Expansion of digital payroll interface – companies should not underestimate the need to take technical action

What is planned?

Under current law, section 4 obliges employers to keep payroll accounts and to record the standard wage tax information; until now the DLS has essentially been used for the electronic provision of these payroll records.. Under the Seventh Regulation Amending Tax Regulations, section 4(2a) of the Payroll Implementing Regulation has been reformulated. The new formulation means in future employers will not only have to record the data under section 4 and section 41 of the Income Tax Act (Einkommensteuergesetz–EStG) but also prepare the data collected and used for this purpose by upstream and ancillary systems using a digital interface. In addition, the data for the same permanent establishment is to be sent in a summarised form by main, upstream and ancillary systems. These new rules apply to the data to be recorded in payroll accounts from 1 January 2027. It includes, for example, time management systems, travel expenses, benefits and logbook systems for company cars.

In doing this, the tax authorities are particularly intending to increase the efficiency of wage tax audits. 

Why is there criticism?

Many leading business associations such as the Association of German Chambers of Industry and Commerce (DIHK), the Federal Association of German Industry (BDI) and the Central Association of German Skilled Crafts (ZDH) are critical regarding the planned expansion. They particularly have doubts that the amount of work needed to implement the change is not proportionate to the practical benefit it brings. 

The business associations also point out two practical challenges: 

• firstly, the reality at many companies of the actual payroll accounting  is much more complex than the new rules would imply. Different groups of employees, multiple payroll groups, external payroll service providers and heterogeneous ancillary processes often result in system landscapes that have evolved over time. In addition, individual payroll tax issues are documented outside of actual payroll accounting, sometimes even in non-standardised or digitised solutions.
• Secondly, the associations also criticise the fact that above all there is still no clear guidance on which specific figures and data sets should be included in future and according to which technical standards  this should be done. 

What technical requirements come into focus?

This reflects exactly the key objective of the initiative.  The Federal Central Tax Office (BZSt) already describes the DLS as the interface for exporting data from the payroll bookkeeping system and the upstream and ancillary systems. At the same time, the BZSt continually publishes new versions of the DLS; for version 2026.1 express reference is made to recommendations on submitting data from electronic logbooks for company cars.  

This gives the following “roadmap” for companies: 

1. Identify the relevant payroll data – where does it come from and how is it processed?
2. Describe interfaces, data logic and responsibilities between main, upstream and ancillary systems.
3. Prepare data in an electronically readable form – simple reports or manual individual assessments are usually not sufficient.
4. Generate process documentation
5. Delimit data protection sensitive information so that only the data actually relevant are accessible in the event of an audit. 

The new rules will affect many companies in a phase in which the practical structure is still open. As long as it is not absolutely clear which fields, data groups and consolidation principles will be required in future, the actual technical need to act remains hard to estimate. This uncertainty is also expressly addressed by the business associations’ statement. 

What should companies do now?

Following the promulgation of the new rules, companies should now put this topic on their agenda. It makes sense to firstly take stock of all main, upstream and ancillary systems relevant to payroll. Afterwards, it should be checked which data are generated there how they are related to payroll accounting and whether they can be exported in a structured way. Just as important is the question whether reliable procedural documentation and clear responsibilities exist for preparing data. This preparatory work should be useful  regardless of the final form the expansion of the DLS takes. It is also absolutely necessary as part of implementing a tax compliance management system. 

Conclusion

The expansion of the Digital Payroll Interface is more than a single change to the regulations. This could result in the company’s entire payroll system landscape coming more into the focus of tax audits. These new regulations therefore enter into other current developments in the field of wage tax audits, such as the new Tax Audit Regulations, which introduces a group- or company-wide coordinated wage tax audit for the first time; see our Insight of 9 April 2026. 

Overall, the tax authorities intend to use the opportunities provided by digitalisation. The goal of greater transparency is understandable from the viewpoint of the tax authorities. For companies, it will be crucial whether clear technical standards, realistic implementation deadlines and practical differentiation  are defined in a timely manner. The expansion of the DLS is not linked to its own new penalty. But if the requirements are not met in an audit, the tax authorities could examine consequences under administrative law such as a penalty for delayed cooperation of 75 euros a day for a maximum of 150 days as well as a surcharge to the penalty of up to 25,000 euros a day for a maximum of 150 days. Until then, those who review their system landscape, data flows and documentation early on, will be considerably better prepared.