HR-Glossar
Lohnkonto (payroll ledger account)
What German law requires in the payroll ledger, which three retention periods apply and why a system migration puts compliance at risk.
1. What is Lohnkonto (payroll ledger account)?
The Lohnkonto is the record an employer must keep for each employee and each calendar year. It documents what was paid, withheld and certified. The legal basis is Section 41 EStG; which entries are required in detail is set out in Section 4 of the Wage Tax Implementing Ordinance (LStDV).
It is not a report or an analysis but the underlying record. The annual certificate, the payroll tax return and the evidence towards social security all derive from it. It is therefore where both a payroll tax audit and a pension insurance employer audit begin – neither starts with the payslips.
In practice it rarely exists as a separate document. It is the totality of the data held per person and per year in the payroll system – which changes nothing about the requirement that it be complete, traceable and auditable.
For groups consolidating payroll systems across countries, that last word carries the risk. German law requires the records to be available in machine-analysable form for the whole retention period – not merely readable.
2. Origin and development
The record-keeping duty is as old as wage tax withholding itself and follows from its construction: the employer collects someone else's tax debt and remits it. Anyone doing that must be able to show what was withheld and why – otherwise the deduction could be neither audited nor attributed.
With the digitalisation of payroll the form changed, not the duty. The former index card became a data record. Two requirements came with it that did not exist on paper: the records must be kept machine-analysable, and they must be secured against subsequent alteration.
That is where the practical risk sits for international groups. When a German entity is migrated onto a group payroll platform, the historical data are typically exported as PDF or archived as reports. Both are readable. Neither is machine-analysable – and the obligation runs for years after the migration, long after anyone remembers which system the data came from.
3. Core principles and how it works
Per employee, per calendar year
A separate account for each employee, started afresh each year. A year-end closes the previous account.
The required content is in the LStDV
Section 4 LStDV lists the entries – from deduction characteristics through the type and amount of remuneration to tax-free payments and amounts withheld. The list is meant to be exhaustive, not illustrative.
Tax-free payments belong in it too
Particularly those: travel reimbursements, premiums under Section 3b EStG, the employer supplement to maternity benefit. Anything treated as tax-free must be able to show why, and the ledger is that evidence.
Three periods, three bodies of law
Section 41 EStG governs retention of the ledger, Section 147 AO retention of records generally, Section 28f SGB IV the social security documents. They run for different lengths and from different starting points; the longest governs.
Auditable means machine-analysable
Electronically kept records must be available in analysable form if audited. A PDF archive does not necessarily satisfy this.
4. Who is Lohnkonto (payroll ledger account) relevant for?
- All employers – the duty applies regardless of size, even for a single marginal employee. - Groups consolidating payroll systems – migration is where analysability is lost. - Payroll teams – they keep the ledger in practice, even where no menu item bears the name. - Companies with outsourced payroll – the duty stays with the employer; the provider performs it. - Audited entities – payroll tax audit and pension insurance audit both start here.
5. How it differs from related terms
- Ledger and payslip – the payslip is the monthly result for one person; the ledger is the continuous record across the year. - Ledger and annual certificate – the certificate is the extract transmitted after year end. It derives from the ledger and does not replace it. - Ledger and social security documents – two duties with a large overlap but their own content and periods. The social security documents require entries tax law does not. - Ledger and personnel file – the file holds contracts, appraisals and correspondence. It is not a tax record and follows different rules, particularly on data protection.
6. Variants and adaptations
Differences arise from the employment relationship, not from the format:
- Marginal employment – a ledger is required here too. Where flat-rate taxation applies, additional entries establish the marginal status. - Short-term employment – the conditions must be recorded and evidenced; without that record the contribution-free treatment fails at audit. - Cross-border cases – for work abroad and for employees with limited tax liability, further entries are needed, including the apportionment of remuneration. - Outsourced payroll – the ledger arises at the provider, the duty remains with the employer. Access and hand-over at contract end belong in the agreement.
7. Advantages and challenges
Advantages
- A clearly defined underlying record from which all reports and certificates follow
- The required content is set out exhaustively in Section 4 LStDV – not a question of interpretation
- A complete ledger shortens any audit considerably
- It evidences tax-free payments and protects against retrospective taxation
- Modern payroll systems keep it without additional data entry
Challenges
- The three different retention periods are routinely conflated
- System migration easily destroys machine analysability
- Tax-free payments are recorded incompletely – and they are the audit focus
- With outsourced payroll, access to historical data is often not contractually secured
- A PDF archive looks complete but may not meet the audit requirement
8. Best practices for implementation
Secure analysability at migration, not just the data
An export to PDF is not machine analysability. Before an old system is switched off, it must be settled how the data will be provided if audited – for the whole remaining retention period. This is the single most common German compliance failure in group system consolidations.
Record tax-free payments with their legal basis
Not "tax-free 120 euros", but the provision relied on and the underlying facts. At audit that record decides between acceptance and retrospective taxation.
Apply the longest period as the standard
Tax law, the Fiscal Code and social security law run differently. Separate deletion concepts per body of law create gaps; a single standard set to the longest period is simpler and safe.
Secure data access contractually when outsourcing
Right to hand-over, format, deadline after contract end. Clarifying this at the point of switching providers means negotiating from the weakest position.
9. Tips for employers and employees
For employers
- **The duty stays with you** – even with fully outsourced payroll
- **Record tax-free payments completely** – they are the focus of every audit
- **Secure analysability at migration** – a PDF archive may not suffice
- **Use the longest retention period** – three bodies of law, three periods
For employees
- **You may request information** – about the data held on you
- **Your annual certificate derives from it** – discrepancies belong resolved before you file
- **Keep your payslips** – they are your counterpart to the employer's record
- **Check tax-free reimbursements** – they must appear on your payslip
10. Conclusion
The Lohnkonto is the underlying record from which everything else follows – payroll tax return, annual certificate, social security evidence. Its required content is set out exhaustively in Section 4 LStDV, which is unusually clear and makes the duty straightforward to discharge.
Two things are underestimated in practice. The first is tax-free payments: precisely those belong recorded completely and with their legal basis, because that is where a payroll tax audit concentrates. The second is retention – Section 41 EStG, Section 147 AO and Section 28f SGB IV set different periods running from different starting points, and applying the longest is simpler than reconciling three.
For international groups one risk stands out, and it is not a payroll risk at first glance. When a German entity is consolidated onto a group platform, historical data are typically exported as PDF. That is readable but not machine-analysable, and German law requires the latter for the whole retention period. The failure becomes visible years later, at an audit, when nobody remembers which system the data came from.
A note on sources: there is no official English version of the Income Tax Act, the LStDV, the Fiscal Code or SGB IV; the German texts are cited below.
Sources
- Section 41 EStG – Record-keeping obligations for wage tax (German original; no official English version) (opens in a new tab)
- Section 4 LStDV – Payroll ledger account (German original) (opens in a new tab)
- Section 147 AO – Retention of records (German original) (opens in a new tab)
- Section 28f SGB IV – Record-keeping duty and contribution evidence (German original) (opens in a new tab)
Related terms
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