The ultimate guide to processing payroll in the DACH region

As a key economic hub in Europe, the DACH region—Germany, Austria, and Switzerland—offers significant opportunities for multinational companies, which is why many organizations are eager to establish a presence in the region.

However, expanding into the DACH market not only offers growth opportunities, but also poses challenges for multinationals, such as navigating the complexities of hiring employees and processing payroll locally.

Processing payroll in the DACH region can be challenging due to intricate regulatory requirements, varying tax laws, and cultural nuances unique to each country. This guide provides essential insights and steps to help businesses confidently and compliantly manage payroll across the DACH market.

The DACH market—comprising Germany, Austria, and Switzerland—plays a pivotal role in Europe’s economy. Germany, as the largest European economy, is a leader in manufacturing and technology. Switzerland is renowned for its financial services, pharmaceutical industry, and stable economy. Austria meanwhile serves as the connecting link between Western and Eastern Europe, with strengths in engineering, tourism, and environmental technology.

Together, these three countries represent an economically stable region that is characterized by high purchasing power, making them highly attractive and strategically important for multinational businesses that seek to establish a presence in Europe.

However, employing and paying employees in the region can be complex. In fact, the 2023 edition of the Global Payroll Complexity Index (GPCI) ranks two of the three DACH countries among the Top 10 most complex payroll countries in the world.

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According to the findings of the 2023 GPCI ranking, Germany is the second and Switzerland the third most complex country in the world for processing payroll, while Austria takes position 22 in the ranking. There are several different reasons why managing payroll in the DACH region is quite complex, including:

• Diverse social security requirements,

• Strong influence of trade unions and collective bargaining agreements, 

• Complex tax systems,

• Regional variations in legislation,

• Multi-currency management, 

• GDPR compliance, and

• Different language requirements.

Let’s take a look at the key regulations surrounding payroll and salary payments in Germany, Austria, and Switzerland.

Regulations for processing payroll in Germany

Payroll in Germany is highly regulated. Here is an overview of the most important regulations and legal requirements surrounding payroll processing in Germany.

• Statutory minimum wage: The statutory minimum wage is EUR 12.41 per hour. It became valid in July 2024.

• Leave entitlement: Employees in full-time positions are entitled to a minimum of four weeks (i.e. 20 workdays) of paid leave per calendar year.

• Payroll frequency: Payroll in Germany is typically processed on a monthly basis.

• Salary payments: Wages and salaries should be paid no later than the 15th of the following month.

• Payroll tax reporting: Payroll taxes must be reported monthly, with payments typically due by the 10th day of the following month. Payroll tax returns must be submitted electronically.

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Regulations for processing payroll in Austria

Payroll in Austria might be considered as less complex than German payroll, but there are still several rules and regulations employers should keep in mind when paying employees in Austria. Here is an overview of the most important legal requirements surrounding payroll processing in Austria.

• Statutory minimum wage: There is no statutory minimum wage that is valid for the whole of Austria. However, minimum remuneration is often determined by collective agreements.

• Leave entitlement: Employees in full-time positions are entitled to a minimum of 30 workdays, which corresponds to 25 weekdays (or five weeks) of paid leave per calendar year.

• Payroll frequency: Payroll in Austria is typically processed on a monthly basis.

• Salary payments: Wages and salaries are typically paid at the end of the month.

• Bonus payments: Employees in Austria often receive a 13th and 14th salary payment which is paid out in summer (vacation pay) and December (Christmas bonus).

• Payroll tax reporting: Payroll taxes must be reported monthly. Payments for withheld income tax and social security contributions must be made no later than the 15th of the following month.

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Regulations for processing payroll in Switzerland

Processing payroll in Switzerland can be quite complex because rules and regulations vary between cantons. Here is an overview of some of the key requirements multinationals should keep in mind when processing payroll for their employees in Switzerland.

• Statutory minimum wage: Switzerland does not have a national minimum wage, but some cantons (e.g. Geneva and Jura) have implemented their own minimum wage requirements.

• Leave entitlement: Employees in Switzerland are entitled to at least 4 weeks of paid leave per year, with young employees under 20 receiving 5 weeks.

• Payroll frequency: Payroll is typically processed monthly in Switzerland.

• Salary payments: Salary payments are usually made at the end of each month via bank transfer.

• Bonus payments: Bonuses are common, but not mandatory, and may be based on company performance or employment contracts.

• Payroll tax reporting: Employers are not required to deduct and report income tax for local employees on a monthly basis. Instead, income tax is assessed via a yearly tax return.

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One of the major hurdles for multinationals that process payroll for employees in the DACH region is the calculation of payroll taxes. Germany, Austria, and Switzerland all have their individual social security system which encompasses a multitude of different statutory bodies and authorities, contributions, and other levies.

Let’s look at the structure of the social security systems and the most important payroll taxes employers need to calculate and deduct from their employees’ salaries.

Social security contributions and payroll taxes in Germany

In Germany, income tax is progressive, ranging from 14% to 45%, with an additional solidarity surcharge of 5.5% on the income tax for higher earners.

Social security contributions are mandatory for both employers and employees, covering health insurance, pension, unemployment, and long-term care insurance. Currently, rates for these contributions are split roughly equally between employer and employee, with a combined contribution rate of around 40% of gross income.

Here is a quick overview of the current contribution rates (split between employees and employers):

• Pension insurance: 18.6%, with 9.3% borne by employee and employer respectively

• Unemployment insurance: 2.4%, with 1.2% borne by employee and employer respectively

• Health insurance: 14.6%, with 7.3% borne by employee and employer respectively

• Long-term care insurance: 3.05% (3.4% for childless individuals, beginning with age 23), with 1.525% borne by employee and employer respectively (1.875% for childless individuals, beginning with age 23)

• Insolvency contribution: only payable by the employer at rates equal to 0.09%

• Work accident scheme: rates depending on the industrial sector and the accident risk; contributions borne solely by the employer

Social security contributions and payroll taxes in Austria

In Austria, income tax rates are progressive, ranging from 20% to 55% based on fixed income brackets. Unlike in Germany, there is no additional solidarity surcharge in Austria.

Social security contributions are mandatory and cover health insurance, pensions, unemployment, and accident insurance (plus several minor contributions). Both employees and employers contribute, with the employee paying around 18% of gross salary and the employer contributing around 21%, although these percentages can vary.

Here is a quick overview of the current contribution rates (split between employees and employers):

• Pension insurance: 22.8%, with 12.55% borne by the employer and 10.25% borne by the employee

• Health insurance: 7.65%, with 3.78% borne by the employer and 3.87% borne by the employee

• Unemployment insurance: 5.9%, with 2.95% borne by employee and employer respectively

• Accident insurance: 1.1% borne solely by the employer

• Miscellaneous contributions of 1.6%, with 1% borne by the employee and 0.6% borne by the employer

Social security contributions and payroll taxes in Switzerland

In Switzerland, tax rates vary significantly by canton and municipality, since income taxes are levied at the federal, cantonal, and municipal level. However, as income tax is not deducted at source by the employer (except for foreign employees temporarily living and working in Switzerland), employers don’t have to be familiar with the different tax rates. Their only obligation is to issue salary certificates to all employees that were employed at their organization during the previous calendar year.

Social security contributions are mandatory and cover old age, survivors’, and disability insurance as well as unemployment benefits, with contributions split equally between employers and employees at a rate of 6.4%. Employers further have to make contributions to the Family Compensation Fund at a rate of between 1% and 3%. Additional deductions cover health insurance and accident insurance.

Multinationals have two different options for processing payroll for their employees in the DACH markets. They can either outsource their payroll processes to an in-country partner (ICP) or process payroll in-house. When deciding between these two options, they need to carefully weigh the pros and cons.

The main advantages of payroll outsourcing are:

• Access to local expertise,

• Enhanced payroll compliance,

• Scalability,

• Fewer payroll errors,

• Enhanced payroll security, and

• Time savings.

However, there are also some disadvantages that might make the in-house model the preferable option, such as:

• Possible integration issues with existing payroll systems,

• Dependency on ICPs, and

• Possibly higher cost of payroll outsourcing.

When evaluating whether to process payroll for employees in Germany, Austria, and Switzerland in-house or outsource it to local payroll providers, organizations should also consider the following aspects:

• Company size: For larger corporations with robust HR departments, in-house processing might be the better option.

• Choice of payroll providers: Choosing the right payroll provider is always a challenge, but when choosing ICPs in the DACH region, businesses should be even more vigilant to make sure they find a reliable service partner who is up to date with legislative changes.

Managing payroll in the DACH region requires an in-depth understanding of each country’s unique tax laws, social security requirements, and compliance regulations. For multinational organizations, staying updated on regional differences is essential to ensure accurate, compliant payroll operations.

Partnering with local payroll providers can help businesses navigate language, cultural, and regulatory nuances and efficiently support their workforce in one of Europe’s economically most influential regions. However, businesses should do their due diligence when selecting their ICPs for their employee populations in Germany, Austria, and Switzerland.

Lano’s global payroll solution allows you to effortlessly manage and pay global teams through a network of vetted payroll partners across 170+ countries, including the DACH region. Get access to real local experts who know the regional complexities of payroll processing like the back of their hand. Book a demo with one of our payroll experts to learn more.