Why German companies are bringing payroll in-house

september 25, 2025

This shift is driven by the need for greater control, efficiency and alignment with German labour laws, social security obligations and employee expectations.

The benefits of in-house payroll

More German employers are choosing to manage payroll internally to gain greater control, improve compliance and enhance the employee experience. In-house payroll enables businesses to:

Streamline payroll processing and reduce manual, time-consuming tasks
Ensure compliance with payroll regulations, including income tax, social security contributions, pension insurance, health insurance, accident insurance and unemployment insurance
Improve data security and control over sensitive employee information
Align payroll with HR services, benefits administration and global payroll platforms
Gain visibility into employee benefits, employee’s salary, working hours, public holidays, parental leave, sick leave and entitlements
Build a scalable payroll function that supports global expansion and adapts to specific needs

By investing in internal capability, companies can better manage statutory deductions, ensure accurate salary calculations and maintain full oversight of the payroll cycle – from onboarding to tax return submissions.

How does payroll work in Germany?

German payroll is governed by strict regulations. Employers must calculate and withhold payroll taxes, including income tax, solidarity surcharge and church tax (where relevant).

They must also contribute to the social security system, covering healthcare, pension insurance, accident insurance and unemployment insurance. Payroll must reflect collective bargaining agreements, working hours, minimum wage and terms outlined in the employment contract.

Each payslip must clearly show gross and net salary, tax deductions, social security contributions and any additional benefits. Mistakes in payroll can lead to penalties from the tax office, employee dissatisfaction and reputational damage.

Addressing complexity and compliance

Managing payroll in-house allows German employers to stay on top of evolving payroll regulations and reduce reliance on third-party payroll providers. While payroll outsourcing may seem convenient, it often lacks the flexibility and transparency needed for long-term success.

In-house teams are better equipped to handle local expertise, ensure compliance with German labour laws and manage the nuances of employment contracts, work permits and legal entity structures.

Internal teams can also manage public holidays, workweek variations and onboarding processes more efficiently, ensuring that new hires receive their documents and benefits promptly.

Supporting international growth

As German companies expand internationally, the need for integrated international payroll and global payroll solutions becomes more pressing. In-house payroll teams can coordinate with HR and finance departments to manage cross-border compliance, support global expansion and maintain consistency across jurisdictions.

This includes managing legal employer models, understanding PEO and EOR services, and transitioning away from employer of record arrangements as the business matures. While EOR and PEO models may be used during early-stage market entry, they are not substitutes for a dedicated internal team.

Enhancing employee experience

Accurate and timely payroll is a cornerstone of employee trust. In-house payroll teams can respond quickly to employee queries, issue corrected payslips when needed and ensure that benefits such as health insurance, pension contributions and accident insurance are properly administered.

Employees benefit from clear communication around their salary, tax deductions and entitlements. In-house teams can also support onboarding by ensuring new hires receive their employment contract, tax forms and benefits information promptly. This reduces friction and enhances the employer brand.

Leveraging data for strategic decision-making

Payroll data is a valuable source of insight for HR and finance leaders. In-house teams can generate real-time reports on payroll costs, tax liabilities and workforce trends.

This supports strategic planning, budgeting and compliance monitoring. It also enables companies to evaluate the impact of collective bargaining agreements, track changes in tax rate and assess the cost of employee benefits.

By integrating payroll data with HRIS and finance systems, businesses can streamline reporting, reduce manual data entry and improve data accuracy. This integration also supports audit readiness and simplifies the preparation of tax returns and statutory filings.

Why Frazer Jones is your partner for payroll transformation

We understand that building an in-house payroll function requires more than just hiring a Payroll Manager. It requires a strategic approach to recruitment, workforce planning and system optimisation. We help German employers find professionals with the right mix of technical skills, local expertise and global payroll experience.

Whether you need a Payroll Analyst to support salary calculations, a Head of Payroll to lead transformation or a team to manage full-time payroll operations, we can help. Our recruitment services are tailored to your specific needs, from sourcing candidates to advising on team structure and onboarding.

We also support companies preparing for global expansion by helping them build scalable payroll teams that can manage international payroll requirements, coordinate with the tax office and ensure compliance across multiple jurisdictions. Our goal is to help you reduce hassle, improve accuracy and create a payroll function that supports your long-term growth.

Bringing payroll in-house is a smart move for German companies that want to improve efficiency, ensure compliance and enhance the employee experience. With the right people, systems and support, your payroll function can become a strategic driver of business success.

Frazer Jones is here to help you build that capability. Get in touch with us today to discuss your hiring needs.