How to Hire Employees in Germany: Comprehensive Guide for Employers

Germany is a country known for its extremely skilled, educated, and highly professional workforce. With the majority of the workforce in the contributing industries, such as science and technology, automobiles, and research and development, the economy is one of the strongest countries in GDP.

A significant percentage of the German workforce has attributes that pertain to research and development, technology,  automobile, and service sectors, and recruitment and selection of employees in Germany are relatively challenging. This article will extensively talk about hiring employees in Germany.  

Before starting your recruitment and selection process in Germany, you must be aware of German employment laws –

Compensation laws 

The minimum wage set out by the Minimum Wages Act, Mindestlohngesetz in German is €10.45 per hour by July 2022.

Although the German employment laws limit the number of hours an employee works in a week, the law does not include a provision for overtime pay. Therefore, employers must determine the overtime pay and include this in the employment contract once the employee is selected. 

Employers in Germany commonly offer 13th-month pay (alternatively known as Holiday Pay), performance bonuses, and incentives, although it is not mandatory for employers to provide 13th-month pay and additional monetary compensation.

Working hours and leave entitlements

A typical work week in Germany cannot exceed 48 hours (with employees working six days a week and eight hours per day). An employer can request overtime of not more than 12 hours a week. However, German employees commonly work 40 hours a week or lesser. 

Employers must provide leaves as laid out by German employment laws, including — 

• Nine public holidays
• Annual leaves that include 
• Twenty days for employees working on a five-day work week and,
• Twenty-five days for employees working on a six-day work week
• Employers in Germany commonly provide additional annual leaves
• Sick leaves on days when employees are ill. Sick leave entitlement in Germany is six weeks. However, a medical certificate must be provided by a registered medical practitioner 

German social security

Employers must calculate and withhold necessary social security deductions when hiring employees in Germany. German social security follows a Pay-As-You-Earn (PAYE) model, and therefore, employers must calculate the correct amount for each employee to avoid confusion.

Health insurance and pension insurance are the two other significant areas where employers redirect employee contributions. Insurance contributions made by each party are capped at specific percentages. Employers and employees match the contributions. 

AUG licensing requirements

The Temporary Agency Act specifies that employers considering partnering with a Professional Employment Organization (PEO) must know the Arbeitnehmerüberlassungsgesetz (AUG) licensing requirements.

They state that seconded employees shall be considered full-time employees if they have worked for 18 months. If you want to avoid this scenario, the PEO must have an AUG license and ensure that they are compliant.

The process of hiring employees requires an additional step of budgeting. As employers, you must consider hiring cost. When you are looking to expand your team and hire from a new country, the costs of hiring are generally higher than in your home country. 

Hiring staff in Germany can be expensive. If you are looking to understand the recruitment fees in Germany, below are the costs that you must take into consideration —

Company registration costs

There are certain company registration fees that you must pay when expanding in Germany. The company registration or incorporation fees in Germany is around  14,090 Euros 

Tax and legal services

One of the major reasons why Germany is ranked highly for businesses to expand is the economic opportunities available. However, the ease of doing business is relatively complex due to strict German laws that make handling taxes, setting up an entity, and processing payroll quite complicated. This makes hiring local employment law and tax experts who can ensure you are legally compliant with Germany’s employment and hiring process extremely important.

Hiring agency

Partnering with a local hiring agency will help you identify candidates suitable for your business requirements and help you with Germany’s recruitment and selection process. This will add to your recruitment fees in Germany.

Job advertisement

If you are hiring in Germany, placing a job advertisement adds to your hiring costs. You can place job adverts in newspapers or job portals such as LinkedIn. Certain online portals allow you to post job advertisements for free. 

Hiring committee

If you do not wish to partner with a hiring agency, you can consider appointing an internal hiring committee, which requires further investment. 

Translation services

Certain legal documents must be in dual languages (English and German). Employers must consider hiring translators who can assist with translating documents from English to German and vice versa. Hiring translators adds to the recruitment fees in Germany.

Travel costs

If you want to conduct in-person interviews or set up an entity, you must account for travel expenses. 

Legal screenings

You must ensure that candidates are legally allowed to work in Germany. This involves validating the candidate’s work visa, citizenship, or if they are looking for a work permit sponsorship. Conducting a third-party identity verification adds to the recruitment costs in Germany.

You must consider a few foundational factors before hiring someone in Germany. With an exception that if you work with a PEO or an EOR, you will require:

Legal business entity

You must have an established legal entity before hiring someone in Germany. Foreign businesses commonly establish entities that include subsidiaries or a branch office. Depending on your hiring and business requirements, you can establish a subsidiary or a branch office in Germany.

German bank accounts

When you establish an entity in Germany, you can open a German bank account to make the hiring process easier and more efficient. Although opening a bank account is not mandatory, having a German bank account will help faster operations and transactions.

Tax and social security registrations

For a registered and established business in Germany, having an identification number is mandatory. This helps enroll your employees with social security and the tax authorities. The timeline of getting an identification number in Germany usually takes several weeks. Starting registering and obtaining an identification number in advance is recommended. 

Permits and licenses

Certain industries in Germany require you to take special licenses and permits. Without such licenses, you will not be able to conduct business, expand your operations, and/or hire employees in Germany. 

However, partnering with a PEO or an EOR helps ease the hiring process in Germany. They have a legal entity that allows you to compliantly hire employees, onboard them, and ensure you have an employer of record for your employees in Germany. 

When looking at hiring staff in Germany, employers must be aware of the regulating local and foreign employment laws. There are several options for hiring German employees, which include:

• Part-time and full-time employees: Employers commonly look for permanent employment relationships and full-time employees when hiring staff in Germany. Full-time employees receive all the entitlements and benefits laid down by the German employment laws. Part-time employees, however, are entitled to only certain statutory benefits. Hiring employees in Germany under fixed contracts also falls under this category.

• Seasonal workers: Seasonal workers are entitled to social insurance (German social security). The work hours are stipulated by the collective bargaining agreement between the employer and trade unions. Seasonal workers are common in the service industry, especially in the hospitality sector.

• Freelancers and independent contractors: Freelancers and independent contractors ideally work on a project basis. However, unlike full-time employees, freelancers and independent contractors are not entitled to statutory benefits such as leaves, social security, pensions, etc., as laid out by the German employment laws.  A few German employers also offer benefits such as voluntary contributions toward insurance, voluntary pension schemes, etc.

• Apprentices/trainees/interns: Apprentices, trainees, or interns are common across all industries in Germany. Most internships and apprenticeships in Germany last anywhere from eight weeks to twelve months. However, collective bargaining agreements and trade unions are an integral part of hiring in Germany.

• Agency workers: Agency workers are also considered full-time employees but are not covered by a direct employment contract from the employer. The employment contract is generated and offered by the agency the candidate works for.
• Hiring through PEO/EORs: A Professional Employer Organization (PEO) or an Employer of Record (EOR) is an external agency that assumes HR responsibilities and manages your employees. Outsourcing your recruitment needs to a PEO or an EOR helps efficiently onboard your employees and other HR functions without setting payroll or a business entity in Germany.

Once you are ready to start the hiring process and onboard new employees to your team, you must be aware of the following key steps on how to hire in Germany:

Advertising job vacancies

Advertising the job position that you are hiring for is the first step toward hiring staff in Germany. You must clearly outline the roles, responsibilities, and educational qualifications for the right candidates to apply. 

Outlining whether the position is remote, hybrid, or onsite is crucial as this can be a deciding factor for candidates.

Conducting interviews

Once job seekers have applied, you can start screening and evaluating their resumes and credentials and determine which applicants are the right fit for the role. This will help you narrow down and efficiently interview the ideal candidates.  

Sending employment contracts to your selected candidates

Once a list of ideal candidates is created, you can schedule interviews.  Conducting interviews can be of two types – 

• In-person 
• Remote

You must also ensure that the time is comfortable for you and the candidate if you are not in the German timezone (Central European Time).

Avoid questions that can be deemed to be discriminatory or that violate the right to privacy as German labor laws take such issues seriously and apply penalties. Any questions relating to the topics below are considered discriminatory or violating a candidate’s right to privacy – 

• Family planning 
• Religious beliefs 
• Political affiliation 
• Any personal questions that do not relate to work

Send the employment contract and onboard your newest employee

After completing the interview process and hiring the right candidate, you can extend the employment contract and complete the onboarding process. Sending employment contracts is mandatory as laid out by the German labor laws and common practice in the recruitment process in Germany.

You can ask your new hires to fill out all necessary forms that require information to register with the German social security and PAYE withholdings.

Working with global PEO and EOR partners such as Multiplier can help in onboarding, benefits, and payroll processes, generating employment contracts, and ensuring you are compliant with the German employment and labor laws. 

You can now focus on other business areas and focus on recruiting and selecting in Germany while we compliantly assume all HR responsibilities. 

Talk to us to learn more!