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Payroll taxes: how does the system work?
Written by Ilias3 min read
As soon as you have staff, you'll deal with payroll taxes. That's a collective name for various taxes and contributions you withhold from your employee's salary. For many starting employers it's an opaque whole. This article explains the system.
What are payroll taxes?
Payroll taxes are the total of taxes and contributions you as an employer withhold from your employee's gross salary and remit to the tax authorities. The difference between the gross salary and the payroll taxes is the net salary your employee receives.
What do payroll taxes consist of?
Payroll taxes consist of four parts: the wage tax, the national insurance contributions (such as state pension), the employee insurance contributions (such as unemployment insurance) and the income-dependent contribution for the Health Insurance Act. Together they form the amount you withhold and remit.
How do you file a payroll return?
As an employer you periodically, usually monthly or every four weeks, file a payroll return with the tax authorities. In it you report the salary and the withheld payroll taxes of all your employees. You then remit the amount you withheld.
Why do many entrepreneurs outsource this?
The calculation of payroll taxes is complex and the rules change annually. A mistake can lead to additional assessments and penalties. That's why many entrepreneurs outsource the payroll administration to a bookkeeper or specialised processor, who ensures everything is done correctly and on time.
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
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