What are the non-wage labour costs in Germany?

 

Components of non-wage labour costs in Germany

For employers it’s essential to understand non-wage labout costs to calculate salaries and wages. Plus, it’s necessary to set up new hires and payroll accounting successfully.

Non-wage labour costs consist of social security contributions, levies and voluntary allowances. As they increase total wage costs, they are also known as indirect labour costs. Compared to other EU member states, Germany’s non-wage labour costs were slightly below average in 2024.

Employee costs must be taken into account in budget planning. Not only do you need to plan for gross wages, but you also need to consider various additional costs such as social security and other special allowances. These are all part of a company’s labour costs:

Statutory components

•  Social insurance/security contributions 💬Sozialversicherungsbeiträge
•  Levies 💬Umlagen
•  Wage and salary continuation payments 💬Lohn- & Gehaltsfortzahlungen

 

Variable components

• Cost of professional clothing
• Reimbursement of moving expenses
• Costs for further education and training
• Allowances under collective agreements
• Other industry-specific allowances

Voluntary components

• Allowances and gratuities 💬Zulagen & Gratifikationen
• Employer subsidies 💬Zuschüsse
• Voluntary social benefits 💬Freiwillige Sozialleistungen

 

Overview: Non-wage labour costs for employers (2024–2025)

Statutory social-security contributions change periodically, but the employer’s share has remained relatively stable. Below is an overview of the key employer contributions for 2024 and 2025.

Employer share	2024	2025
Health insurance	7.30%	7.30%
Long-term care insurance	1.70% (Saxony: 0.90%)	1.80% (Saxony: 1.00%)
Pension insurance	9.30%	9.30%
Unemployment insurance	1.30%	1.30%
Accident insurance	Varies by industry and employer liability insurance association
U1 levy	Varies by health insurance
U2 levy	Varies by health insurance
Insolvency benefit levy (U3)	0.06%	0.15%

How do statutory non-wage labour costs work?

The employer must pay contributions to the statutory social insurance scheme 💬gesetzliche Sozialversicherung for each employee. Social contributions and other levies account for an average of 23 % of gross wages according to Statistisches Bundesamt.

In addition to the employer’s contribution, the employee must also pay their own social security contributions. The employer pays half of the amount for almost all contributions. The exception is the accident insurance contribution 💬Unfallversicherung, for which the employer pays the total amount.

How are the non-wage labour costs paid?

All social security contributions (employer’s and employee’s) are withheld by the employer and paid directly to the insurance institutions. From the employee’s perspective, they are deducted directly from the gross wage before they receive their salary or wages. All deductions are itemised in the monthly payslip. The many abbreviations and codes can be a bit overwhelming, so we’ve put together a handy guide.

 

Contribution assessment limits for social security amounts

Contribution assessment ceilings 💬Beitragsbemessungsgrenzen determine the maximum amount of income that is subject to social security contributions. In other words, any income above this threshold doesn’t come into play when calculating social security calculations.

Some insurance types have different assessment limits in the eastern and western federal states, as defined by law.

Statutory health & long-term care insurance 2025

• €66,600 per year
• €5,550 per month

Statutory pension & unemployment insurance 2025

Western federal states:

• €94,200 per year
• €7,850 per month

Eastern federal states:

• €93,000 per year
• €7,750 per month

 

Social security contributions

Running a business in Germany means sharing social-security costs with your team. Here’s a quick tour through what you’ll be paying—and why it matters.

Health insurance

Every employee must be covered by health insurance. In most cases, this means the statutory health insurance system, where employer and employee simply split the contribution half and half.

If an employee is privately insured, you pay a tax-free subsidy instead. The amount varies by insurer, but it’s capped at what you would normally contribute under the statutory system. In other words: fair, predictable, and no surprises.

Long-term care insurance

Long-term care insurance works the same way—you each cover half.
There’s one twist: childless employees over 23 pay a slightly higher rate. Employees in military or civilian service are exempt from that surcharge entirely.

Pension insurance

Pension insurance funds retirement benefits and rehabilitation services.
The rule here: you pay half, your employee pays half.

Unemployment insurance

Unemployment insurance protects employees if they lose their job—and for most people, it’s compulsory.
A few groups are exempt from paying the employee share, such as:

• Students
• Mini-jobbers
• Military personnel
• Civil servants
• Pensioners

However, even if the employee is exempt, your employer contribution is still required.

Accident insurance

Accident insurance is handled by the sector-specific employer liability insurance associations 💬Berufsgenossenschaft.
This one is entirely your responsibility as the employer—employees don’t pay a cent.

Your annual contribution depends on:

• your payroll,
• your industry’s risk level,
• and the costs your Berufsgenossenschaft had to cover in the previous year.

It’s calculated retroactively, so costs can change slightly year to year.

Levies

Germany uses three employer-funded levies:

• U1: covers continued pay during sickness
• U2: covers maternity benefits
• U3 or insolvency benefit levy

The rules are straightforward:

• U1 applies only to businesses with up to 30 employees, i.e. part-time staff count proportionally; severely disabled employees are excluded from the count.
• U2 and U3 apply to all employers.
• The contribution rates for U1 and U2 depend on the employee’s health insurer.
• The U3 levy is a fixed percentage—0.15% as of 2025—and changes annually.

Mini or midi jobs, trainees and volunteers

For some types of employment, there are special rules when it comes to the employer’s non-wage labour costs.

Mini jobs

Employees in marginal employment—or Mini-Job—also incur ancillary wage costs. There are the separate contribution rates for Mini-Jobbers:

Mini-Job on-wage labour costs	Employer contribution rates.
Unemployment insurance	Not applicable
Health insurance	13%
Long-term care insurance	Not applicable
Pension insurance	15% (exempt from compulsory pension insurance – also applies if the employee waives pension insurance contributions) 3.6% (compulsory insurance)
Accident insurance	Accident insurance depends on the responsible employers’ liability insurance association
U1	1%
U2	0.39%
Insolvency benefit levy	0.12%
Tax	2% flat-rate tax

Midi jobs

Special conditions also apply to employees with midi jobs or in the so-called Übergangsbereich—literally the middle ground between a mini job and a regular employment subject to full social security contributions. Midi job are defined by their monthly salary between €556.01 and €2,000. The employer’s contribution for midi jobbers is half the regular amount.

Trainees and federal volunteers

The employer pays the entire social security contribution for trainees with a monthly salary of up to €325. The same rule applies for volunteers.

 

Variable & voluntary non-wage labour costs

In addition to the statutory non-wage labour costs, each company is free to provide voluntary benefits to its employees. This can be in the form of bonuses, benefits in kind or rebates.

Individual social benefits

Employers can subsidise or fully pay for their employees’ social benefits. The level of subsidy is a matter for the employer to decide.

Individual benefits include:

• Sick pay subsidy
• Dental prosthesis
• Company pension and healthcare
• Allowance for medical services, spa treatment, rehabilitation measures
• Allowances for childcare costs
• Death benefit for the employee’s surviving dependants

 

Allowances

Allowances, special payments, bonuses or gratuities are voluntary. When it has no connection with performance or targets, it can be included in employment contracts as an entitlement for every employee. Employers cannot exclude individual employees or groups of employees from receiving them. If they do, they run the risk of violating equal treatment laws. Please always keep this in mind whenever you hire new staff.

• Holiday allowance
• 13th-monthly salary for the year
• Performance bonuses
• Bonus for company anniversary
• Other special payments

 

Monetary benefits

Monetary benefits are voluntary remuneration in the form of non-cash benefits that are individually agreed upon with the individual employee. These include, for example:

• Relocation expenses
• Allowance for initial equipment
• Employee discounts
• Work clothes
• Company car
• Company mobile phone
• Preventive health training
• Catering costs
• Fuel vouchers
• Training and further education costs
• Travel expenses
• Rent incl. electricity and water costs
• Cleaning costs

 

What is the purpose of non-wage labour costs?

Compulsory non-wage labour costs provide social security your employees. Secondly, the entire German social security system is financed by non-wage labour costs and thus serves society as a whole. Voluntary non-wage labour costs are primarily for employee development, reward or relief. Benefits can also make you more attractive as an employer.