Employment Act and Labor Laws in Germany

When looking at hiring and employing in Germany, employers must be aware of and comply with all provisions under the German labor laws. 

The German employment laws are divided into two areas that you must be mindful of when hiring —

Collective Employment Law

This law oversees collective representation and all employees.

Individual Employment Law

Governs individual relations between the employer and the employee. 

The German employment laws are extensive and comprehensive. Therefore, the areas that comprise the labor laws in Germany are – 

• The individual labor laws

• Fixed-term Work Act and Part-time Work Act (“Teilzeit- und Befristungsgesetz”)
• Civil Code (“Bürgerliches Gesetzbuch”)
• Holidays Act (“Urlaubsgesetz”)
• Employee Leasing Act (“Arbeitnehmerüberlassungsgesetz”)
• Act on Maternity Protection (“Urlaubsgesetz”)

• Trade unions

• German Trade Union Confederation (“Deutscher Gewerkschaftsbund”)

• Codetermination

• Codetermination act (“Mitbestimmungsgesetz”) 
• Business constitution act (“Betriebsverfassungsgesetz”)

• Collective bargaining

• Collective agreement act (“Tarifvertragsgesetz”)

This article will cover everything about the employment act in Germany and all provisions under the German labor act rules.

The German Employment Act is a comprehensive law that protects the interests of both the employer and the employee. The type of employees that are covered under the employment act of Germany includes – 

• Resident employees and citizens of Germany
• Foreign employees and temporary residents
• Freelancers and independent contractors
• Full-time and part-time employees

Misclassification of employees in Germany are highly scrutinized and penalized. Employers must ensure that the employees are appropriately onboarded and that all the statutory benefits are provided. 

You can compliantly onboard your employees from Germany with Multiplier to avoid any misclassification.

As per the German employment act, an employer must provide all the terms of employment in writing to the employee. An employer must provide the written employment contract within one month (or 30 days) from when the work commences. 

The labor rules in Germany mandate employment contracts to include the following —  

• Name and address of both parties (the employer and employee) 
• Starting date or joining date 
• Type of contract (a fixed-term contract or an open-ended contract) 
• Location of work 
• Roles and responsibilities 
• Salary structure 
• Working hours 
• Leave entitlement
• Probationary period 
• Notice Period

Although there are no provisions for providing employment contracts in dual languages, it is common in Germany to provide employment contracts in English and German. Employers must offer employment contracts to local employees in German and dual languages for foreign and non-resident employees.

The employment contracts in Germany are of two types —

• Fixed-term contracts have a fixed start date and end date. The provisions in a fixed-term contract must be clearly outlined. Employment under a fixed-term relationship must be justified on objective grounds, a few of which are outlined in: 

• The statutory law (for example, the substitution of an employee during parental leave or temporary increase in work volume).  

However, in cases where objective grounds do not exist, fixed-term employment in Germany is limited to a maximum duration of two years. The maximum duration is valid provided that no previous employment contract with the same employer existed.

• Open-ended contracts are for an indefinite period wherein either party has the right to terminate the employment contract. Suppose both the parties in a fixed-term contract continue the employment after the expiration. In that case, the agreement is deemed to be concluded for an indefinite period, or an open-ended contract must be generated.
• Freelancing contracts 

Suspension of employment contracts in Germany happens 

• When employees of a company/business are on a legal strike or, 
• The employer decides on a justified cause to lock out all employee responsibilities, and the employer is not obliged to pay salaries.

In cases of temporary layoffs, 

• The German collective bargaining agreements provide salary reductions for a short time
• The contractual duties are not completely suspended

The German labor laws mandate all employers to provide certain statutory leaves, statutory benefits, and other areas outlined by the law.

The key provisions ensure the protection of employees and employers operating in Germany.

Minimum age

As the German labor laws outlined, an employee must be 15 years of age or above to enter an employment contract. The Youth Labor Protection Laws (Jugendarbeitsschutzgesetz) govern employees’ employment rights between 15 and 18.

Minimum wages

The minimum salary laid out by the labor laws in Germany that an employee must receive is €9.82 per hour and is expected to be €12 per hour in 2022. The minimum salaries are changed every two years to consider inflation.

Working hours in Germany

The Working Hours Act of the German labor law has stringent regulations on the working hours for an employee.  The Working Hours Act outlines the maximum time an employee can work in a week, 48 hours. A typical work week in Germany can be 

• A 5-day work week or 
• A 6-day work week.

Employers must grant an uninterrupted rest period of 11 hours at the end of each working day. While an employee is on the rest period, they are not obliged or subject to any duties assigned at work. This prevents them from freely enjoying their time off.

Rest breaks

Employers must provide breaks to employees — 

Statutory leaves in Germany

As outlined by labor laws in Germany, employers must provide minimum leaves to their employees. 

Paid annual leave: The paid annual leaves for employees working depend on the workweek – 

Due to the work council agreements and collective bargaining, most German employers provide more paid leaves. 

Public holidays: Public holidays in Germany vary depending on the state. However, there are ten national holidays.

Sick leaves: Sick leaves in Germany are provided to employees for six weeks (or 42 days). German social security funds the sick pay. The employees must provide a medical certificate from a registered medical practitioner to avail the sick benefits. 

The Continued Remuneration Act (Entgeltfortzahlungsgesetz) grants employees: 

• Six weeks’ statutory sick pay unless they have materially contributed to the sickness once they have been employed for four weeks.
• If an employee falls ill due to the same underlying illness, the six-week period will recommence.
• Employees who are sick several times during a calendar year may be entitled to continued payment (for each occurrence) even beyond six weeks. Employees are entitled to continuous compensation only if they are sick for the same reason for six weeks. However, this does not apply if an employee: 

• Was not sick for the same reason for more than six months or, 
• For twelve months or above, after the first sickness, for this reason, has expired.

Maternity and parental leaves: Maternity leaves in Germany are provided to employees — 

• Normal delivery – 14 weeks or 98 days

• Six weeks before childbirth
• Eight weeks after childbirth

• Complicated delivery and multiple deliveries – Employees are entitled to extend maternity leave up to 12 weeks more.

Parental leaves in Germany are provided to employees until their child/children reach three years of age. During this period, an employer is not obliged to make any salary payments to the employee. 

However, employees have the right to work part-time during parental leave unless urgent business requirements prevent such part-time work. Part-time work in such cases has working hours between 15 and 30 hours per week.

After the expiry of the parental leave, the employee returns to their previous position.

Disability leaves: After six months of employment, a severely disabled employee may claim additional vacation in five working days, based on a 5-day week.

Insurance in Germany

The statutory insurance benefits in Germany include 

• Unemployment insurance
• Health insurance 
• Invalidity insurance
• Nursing-care insurance
• Accident insurance
• Maternity insurance and
• Insolvency insurance

Employers must enroll their employees in the German social security to receive insurance benefits.  

However, employers in Germany provide insurance covers as supplementary benefits that include life insurance, health insurance, or additional dental covers. Employers can additionally provide insurance benefits to their employees in Germany by partnering with Multiplier.

Pensions in Germany

Employers must register employees to the state pension scheme of Germany. The contributions are made equally by employees and employers. The employees are entitled to retirement pension benefits from 65 (the national retirement age) but are now gradually increasing to 67. However, early retirement in Germany at 63 is possible with a reduced pension amount.

German labor laws on a probationary period

Employers with employees working in Germany are entitled to request a probationary period of six months. However, the duration of the probationary period must be clearly outlined in the employment contract. 

German labor laws on termination of employment

Termination of an employee is complex as the German labor laws have strong provisions that protect an employee’s rights. However, collective bargaining agreements or Work agreements can impact the termination process. 

If an employer wishes to terminate the employee, an employer must observe a statutory notice period and severance pay as laid down by German employment law on termination. 

Employers cannot terminate an employee’s employment during pregnancy if they are on maternity leave and until four months after childbirth unless a public authority has granted prior consent. A public authority will give prior consent under exceptional circumstances, such as business bankruptcy.

In cases where an employee causes a breach of the employment contract, the employer is entitled to terminate the employment contract immediately. Although, the employer must provide a notice of termination within two weeks stating the underlying cause of dismissal.

German labor laws on notice period

The time provided as a notice period that an employee or an employer must serve depends on the employee’s length of service. Therefore, the notice period ranges between –

The notice period laid out by the provisions under the German labor law is effective between the 15th and the end of a calendar month. 

However, an employer must clearly outline the notice periods in the employment contract.

German labor laws on severance pay

There are no provisions under the German labor law for severance pay. The severance pay entitlement for employees is laid out by the works council or under a collective bargaining agreement that is often agreed upon, especially in mass layoffs.

Noncompliance with Germany’s employment act and labor laws will attract hefty penalties and fines as high as €500,000.

Employers looking to expand their teams and operations in Germany can take measures to help them compliantly hire German employees.

• As a business expanding in Germany, you can have a dedicated human resource team to help hire and onboard your employees. An HR team would help train and develop new employees, hire, provide performance reviews, etc.
• Although having a dedicated in-house team assists in the hiring process, having standard job description templates, employment contracts, termination letters, etc., will help make the processes more accessible and faster.
• Partnering with a professional employer organization (PEO)/ employer of record (EOR) such as Multiplier comes with many advantages: onboarding your new employees, generating employment contracts, providing employee benefits and insurance, and providing ESOP to your senior executives.

Germany is known for its skilled and educated workforce, contributing indirectly to strong economic growth.

As a business looking to expand operations in Germany by hiring the right talent, you must take the time to do due diligence legally, which can be a daunting task.  This can be made easier and more efficient by partnering with an employer of record (EOR) platform familiar with the German labor laws and provisions. 

Multiplier compliantly takes the responsibility of managing your employees under the German employment laws. Our team of professionals ensures you are updated with labor laws in Germany while you focus on other aspects of your business. Onboard, send employment contracts, make payroll tax payments, and provide statutory and supplementary benefits to your employees in Germany with a click of a button.

Talk to us to learn more!