In Germany, payroll accounting is more complex than in almost any other country in the world. This is shown by the Global Payroll Complexity Index Report 2023. Of the 40 countries examined, Germany has the second most complex payroll system in the world. Only France performs worse.
High susceptibility to errors
The high level of complexity means that payroll managers are slowed down in their work: they lack resources for strategic HR tasks, they risk a negative employee experience for their employees or even conflicts with them. This is indicated by a survey by the HR software company Personio among around 500 HR and payroll managers in Germany. According to this, nine out of ten companies regularly receive complaints from their employees about payroll.
The payroll services company ADP also found out in a survey of more than 1,700 decision-makers in companies with more than 1,000 employees that there is a global problem with the accuracy of payroll accounting. Only 78 percent of the invoices are correct. Payroll requires at least two payment cycles to correct errors.
Errors arise, among other things, because there are too many manual tasks involved in payroll accounting. At least that’s what a third of those surveyed by Personio said (34 percent). This in turn affects employee satisfaction. Almost a quarter (24 percent) say that their company cannot keep up with the regular changes in legal rules and regulations. This is also confirmed by ADP’s Country General Manager Germany, Thomas Zimmermann: “A key challenge lies in the constantly changing and complex legal landscape. We must remain continuously trained and work closely with our legal and compliance departments to stay up to date.”
Globalization brings with it additional complexity as companies have to deal with different international regulations. “Processing global payroll requires a deep understanding of country-specific regulations and best practices. To achieve this, it is important to have expert knowledge in each country or rely on external partners who are familiar with local laws and regulations,” says Zimmermann.
Reclaims are possible
According to the survey, incorrect payslips have already led to lawsuits and other legal consequences for 14 percent of companies. Attorney Kathrin Klein from the law firm Steinbock & Partner explains: “As a rule, the employer is liable for incorrect pay slips and the damage that the employee suffers as a result. The employer is responsible for the correct calculation and payment of wages as well as the proper payment of taxes and social security contributions.”
Despite all of this, there is good news for HR managers: accidentally incorrect payslips are not punishable. However, errors should be corrected as soon as they are noticed. If a company has paid an employee too little salary, it should transfer the difference as quickly as possible and correct the payroll accordingly. This is considered a document and must be correct.
In the event of an overpayment, a company can generally demand back the overpaid wages from the employee, as the law firm Steinbock & Partner explains. But you have to take a few things into account. The reason for the overpayment is irrelevant – for example an error by the employer or deception by the employee, for example because the employee stated incorrect working hours.
Observe statute of limitations
It is important for the employer to observe the statutory limitation period of three years when making a claim. After that, the so-called defense of statute of limitations applies and the employer can no longer enforce the claim for repayment. The limitation period runs from the end of the year in which the employer paid excessive wages and noticed this. For example, if a company paid an employee too much wages in April 2024 and he noticed this in the same year, his claim for repayment expires at the end of 2027. The statutory limitation period applies unless other periods of time are agreed in company agreements or employment and collective agreements within which an employer can reclaim wages that have been paid in excess.
Attorney Klein explains: “In labor law, it is not uncommon for shorter exclusion periods or expiry periods to be agreed upon in employment contracts. These are periods within which claims against the other party must be asserted so that they do not expire.” In concrete terms, this means: If the employer does not adhere to an effectively agreed exclusion period in the event of an overpayment, the claim for repayment expires.
Forfeiture of the claim
The situation is different if an employer knew that he was paying out too much salary or – when asked about the overpayment – signaled that this was correct or that he did not want to demand repayment. He then forfeits his right to repayment.
If it is not the employer himself who is responsible for paying wages, but rather an external payroll office or the human resources manager, the situation looks different: If this person in charge pays too high a wage and recognizes the error, the employer can demand back the overpaid wages.
As part of their duty of loyalty, employees are obliged to report an error in the payroll to the employer. If they do not do this, the employer can terminate them, possibly without notice. However, he must prove to his employee that he has recognized the error. This is particularly difficult if the monthly salary fluctuates and it is therefore not immediately obvious if there is an error.
Pay attention to subtleties
As a rule, companies can correct wage overpayments in one of the next payslips. There is no legal regulation as to whether employees should receive back the overpaid salary before or after tax deduction. The employer usually demands a refund of the overpaid net amount, not the gross amount, so that the employee does not incur any costs. In this case, the company itself must recover the overpaid social security contributions and taxes from the social security agency and tax office. The employer has no interest claims against the employee.
The situation is tricky when the overpaid amount is high. The employer must not make such severe cuts in the upcoming payroll that the subsistence level is at risk. This means that he must observe the seizure exemption limits.
It is also problematic if an employer demands back wages but the employee has already spent them and had no knowledge of the overpayment. Employees can then rely on Section 818 Paragraph 3 of the German Civil Code (BGB) and do not have to pay back the excess wages they received. However, what matters is what the person spent the money on. If she used the excess wages she received for everyday things such as food that she would have bought anyway, she has to pay the money back. However, if she used the overpayment for a luxury item such as a trip that she would not have taken without the overpayment, she does not have to pay anything back.
AI can help avoid errors
Since, according to the Personio study, the majority of HR managers in Germany assume that payrolls will become even more complex in the future as a result of legal changes, digitalization and the growing need for flexible salary components, many companies are planning to digitalize their processes (34 percent), according to the study mentioned above. Almost one in four HR departments (23 percent) say that payroll accounting should be better integrated into HR and other business processes.
For 22 percent, creating a database for meaningful analyzes and reporting is on the agenda. The use of artificial intelligence (AI) is increasingly being planned for this purpose: Two thirds (67 percent) of those surveyed have not yet used AI for payroll accounting, but 23 percent plan to do so in the future.
From Zimmermann’s point of view, modern technologies can significantly relieve the burden on HR departments. “Automation automates repetitive tasks like data entry and processing in payroll, allowing workers to focus their time on more strategic tasks.” In addition, AI uses machine learning to recognize patterns in large amounts of data and supports error detection and forecasting. Overall, this reduces the burden on HR teams and improves the employee experience. “It should be emphasized, however, that AI does not replace human expertise, but rather supports it,” notes Zimmermann.
Info
What can you do if you have paid too much wages?
Further legal background information on how you can react to incorrect payslips can be found on the Steinbock & Partner law firm website.
FAQ
Can an employer reclaim overpaid wages?
Yes, basically yes. The rules of unjust enrichment as well as employment contract or collective agreement deadlines are decisive.
How long can an employer claim back an overpayment?
Regularly three years according to Sections 195, 199 Para. 1 BGB.
Does an employee have to report an obvious overpayment?
Consciously concealing an obvious overpayment can be problematic under labor law. Whether this results in termination depends on the individual case.
Can the employer simply reduce the salary?
Only limited. The seizure exemption limits and thus the subsistence minimum must be observed.
Does money already spent always have to be paid back?
Not always. Whether employees can rely on the loss of enrichment depends on the individual case.
Kirstin Grundel deals with the topics of compensation & benefits, remuneration and company pension schemes. She also works as an editor for the magazine “Comp & Ben”. She is the editorial contact for the Total Rewards practice forum.
