How To Hire And Pay Employees In Germany
Emerald Technology's guide to hiring employees in Germany.
Euro is the official currency of Germany. Its currency symbol is €, EUR.
Estimated 22% of employee's salary
German is the official and national language of Germany and has over 95 million native speakers.
GROW YOUR TEAM IN GERMANY
NO ENTITY, NO PROBLEM
To start growing your team in Germany, you must establish a local entity- including an account with a local bank, a local office and an address registered as a subsidiary. This allows you to manage payroll, tax, benefits and compliance for your employees, but can take several months.
Emerald can hire and payroll your workers, quickly and compliantly with their ready to go entity. Make growing your team simple with Emerald as a global partner.
Pros and Cons of hiring in Germany
Considering Germany for your next expansion move will benefit your business. Germany is known for having one of the world's largest and most stable trading economies, which can be put down to many things; having a high export quota, it's open economy, high performing medium-sized enterprise and an excellent employment rate.
Expanding to Germany allows you to have access to it’s enriched consumer market which is the largest in Europe, while also offering high attractiveness due to it's geographic location in the EU.
While all this looks like a win-win, Germany is famous for its extensive regulations and responsibilities placed on employers, which can make expansion extremely complex without a global partner.
Why Germany is good for remote workers
With remote working still on the rise, more traditional locations and workforces like Germany are still affected. Especially, with the new wave of digital nomads we have seen recently.
Germany has been ranked the top country for remote working according to cybersecurity software company NordLayer. Favoured by remote workers due it's many Wi-Fi hotspots and co-working spaces.
Making the decision to migrate to Germany or change your working lifestyle seems very tempting, but workers should always consider the complexities and risks around taxation, social security law, and residence and work permits.
- Accident Insurance- Payable by the employer at a rate of 2% of an employees income. This can vary depending on the industry and risk.
- Care Insurance - A contribution of 1.525% by both the employer and the employee (an additional 0.25% is to be payable by childless employees).
- Insolvency Contribution- A contribution payable by the employer at a rate of 0.06%
- Maternity Leave- A contribution of payable by the employer at a rate of between 0.14% and 0.88%.
- Pension Insurance - A contribution of 9.3% each by both the employer and the employee.
- Public Health Insurance - A contribution of 7.9% each by both the employer and the employee.
- Severely Handicapped Fund- Payable by the employer at a rate of €17.50.
- Unemployment Insurance - A contribution of 1.2% each by both the employer and the employee.
German employers are required to offer the following benefits to all full-time employees.
- Accident Insurance
- Long-Term Care
- National Health Insurance
- Pension Fund
- Unemployment Fund
Some employers like to offer additional benefits to improve employee retention and satisfaction.
- Annual Leave
- Flexible hours and hybrid working
- Life Insurance
- Company Pension Scheme
Producing a contract of employment in Germany when recruiting is a legal requirement. The contract must be in English or German.
Creating a strong contract with help pacify any compliance concerns. An employer must provide the following in a contract.
- Name (Employee and Employer)
- Employee date of birth
- Address of Employer
- Start Date + End Date (if applicable)
- Place of work
- Job title and description
- Payment date and schedule
- Working hours
- Annual holidays
- Notice periods
- Absence procedure
- Confidentiality + return of property
- Data protection
A probation period allows both an employer and employee to evaluate the employment match. The probation period is typically between 2 to 6 months, but may not pass 6 months.
Majority of German citizens and residents are enrolled into the German healthcare system run by the public health insurance scheme, which is funded by the taxpayers national contributions. This means that everyone has access to high quality, affordable healthcare regardless of income.
Under German law, all legal residents in Germany must have health insurance coverage. Germany's health insurance system is divided into statutory health insurance (Gesetzliche Krankenversicherung) and private health insurance (Private Krankenversicherung). The type of insurance an employee is entitled to depends on salary.
Social Security Contributions
The German social security system (Sozialversicherungssystem) is funded through compulsory contributions paid by employers and employees and is made up of five statutory contributions;
- Accident Insurance
- Health Insurance (Public Healthcare, Maternity + SIck Pay)
- Long-term nursing care
- Pension Insurance
- Unemployment Insurance
Expectant mothers in Germany are entitled to 14 weeks of maternity leave (Mutterschutz). Of these, 6 weeks must be taken before the due date and 8 weeks after giving birth. In some work places the expectant mother is not allowed to work at all in order to protect the unborn baby.
Mothers are entitled to maternity benefit (Mutterschaftsgeld). The amount a mother maybe entitled to depends on her earnings before maternity leave (last 3 months) and health insurance cover. The health insurance pays €13 per day during the period and the employer will contribute the difference to the amount of the average net salary based on the previous three months. The employer can then be reimbursed for the contribution by the health insurance provider. However, the amount the mother receives can vary depending on their health insurance cover.
Fathers may apply for parental leave (Elternzeit). The allowance will not be received from the employer, the employee will need to apply for this from the government.
If an employee is unable to work due to illness, they are required to provide their employer with a sick note from a health professional such as a doctor.
The employer will pay the salary until the employee reaches the end of the 6th week of absence for the same illness within a 6 month period. After this the employee will need to apply for financial support from their health insurance.
As the legal employer, Emerald Technology requires the following employee documents to ensure complete compliance:
- Proof of right to work
- Health Insurance certification
- Education certification
Resignation and Dismissal
|Employment Length||Notice Period|
|Within 4 years||4 weeks|
|5 - 7 years||2 months|
|8 - 9 years||3 months|
|10 - 11 years||4 months|
|12 - 14 years||5 years|
|15 - 19 years||6 months|
|20+ years||7 years|
In Germany thee is no at-will termination for employers, so this can be complex. After a probation period ends employees are protected by the Termination Protection act, therefore, can only be terminated for one of the following; Voluntary dismissal, Mutual Agreement, or Unilaterally based on; Personal, Gross Misconduct or Business Requirements.
The dismissed employee does have the option to challenge the dismissal in court and claim continued employment, if they believe the dismissal to be unfair.
There is no legal requirement for statutory severance pay in Germany. However, it is best practice to offer severance to employees that have worked over 6 months.
Statutory Time Off
Full-time employees in Germany are entitled to a statutory minimum of 20 days of paid holiday per year, based on a five-day working week, or 25 based on a six-day working week. Annual leave is calculated on a pro rata basis for part-time employees.
Public holidays can vary depending on the region in Germany. There are 15 public holidays observed in all German states.
- New Year's Day
- Good Friday
- Easter Monday
- Labour Day
- Whit Monday
- Day of German Unity
- Second Day of Christmas
Work, Pay & Taxes
The German minimum wage is €12 per hour.
Working Time and Overtime
The average working week in Germany is between 36 and 40 hours. Most full time jobs in Germany are 7 to 8 hours per day, 5 days per week. Some companies may operate a longer working week with overtime but compensate their employees with a higher salary or additional annual holiday leave.
Employees working more than 6 hours are entitled to a 30 minute break. Employees must be given at least 11 hours of resting time between two working days.
Under the German Act on Working Time (Arbeitszeitgesetz), an employee’s working time is limited to a maximum of eight hours per working day and 48-hours per week. Daily hours can be increased to a maximum of 10. However, throughout a period of 6 months, the average daily working hours must be 8 hours.
Employees in Germany must be paid at least monthly, usually this takes place around the 25th of the month.
Some employers may pay a 13th monthly salary which is usually transferred in December or one half in July and one half in December.
Employers are not required to provide employees a bonus. This is down to the employers discretion.
The German tax year runs from January to December. It is the employers responsibility to ensure taxes are deducted from an employees salary ahead of payment.
Below is a list of tax thresholds for employees. This can vary depending on an individuals circumstances & what tax class they may fall into, of which there are 6 classes. Employees can check their tax class on their payslip under StKI (Steuerklasse).
|€0 - €9,984||0%|
|€9,984 - €54,596||14% - 42%|
|€58,597 - €277,825||42%|
Additionally, some employees who meet a certain income tax obligation must also pay a 5.5% solidarity surcharge.
WORKER MISCLASSIFICATION IN GERMANY
Similar to other countries, Germany has strict rules on classifying individual contractors and full-time employees differently. Misclassifying your workers can put your business at risk of fines.