributions that have been paid in excess can be offset against the following pay slips. If this is not possible, e.g. due to a tender by the employee, an application for reimbursement must be made. However, this is a lengthy process.

If payments, e.g. for health and pension funds, have not been made at all, this can lead to serious consequences. It is only permitted to withhold payments for up to three months. If this period is exceeded, fines and even prison sentences of up to five years may be imposed. The correct calculation and payment of remuneration is therefore an important requirement in personnel management.