Employer Costs: What an Employee Really Costs
Calculate employer costs 2026: ancillary wage costs, social insurance contributions, levies U1/U2/U3 and a complete worked example for a €3,000 gross salary.
Hiring an employee costs considerably more than the agreed gross salary. Total employer costs typically run 20–25% above gross. This guide explains what makes up these costs and provides a complete worked example for 2026.
Gross Salary vs. Total Cost
The gross salary is the starting point — but not the end. On top of it come:
- Employer's share of social insurance contributions
- Levies (U1, U2, U3)
- Where applicable, trade association (Berufsgenossenschaft) contributions
These ancillary wage costs are a significant expense for employers, yet invisible to employees.
Employer's Share of Social Insurance 2026
For each branch of insurance, employers (AG) and employees (AN) each pay approximately half the contribution rate. Here are the employer shares for 2026:
| Insurance branch | Employer share |
|---|---|
| Health insurance (GKV base rate) | 7.3% |
| GKV supplementary contribution (half) | approx. 0.85% |
| Care insurance | 1.8% |
| Pension insurance | 9.3% |
| Unemployment insurance | 1.3% |
| Total | approx. 20.55% |
Note: In Saxony the employee pays an additional 0.5% of the care insurance contribution, so the employer's share there is correspondingly lower.
Contribution ceilings 2026:
- RV/AV: €8,050/month
- KV/PV: €5,512.50/month
No contributions are levied on the portion of income above these ceilings.
Levies U1, U2 and U3
In addition to social insurance contributions, employers must pay three levies:
Levy U1 — Sick Pay Continuation
The U1 levy funds reimbursement of continued pay costs during sick leave. It applies only to employers with up to 30 employees (§ 1 AAG). The rate varies by health insurer but typically falls between 0.9% and 3.5% of insurable earnings.
In return, the health insurer reimburses 40%–80% of continued pay costs when an employee is sick, depending on the chosen reimbursement rate.
Levy U2 — Maternity Benefits
The U2 levy contributes to covering the costs of maternity pay and employment restrictions during maternity. It applies to all employers regardless of company size. The rate is usually between 0.2% and 0.6%.
Levy U3 — Insolvency Levy
The U3 levy (Insolvenzgeldumlage) funds the insolvency pay distributed by the Federal Employment Agency when an employer becomes insolvent. The rate in 2026 is 0.06%. This levy is mandatory for all employers.
Trade Association (Berufsgenossenschaft)
Employers must insure their employees against workplace accidents and occupational illnesses with the relevant trade association (BG). The full cost is borne by the employer alone.
The contribution amount is highly sector-specific and depends on:
- The risk class of the business
- The total payroll
- Accident incidents within the business
Typical rates range from 0.5% (office work) to 5–8% (construction) of the payroll.
Worked Example: €3,000 Gross — Real Costs
A complete example for an employee on €3,000 gross salary:
- Health insurance employer share (7.3% + 0.85% supplementary): €243.75
- Care insurance employer share (1.8%): €54.00
- Pension insurance employer share (9.3%): €279.00
- Unemployment insurance employer share (1.3%): €39.00
- Levy U1 (approx. 1.5%): €45.00
- Levy U2 (approx. 0.35%): €10.50
- Levy U3 (0.06%): €1.80
Total additional employer costs: approx. €673
Total cost to the employer: approx. €3,673 per month
This equates to a mark-up of approximately 22.4% above the gross salary.
On top of this come costs for equipment, training, holiday pay or bonuses — real total costs in practice are often higher still.
Tips: Reducing Ancillary Wage Costs
As an employer there are ways to reduce ancillary wage costs while still offering attractive benefits to employees:
Company Pension (bAV)
Contributions to a company pension via salary sacrifice are exempt from social insurance contributions up to 4% of the pension insurance contribution ceiling (approximately €322/month in 2026). This reduces contributions for both employee and employer.
Non-Cash Benefits (Sachbezüge)
Benefits in kind such as fuel vouchers or restaurant vouchers up to a monthly tax-free allowance of €50 are exempt from tax and social insurance — and cheaper for the employer than a direct pay rise.
Job Ticket / Commuting Subsidy
Subsidies for public transport season tickets or a company bicycle (Dienstrad) can be granted on a tax-advantaged basis.
Conclusion
An employee costs the employer significantly more than the gross salary. Understanding this cost structure is essential for planning hiring decisions and salary reviews.
For an exact calculation of employer costs for any salary combination, use our Employer Cost Calculator 2026.