The German Social Security System

In contrast to some other industrialized countries, the core social security in Germany is financed collectively by means of a process of redistribution. The current costs (for pensioners, sick people or those in need of nursing care, and unemployed people) are paid directly from contributions by employees and employers.

Social security contributions are made up of:

• Health insurance
• Nursing care insurance
• Pension insurance
• Unemployment insurance
• Accident insurance

Generally speaking, social security contributions are roughly shared equally by employer and employee. Only the costs for accident insurance are exclusively borne by the employer.

All employees can choose their own health insurance provider. A common fund exists for all other social security components.

Employees earning a gross wage of less than EUR 4,050 (2009) per month are compulsorily insured by one of the public health insurance providers (Gesetzliche Krankenversicherung, GKV).

Employees whose earnings are above this income threshold can choose from both public and private insurance companies (Private Krankenversicherung, PKV). Employee and employer also share the premiums for private health insurance plans.

The basic flat health insurance contribution rate amounts to 14% of the employee’s gross income. In addition to the basic flat contribution rates shared equally between employer and employee, an additional 0.9% are paid by the employee only.

Employees in Germany receive a net wage or salary from which tax and social security contributions have already been deducted.

The employer withholds the tax that the employee is required to pay and transfers the money directly to the tax authority (Finanzamt). Therefore, all employees must be registered with the local tax authority. Social security contributions are also withheld by the employer after calculation of the gross wage and transferred to the employee’s health insurance company (which then distributes all of the contributions excluding accident insurance to all relevant parties).

The employer separately has to pay the contributions for the accident insurance to the Employers’ Liability Insurance Association (Berufsgenossenschaften).