GermanyDiscover a guide to employment laws, regulations, and Employer of Record (EOR) in Germany.
Looking to hire in Germany? An EOR can support you
Are you planning to expand your business into Germany? An Employer of Record (EOR) service can help you get up and running quickly.
An EOR provides a streamlined solution for companies looking to hire employees in Germany without establishing a legal entity. It efficiently manages onboarding, payroll, benefits, and HR compliance ensuring adherence to all labor regulations in Germany. This leaves you to focus on core business objectives while you outsource core HR functions.
Leverage the expertise of an EOR like Multiplier to facilitate a smooth entry into the German market.
How to hire in Germany
Step 1: Choose between establishing a local entity and using an EOR
When hiring employees in Germany. , you have two main options: setting up a local entity or using an Employer of Record (EOR) service.
Establishing a local entity in Germany provides full control over your HR function. However, this route requires a significant investment in terms of time, resources, and capital. Setting up a local entity can be a lengthy process, potentially delaying your hiring timeline. Additionally, managing a local entity means you’ll need to ensure compliance with all German employment laws and regulations.
Using an Employer of Record (EOR) service can simplify the complexities of German labor laws. An EOR facilitates quick employee onboarding and efficient management of HR functions. This can be particularly advantageous if you need to hire swiftly.
Establishing a local entity might be the right choice if you plan to build a substantial presence in Germany and hire a large team. However, an EOR is a more practical solution for a more efficient, less risky hiring process.
Step 2: Finding the right EOR
Choosing the right Employer of Record (EOR) for your operations in Germany is crucial. An ill-chosen EOR could result in compliance issues, unforeseen expenses, and dissatisfaction among your new employees.
Here are key factors to consider:
- Legal compliance. Verify the EOR’s in-depth knowledge of German labor laws, employee entitlements, tax obligations, and industry-specific regulations.
- Service quality. Assess the EOR’s reputation for providing excellent customer service. Multiplier, for example, offers dedicated account managers and 24/5 support.
- Transparent pricing. Ensure the EOR offers clear and competitive pricing without hidden fees or complex structures.
- Total cost of ownership. Evaluate the EOR’s overall value proposition, considering factors beyond pricing, such as service quality and compliance expertise. The cheapest solution is not always the best one.
Step 3: Employing and onboarding in Germany
Send over the contract
After selecting your ideal candidate, the next step is to provide a compliant employment contract.
A proficient EOR can draft contracts that adhere to German labor laws, allowing you to tailor details like job duties, working hours, salary, and termination conditions. Once the contract is prepared, your EOR will securely send it to the employee and ensure that all necessary signatures are collected.
Enhance compensation with competitive benefits
To make your offer more attractive, an EOR can help provide access to a range of locally administered benefits without you needing to engage with local providers directly. Additionally, the EOR can manage the provision of essential IT equipment and other resources needed for your new hire to start their role effectively.
Get all your documentation in order
You’ll need to gather the new employee’s tax and banking details. If you’re using an EOR, they will typically collect this information for payroll setup. The EOR will handle all required documentation, simplifying the process and reducing administrative tasks.
With the right EOR, the onboarding process in Germany can be streamlined, making it smoother and more efficient for you and your new employees.
Step 4: Run payroll for employees based in Germany
Managing payroll for employees in Germany involves adhering to local tax regulations and mandatory contributions. Germany operates a progressive income tax system, with rates up to 45% based on income levels.
Employers are also required to make contributions to Germany’s social security system which includes health insurance, pension insurance, unemployment insurance, and long-term care insurance. Employers are required to contribute a portion of each employee’s salary to these programs, ensuring coverage for health care, retirement, unemployment, and long-term care needs.
Employers need to withhold wage tax (Lohnsteuer) from employees’ salaries based on their income and tax class. The withheld amount is then remitted to the tax authorities.
In addition to wage tax, employers must withhold a solidarity surcharge, which helps support economic development in less affluent regions.
Managing these payroll requirements can be complex, particularly for international companies operating in Germany. An EOR can simplify this process by ensuring accurate and timely salary payments and handling all local taxes, contributions, and withholdings.
By using an EOR like Multiplier, you can streamline payroll management for all your international employees through a single platform, eliminating the need to work with multiple local providers.
Employment laws and regulations in Germany
Germany’s employment laws are structured to safeguard employee rights and promote fair labor practices.
Key regulations include the Minimum Wage Act (Mindestlohngesetz), which prohibits employers from paying less than a set minimum wage. The Working Time Act (Arbeitszeitgesetz) limits regular working hours to a maximum of eight hours per day, with provisions for breaks and rest periods.
Additionally, the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz) prohibits discrimination based on various factors such as gender, race, and age, ensuring equality in hiring and employment practices
Employers can offer both fixed-term and indefinite-term contracts. While written contracts are not legally required, they are highly recommended to avoid potential disputes. These contracts should clearly detail job duties, salary, working hours, and termination terms.
Employ top talent in Germany through an EOR
Onboard, pay, and manage all your international employees
Employee benefits and compensation
The minimum wage in Germany is €12.41 per hour in 2024. German labor laws also stipulate that employees provide several standard employee benefits, including:
- Annual leave: A minimum of 24 days of paid annual leave based on a 6-day work week, which typically increases with longer tenure or based on company policies.
- Sick leave: Up to six weeks of paid sick leave per year, during which employers must pay their full salary. Health insurance provides compensation for extended sick leave.
- Parental leave: Up to 14 weeks of paid maternity leave, with 6 weeks before and 8 weeks after childbirth. Paternity leave is part of parental leave, where parents can take up to 36 months of leave to care for their child, with a portion of this time being paid under the parental allowance system.
- Public holidays: Employees are entitled to paid leave on national public holidays, which are generally observed throughout the country.
- Workmen’s compensation: Under the German Social Accident Insurance system, employees are entitled to compensation for work-related injuries or illnesses.
Employers in Germany often supplement these statutory benefits with additional perks to attract and retain talent. Consider partnering with a global benefits administration solution to offer your international workforce locally compliant and competitive benefits.
Termination and offboarding procedures
When terminating employment in Germany, employers must follow specific regulations regarding notice periods and severance pay. The standard notice period is generally four weeks, but it can vary based on the terms of the employment contract and the employee’s length of service.
The required notice period is four weeks, but this can extend to up to seven months for long-serving employees, depending on the employment contract and statutory regulations. Employers and employees may agree to a longer notice period, but it must be clearly outlined in the employment contract.
Severance pay in Germany is not automatically mandated by law but is often part of collective agreements or individual contracts. If a severance package is provided, it is typically calculated based on the employee’s length of service.
An EOR can help streamline the offboarding process by ensuring compliance with local regulations and facilitating a smooth transition for both the employer and the departing employee.
Visa and work permit assistance
Foreign workers in Germany must secure the appropriate visas and work permits to work in the country. Here we look at the main visa types.
- Blue Card: For highly skilled workers with a university degree and a job offer meeting specific salary thresholds. It is typically issued for up to four years and is renewable. It facilitates long-term residence and work rights in Germany.
- Employment Visa: For non-EU workers with a job offer from a German employer. It is generally issued for the duration of the employment contract, up to a maximum of four years, and is renewable.
- Job Seeker Visa: Allows foreign nationals to stay in Germany for up to six months to search for employment. Once a job is secured, it can be converted into an Employment Visa or Blue Card.
- Permanent Residence Permit: For long-term residents who have lived in Germany for at least five years with a valid residence permit, have sufficient German language skills, and can demonstrate financial stability. It allows for indefinite stay and work in Germany.
Understanding and complying with the visa and work permit process in Germany can prove challenging, but expert assistance can simplify the application and renewal processes. An EOR can offer comprehensive visa and work permit support.
For detailed guidance on managing global immigration for your employees in Germany, explore our Global Immigration services.
Get started with Multiplier’s EOR services
Multiplier’s Employer of Record (EOR) solution can streamline your expansion into Germany. By partnering with us, you can focus on your core business while avoiding compliance risks and operational challenges.
We’ll handle core HR tasks such as payroll, taxes, and benefits administration smoothly and efficiently. Schedule a demo today to find out more.
