For companies looking to grow their global footprint and expand their business to new markets, the DACH region of Europe is a great place to start. Comprised of Germany (Deutschland), Austria and Switzerland (Confoederatio Helvetica), the DACH region is home to some of the strongest and most stable economies of the Europe and the world in general.
They also offer multi-national organisations access to highly qualified, well-educated workforces with the skills to help grow the business. Factor in the DACH countries’ close proximity and cultural ties with the growing markets of Eastern Europe, and welcoming business climate, and these three countries appear to be an optimal place to achieve international growth.
But expanding to the DACH region is not without its share of challenges. As the majority populations in these countries speak German, the company might have to overcome language barriers and cultural nuances in the workplace. In addition, the process of compensating employees in the region can be particularly challenging.
As each country has its own set of complex labour codes, taxation policies, social security schemes and employee payment rules, employers must ensure they understand these requirements and their responsibilities around compensating employees in Germany, Austria or Switzerland.
Understanding payroll in Germany
One of the most important factors of payroll in Germany is that the country has a strong union presence, with all employees having the option to join a union, work council or collective labour agreement. It is these bodies, rather than employers themselves, that determine factors like minimum wage rates and amount of working hours.
In addition to the regulations set up by unions, employers must also abide by Germany’s Civil Code and Industrial Code, which govern the payment of salaries and wages. Once payroll for the current pay period is approved, all employee payments must be transferred electronically through the country’s File Transfer and Access Management (FTAM) protocol.
Another challenging area when compensating employees in Germany is taxation and social security contributions. The employer is responsible for withholding income taxes from their employees’ paychecks, with the actual tax rate determined by individual circumstances.
As for social insurance, participation is mandatory for all employees, with contributions for pension insurance, unemployment insurance, nursing care and health insurance made by both the employer and employee. All contributions must be paid to the proper authorities by the third-to-last working day of each month.
Understanding Payroll in Austria
Austria’s employment regulations are governed by the country’s Chamber of Labor. Similar to Germany, Austria’s minimum wage laws are established by collective bargaining agreements at the industry level; the standard minimum wage in Austria is now set at 1,000 euros per month.
Employers are required to pay their employees at least once per month and employees receive mostly 14 payments per year. Also important to note is that employers in Austria must grant their full-time employees five weeks of paid vacation, and during all causes of absence, they have to be paid an average of variable payments as if the employee would have worked during this time.
Income tax collection in Austria is managed by the Ministry of Finance, and employers are responsible for deducting taxes from employees' pay packets and remitted to the local tax office monthly. The amount of taxes withheld based on a progressive scale that ranges from 36.5 percent and 50 percent, depending on their income level.
Employees with a lower income level, tax basis of only EUR 11,000 per year, do not have to pay income tax. For some special payments, like bonuses or holiday bonus, there is the possibility that only six percent tax has to be paid.
In addition, employers must make and withhold social contributions for health, pension and accident insurance providers, with the amount of contributions varying by type of employment, age of employee and amount of an employee’s salary.
Employees are only fully insured if they earn more than approximately EUR 400 per month; otherwise, there is only to be paid a small contribution to the social insurance system, and the employee is only insured in case of working accidents. Employers have to pay additional on-costs to the Ministry of Finance, to the municipality and to the Chamber of Commerce.
Understanding Payroll in Switzerland
Switzerland’s compensation laws are regulated by the country’s Federal Department of Home Affairs and Federal Department of Economic Affairs, while individual cantons (or states) may have their own regional laws. Employers can compensate their employees as often as they prefer, as long as the payment schedule is in accordance with their respective work contracts and that payslips are provided with each payment.
All employees in Switzerland are subjected to income tax at the federal, cantonal and communal levels. Taxes are levied on a progressive scale, with the actual tax rates determined by location and factors like marital status or number of children. While employers must withhold income taxes for foreign workers, Swiss citizens must pay their income taxes themselves when filing their annual returns.
Conclusion
Payroll is a complex function in any country, and multinational organisations expanding to the countries of the DACH region will encounter a number of challenges, ranging from understanding their responsibilities as employers to complying with the numerous legislative bodies. But given the region's economic strength, such efforts will well be worth it.
By CloudPay
For companies looking to grow their global footprint and expand their business to new markets, the DACH region of Europe is a great place to start. Comprised of Germany (Deutschland), Austria and Switzerland (Confoederatio Helvetica), the DACH region is home to some of the strongest and most stable economies of the Europe and the world in general.
They also offer multi-national organisations access to highly qualified, well-educated workforces with the skills to help grow the business. Factor in the DACH countries’ close proximity and cultural ties with the growing markets of Eastern Europe, and welcoming business climate, and these three countries appear to be an optimal place to achieve international growth.
But expanding to the DACH region is not without its share of challenges. As the majority populations in these countries speak German, the company might have to overcome language barriers and cultural nuances in the workplace. In addition, the process of compensating employees in the region can be particularly challenging.
As each country has its own set of complex labour codes, taxation policies, social security schemes and employee payment rules, employers must ensure they understand these requirements and their responsibilities around compensating employees in Germany, Austria or Switzerland.
Understanding payroll in Germany
One of the most important factors of payroll in Germany is that the country has a strong union presence, with all employees having the option to join a union, work council or collective labour agreement. It is these bodies, rather than employers themselves, that determine factors like minimum wage rates and amount of working hours.
In addition to the regulations set up by unions, employers must also abide by Germany’s Civil Code and Industrial Code, which govern the payment of salaries and wages. Once payroll for the current pay period is approved, all employee payments must be transferred electronically through the country’s File Transfer and Access Management (FTAM) protocol.
Another challenging area when compensating employees in Germany is taxation and social security contributions. The employer is responsible for withholding income taxes from their employees’ paychecks, with the actual tax rate determined by individual circumstances.
As for social insurance, participation is mandatory for all employees, with contributions for pension insurance, unemployment insurance, nursing care and health insurance made by both the employer and employee. All contributions must be paid to the proper authorities by the third-to-last working day of each month.
Understanding Payroll in Austria
Austria’s employment regulations are governed by the country’s Chamber of Labor. Similar to Germany, Austria’s minimum wage laws are established by collective bargaining agreements at the industry level; the standard minimum wage in Austria is now set at 1,000 euros per month.
Employers are required to pay their employees at least once per month and employees receive mostly 14 payments per year. Also important to note is that employers in Austria must grant their full-time employees five weeks of paid vacation, and during all causes of absence, they have to be paid an average of variable payments as if the employee would have worked during this time.
Income tax collection in Austria is managed by the Ministry of Finance, and employers are responsible for deducting taxes from employees' pay packets and remitted to the local tax office monthly. The amount of taxes withheld based on a progressive scale that ranges from 36.5 percent and 50 percent, depending on their income level.
Employees with a lower income level, tax basis of only EUR 11,000 per year, do not have to pay income tax. For some special payments, like bonuses or holiday bonus, there is the possibility that only six percent tax has to be paid.
In addition, employers must make and withhold social contributions for health, pension and accident insurance providers, with the amount of contributions varying by type of employment, age of employee and amount of an employee’s salary.
Employees are only fully insured if they earn more than approximately EUR 400 per month; otherwise, there is only to be paid a small contribution to the social insurance system, and the employee is only insured in case of working accidents. Employers have to pay additional on-costs to the Ministry of Finance, to the municipality and to the Chamber of Commerce.
Understanding Payroll in Switzerland
Switzerland’s compensation laws are regulated by the country’s Federal Department of Home Affairs and Federal Department of Economic Affairs, while individual cantons (or states) may have their own regional laws. Employers can compensate their employees as often as they prefer, as long as the payment schedule is in accordance with their respective work contracts and that payslips are provided with each payment.
All employees in Switzerland are subjected to income tax at the federal, cantonal and communal levels. Taxes are levied on a progressive scale, with the actual tax rates determined by location and factors like marital status or number of children. While employers must withhold income taxes for foreign workers, Swiss citizens must pay their income taxes themselves when filing their annual returns.
Conclusion
Payroll is a complex function in any country, and multinational organisations expanding to the countries of the DACH region will encounter a number of challenges, ranging from understanding their responsibilities as employers to complying with the numerous legislative bodies. But given the region's economic strength, such efforts will well be worth it.
By CloudPay
