As 2025 unfolds, several significant updates to the German payroll system have been implemented. These changes impact various aspects of payroll, including social security contributions, tax regulations, and administrative processes. Understanding these updates is crucial for businesses operating in Germany to ensure compliance and optimize payroll operations.

Key Updates to Social Security Contributions

Social Security Contribution Rates:

• Health Insurance: The general rate remains at 14.6%, with an average additional contribution rate of 2.5%.
• Long-Term Care Insurance: The contribution rate has increased to 3.6%.
• Pension Insurance: The rate remains at 18.6%.
• Unemployment Insurance: The contribution rate has been adjusted to 2.6%.

Income Tax Adjustments

Basic Personal Allowance:

• The basic personal allowance (Grundfreibetrag) has been increased to €12,096, providing taxpayers with a higher threshold before income tax applies.

Cold Progression Adjustments:

• To offset inflation, tax brackets have been updated, reducing the effects of “cold progression” and ensuring fair taxation.

Digital Sick Notes

New Digital Process:

• Sick notes from foreign and private doctors will now be sent digitally. However, they will not specify the valid time period, requiring employers to verify the duration separately.

Paid Child Leave Sick Days

Increased Sick Leave for Parents:

• Parents can now take up to 15 fully paid sick days per child per parent, offering greater support for families.

Minimum Wage and Mini-Job Thresholds

Statutory Minimum Wage:

• The minimum wage has been increased to €12.82 per hour, ensuring fair compensation for workers.

Mini-Job Earnings Threshold:

• The earnings threshold for mini-jobs has been raised to €556 per month, allowing employees to earn more without affecting their tax status.

Annual Income Limit Updates for Health Insurance

Increased Annual Income Limit:

• The annual income limit for mandatory health insurance has been increased to €73,800, affecting eligibility for public health insurance.

Non-Cash Benefit Updates

Updated Taxable Non-Cash Benefits:

• New taxable values have been introduced for meals and accommodation provided by employers, ensuring accurate reporting and compliance.

Changes to Payroll Tax and Social Insurance

Abolition of the One-Fifth Rule:

• The “one-fifth rule” for payroll deductions has been abolished, simplifying the payroll process.

New Annual Payroll Tax Return Rules:

• Employers must now adhere to new rules regarding annual payroll tax returns and electronic certificates, streamlining tax compliance.