Contents
- Components of non-wage labour costs
- Non-wage labour costs for employers
- How do statutory non-wage labour costs work?
- Special non-wage labour costs
- Variable & voluntary non-wage labour costs
- Example non-wage labour cost calculations
- What is the purpose of these costs?
- Would you like to know more?
What are the components of non-wage labour costs in Germany?
They consist of social security contributions, levies and various 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 are below average*.
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)
- Apportionments/allocations/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)
- Allowances/grants/subsidies (Zuschüsse)
- Voluntary social benefits (Freiwillige Sozialleistungen)
Non-wage labour costs for employers
Statutory social contributions are redefined by the legislature every year. That being said, this is how the non-wage costs for employers have been pretty stable since 2018 as you can see below:
| Non-wage labour costs | 2019 | 2020 | 2021 |
| Krankenversicherung
(Health insurance) |
7.3% | ||
| Pflegeversicherung
(Long-term care insurance) |
Sachsen = 1.025% All other federal states = 1.525%
|
||
| Rentenversicherung (Pension insurance) |
General population = 9.30%
Miners = 15,40 % |
||
| Arbeitslosenversicherung
(Unemployment insurance) |
1.25% | 1.2% | |
| Unfallversicherung
(Unemployment insurance) |
Accident insurance varies and depends on the individual Berufsgenossenschaft. | ||
| Umlage U1
(U1 levy) |
Varies according to the health insurance fund. | ||
| Umlage U2 (U2 levy) |
Varies according to the health insurance fund | ||
| Insolvenzgeldumlage (Insolvency benefit levy) | 0.06% | ||
How do statutory non-wage labour costs work?
The employer must pay contributions to the gesetzliche Sozialversicherung (statutory social insurance scheme) for each employee. Social security contributions and other levies account for an average of 21% of gross wages. In addition to the employer’s contribution, the employee must also pay social security contributions. The employer pays half of the contributions due for almost all contributions. The exception is the Unfallversicherung (accident insurance) contribution, 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. The employee’s social security contributions are deducted directly from the gross wage and transferred to the insurance institutions, i.e. there is no advance payment to the employee. For employees, all deductions are itemised in the monthly wage or salary statement. All employers are obliged to provide this payslip to all employees each month.
Contribution assessment limits for social security amounts
Contribution assessment ceilings or – Beitragsbemessungsgrenzen in German – determine the amount of income that gets levied is subject to social security contributions. In other words, any income above this threshold doesn’t come into play when calculating social security calculations.
The legislature has set two thresholds: one for statutory health and long-term care insurance and another for statutory pension and unemployment insurance. Moreover, due to historical economic differences, the old and new federal states have different income limits for calculating contributions.
Contribution assessment thresholds 2021
- Statutory health and long-term care insurance: €58,050 per year
- Statutory pension and unemployment insurance:
- €85,200 per year (old federal states)
- €80,400 per year (new federal states)
The applicable contribution assessment limits are redefined every year.
Social security contributions
Social security contributions include contributions to health insurance, long-term care insurance, pension insurance and unemployment insurance.
Krankenversicherung (health insurance)
In general, every employee is covered by a statutory health insurance scheme. Employers pay half of the contribution, the other half is paid by the employee. However, it is possible to take out private health insurance above a certain income limit. If one of your employees is privately insured, you pay a tax-free subsidy. This allowance may not be higher than the employer’s contribution you pay for a person covered by the statutory scheme. The amount is set differently for each private health insurance company.
Pflegeversicherung (long-term care insurance)
The employer usually pays half of the total contribution of the long-term care insurance. Childless adults over 23 years have to pay more than employees with children. All employees in the military or civilian services are exempt from this surcharge.
Rentenversicherung (pension insurance)
Pension insurance contributions finance, among other things, old-age pensions and rehabilitation benefits. Here, too, employers pay half of the contribution.
Arbeitslosenversicherung (unemployment insurance)
Unemployment insurance is in principle compulsory for all employees. However, there are some exceptions:
- Students
- Mini-jobbers
- Military personnel
- Civil servants
- Pensioners (the employer’s contribution portion still has to be paid)
Unfallversicherung (accident insurance)
Contributions to accident insurance cover an employee in the event of an accident at work or occupational disease. As a rule, Berufsgenossenschaften (employers’ liability insurance associations) cover accident insurance. The employer must pay the membership fee, which is changed annually as a lump sum. The contribution is calculated annually retrospectively and depends on:
- Gross pay of the employee
- Risk of accidents in companies in your sector
- The amount spent by the employers’ liability insurance association
Umlagen (levies)
The U1 and U2 Umlagen (levies) and the Insolvenzgeldumlage (insolvency benefit levy, colloquially known as the “U3” levy in German) are financed entirely by the employer. The respective employee’s health insurance fund is responsible for the apportionments.
While the U2 levy is obligatory for all employers, the U1 levy is only relevant for companies with up to 30 employees. Severely disabled persons are not part of the count and part-time employees are only counted pro-rata. The insolvency benefit levy is compulsory for all employers except öffentlich-rechtliche Unternehmen (companies that are wholly or partly owned by a government authority).
The contribution rates for U1 and U2 vary according to the health insurance fund. Only the contribution rate for the insolvency levy is fixed at a flat rate of 0.06%. This rate is adjusted every year.
Special non-wage labour costs
For some types of employment, special rules apply to the employer’s non-wage labour costs.
Ancillary costs for mini-jobs 2021
Employees in marginal employment – that is, those with “mini-jobs” – also incur ancillary wage costs. However, separate contribution rates apply to mini-jobbers:
| Mini-job on-wage labour costs | Employer contribution rates. |
| Arbeitslosenversicherung | Not applicable |
| Krankenversicherung | 13% |
| Pflegeversicherung | Not applicable |
| Rentenversicherung |
|
| Unfallversicherung | Accident insurance depends on the responsible employers’ liability insurance association |
| U1 | 1% |
| U2 | 0.39% |
| Insolvenzgeldumlage (U3) | 0.12% |
| Taxation | 2% Flat-rate tax |
Midijobs
Special conditions also apply to employees in the so-called transitional zone (formerly known as the ‘Gleitzone’) (between €450.01 and €1,300 per month). The employer’s contribution for midijobbers is half of what it would be without the reduction for the Gleitzone. In other words, as an employer, you pay more than half of the actual contribution.
Trainees and federal volunteers
The employer pays the entire social security contribution for trainees with a monthly salary of up to €325. For volunteers (§ 20 paragraph 3 SGB IV) the same rule applies.
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 the Sozialleistungen (social benefits) that their employees receive. 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
Zulagen (allowances)
Allowances, special payments, bonuses or gratuities are voluntary. When it has no connection with performance or targets, it can be included in company 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 the AGG (general equal treatment law).
- 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
Example non-wage labour cost calculations
The following example serves as a better illustration. Luise Becker is 25 years old, childless and employed by so-and-so AG in Dortmund. Her gross monthly salary is €2,500. She is legally insured with the XY Krankenkasse (health insurance fund), whose apportionment rates are 1.9% for apportionment 1 and 0.49% for apportionment 2.
| Non-wage costs
Gross salary: €2,500 |
Employer’s contribution |
| Krankenversicherung | €182.50 |
| Pflegeversicherung | €38.13 |
| Rentenversicherung | €232.50 |
| Arbeitslosenversicherung | €30.00 |
| U1 (1.9%) | €47.50 |
| U2 (0.49%) | €12.25 |
| Insolvenzgeldumlage (U3) | €1.50 |
| Total | €544.38 |
Thus the monthly wage costs total €3,044.38, of which €544.38 are non-wage labour costs (17.88%). In addition, accident insurance contributions are due once a year.
Calculation of the employer’s gross salary
The gross salary of the employee and the ancillary wage costs make up the so-called “Arbeitgeberbrutto” (employer’s gross). To determine the personnel costs correctly, you must calculate the employer gross amount for each of your employees individually.
What is the purpose of non-wage labour costs?
Compulsory non-wage labour costs provide social security for every employee. In other words, the basic social security of our society is financed by non-wage labour costs.
Voluntary non-wage labour costs are primarily for employee development, reward or relief. Benefits can also make you more attractive as an employer.
*Source: EU-Vergleich der Arbeitskosten 2015, Statistisches Bundesamt, Pressemitteilung Nr. 143, 26.04.2016
Want to know more?
Payroll (Lohnabrechnung & Gehaltsabrechnung)
Get to know all about wage tax in Germany
All the payslip abbreviations explained in plain English
How to read a German payslip
Earnings statements & payslips in Germany
