How do I calculate an employee's net salary?
December 2, 2022 | 30,00 EUR | answered by Günther Tiefental
Dear tax consultant,
as the managing director of a medium-sized company, I am faced with the challenge of calculating my employees' net wages correctly. I have always hired an external accounting firm to handle payroll for me, but due to the current economic situation, I would like to cut costs and take over payroll internally.
I have already recorded the gross salaries of my employees and deducted the social security contributions, but I am unsure of how to calculate the net wages correctly. There are so many different deductions such as taxes, social security contributions, and possibly also company savings plans that I have lost track.
My concern is that I may make errors in calculating net wages which could lead to problems with my employees or even with the tax authorities. I want to ensure that my employees are paid correctly and that all legal requirements are met.
Could you please explain in detail how to correctly calculate an employee's net wages? Are there specific formulas or programs that can help me with this? What factors do I need to consider and which deductions are mandatory? I would greatly appreciate your assistance so that I can carry out my payroll accurately.
Thank you in advance for your help.
Sincerely,
Jan Falk
Dear Mr. Falk,
Thank you for your inquiry regarding the net wage calculation of your employees. As the managing director of a medium-sized company, it is important to carry out the payroll accurately to avoid problems with your employees and the tax office.
The net wage calculation of an employee consists of various factors. Firstly, the social security contributions are deducted from the employee's gross salary. These include contributions to health, long-term care, pension, and unemployment insurance. The exact percentages may vary depending on the income level and are legally determined.
In addition, taxes must also be deducted from the gross salary. In particular, the income tax must be considered. The amount of income tax depends on the individual tax rate of the employee, which is determined, among other things, by marital status, tax class, and tax-free allowances. You can use various online calculators to calculate the income tax and determine the correct amount.
Furthermore, if agreed upon in the employment contract, company savings schemes can also be deducted from the gross salary. These benefits aim to promote the employees' wealth accumulation and are tax and social security free up to certain limits.
To carry out the net wage calculation accurately, I recommend familiarizing yourself with the legal regulations and, if necessary, seeking assistance from a tax advisor or payroll accounting software. These programs can help you accurately calculate the deductions and correctly show the net wages of your employees.
It is important to carefully carry out the payroll and comply with all legal requirements to avoid potential conflicts. If you are still unsure, I am happy to assist you with the net wage calculation.
I hope this information helps you and wish you success with the internal payroll.
Best regards,
Günther Tiefental
