How To Hire And Pay Employees In Germany

Emerald Technology's guide to hiring employees in Germany.

CURRENCY

Euro is the official currency of Germany. Its currency symbol is €, EUR.

CAPITAL CITY

Lisbon, has been Germany's capital since the 13th century. It has a population of 3.645 million.

LANGUAGE

German is the official and national language of Germany and  has over 95 million native speakers.

POPULATION The current population of Germany is 83.24 Million in 2020 based on World bank numbers.
PAYROLL FREQUENCY The payroll frequency in Germany is monthly and is usually paid on or around the 25th each month.
PUBLIC HOLIDAYS Germany has 15 public holidays, observed in all German states.

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. 

START GROWING YOUR REMOTE WORKFORCE NOW

WORKING TIME AND OVERTIME IN GERMANY

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 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.

ANNUAL LEAVE AND GERMANY'S PUBLIC HOLIDAYS

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.

Public holidays can vary depending on the region in Germany. There are 15 public holidays observed in all German states.

Working on statutory holidays is generally not permitted, but this does depend on the industry.

Annual leave is calculated on a pro rata basis for part-time employees.

 

January 1st: New Year 
January 6th: Epiphany
Good Friday (varied, the Friday immediately preceding Easter Sunday)
Easter Monday (varied, the Sunday immediately following Easter Sunday)
May 1st: Labour Day
Ascension (varied, 39 days after Easter Sunday)
Whit Monday (varied, 50 days after Easter Sunday)
Corpus Christi (varied, 60 days after Easter Sunday)
August 15th: Assumption Day
October 3rd: Day of German Unity
October 31st: Reformation Day
November 1st: All Saints’ Day
Penance Day (varied, the last Wednesday before November 23)
December 25th: Christmas
December 26th: St. Stephen’s Day

PROBATION PERIOD IN GERMANY

A probation period is typically between 2 to 6 months but may not pass 6 months.

RESIGNATION AND DISMISSAL IN GERMANY

The employee may unilaterally terminate the employment contract by giving the employer a notice in writing.

Notice period is 4 weeks outside of a probation period within 4 years of employment.

The notice period is 2 months with 5-7 years of employment with 8 to 9 years of employment.

During a probation period both employee and employer can terminate providing 2 weeks' notice without needing to provide a specific reason.  After a probation period ends employees will be protected by the Termination Protection act an employee may only be terminated if one of the following reasons by the German Terminations Protection Act exists. Personal e.g long term sickness, gross misconduct e.g theft, violence, business requirements e.g restructure and redundancy.

The dismissed employee does have the option to challenge the dismissal in court and claim continued employment, if he or she believes the dismissal to be unfair.

READY TO HIRE YOUR EMPLOYEES IN GERMANY?

GERMANY'S MATERNITY AND PATERNITY LEAVE

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.

SICKNESS LEAVE IN GERMANY

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.

SOCIAL SECURITY IN GERMANY

The social security system (Sozialversicherungssystem) in Germany is funded through compulsory contributions paid by employers and employees. Germany has a reputable social security system that ensures its citizens are able to live comfortably even if they’re sick, disabled, unemployed or retired.

HEALTHCARE AND INSURANCE

Germany’s healthcare system is recognised to be one of the best in the world. The majority of German citizens and residents are enrolled under the state run public health insurance scheme, which is funded by the taxpayers national contributions. This means that everyone has access to a high quality, affordable healthcare, regardless of income.

 

Some also choose to take out private healthcare insurance, in particular those in higher paid positions. Under German law, everyone who is a legal resident 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 health insurance an employee is entitled to depends on salary.

 

An employee that earns less than €64,350 per annum can only enrol in the statutory insurance scheme. 

 

However, freelance workers who earn under €64,350 per annum can opt out of statutory insurance get a private insurance plan instead. Employees that earn over €64,350 can either stay on statutory insurance or opt for private insurance.

 

Employment of

FOREIGN NATIONALS IN GERMANY

All foreign citizens require a work visa to work in Germany. It has different types of work visas, which you can discover more about here.
Salary Taxes

MINIMUM WAGE IN GERMANY

The minimum wage in Germany from January 2022 is €9.82 per hour. This is due to increase again in July 2022 to €10.45 per hour. 

GERMANY'S INCOME TAX

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).

Salary per annum and tax percentage: 

  • €0 - €9,984 = 0%
  • €9,985 - €58,596 = 14% - 42%
  • €58,597-€277,825 = 42%
  • €277,826+ = 45%

Additionally, some employees who meet a certain income tax obligation must also pay a 5.5% solidarity surcharge.

SALARY PAYMENTS IN GERMANY

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.

SOCIAL SECURITY CONTRIBUTIONS IN GERMANY

Social security contributions in Germany are the responsibility of the employer to deduct from an employees salary before payment. Contributions are levied as a percentage of gross salary and are split equally between employee and employer. As of 2021 the below rates were applied to contributions.


  • Pension Insurance - 6% up to an income of €7,050 per month. €6,750 per month in the Eastern states. A contribution of 9.3% each by both the employer and the employee.
  • Unemployment Insurance - 4% up to an income of €7,050 per month. €6,750 per month in the Eastern states. A contribution of 1.2% each by both the employer and the employee.
  • Public Health Insurance - 8% up to an income of €4,837.50 per month. A contribution of 7.9% each by both the employer and the employee.
  • Care Insurance - 3.05% up to an income of €4,837.50 per month. A contribution of 1.525% by both the employer and the employee (an additional 0.25% is to be payable by childless employees).
  • Maternity Leave- Payable by the employer at a rate of 55% up to an income of €7,050 per month. €6,750 per mpnth in the Eastern states. 
  • Insolvency Contribution- payable by the employer at a rate of 9% up to an income of €7,050- per month. €6,750 per month in the Eastern states. 
  • Accident Insurance- payable by the employer at a rate of 6^ of an employees income. This can vary depending on the industry and risk. 
  • Severely Handicapped Fund- payable by the employer at a rate of €17.50.

SOCIAL SECURITY GERMANY

In an attempt to strengthen the position of employees that are working in three-party scenarios (Emerald as employer of record –employee –client as ultimate employer), the law was changed from April 2017. The most significant change is that the maximum duration of these employment scenarios is now limited to 18 consecutive months.

The employee by law is considered to switch to the German payroll of the client. For the outsourced employment scenario in which the client has no German entity, there are no precedential cases, but the fact remains that the employee cannot be deployed with the client anymore. A break of three consecutive months is required before a new deployment to the same client is allowed.

Other options are to deploy the employee to a new client or move the employee to the clients own non-resident payroll if they have no presence in Germany. Failure to comply with the 18-month rule can lead to fines of up to €300,000 and loss of the employer of records AÜG licence.

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.

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