An Employer of Record (EOR) in Germany is a company that assumes the role of the legal employer for a worker. This entails handling payroll, benefits, and other employment-related tasks on behalf of the worker's actual employer. Also referred to as a Global PEO, it streamlines the hiring process without the necessity of setting up a separate legal entity.
Discover the key considerations and essential details you should be aware of before you hire your remote team in Germany.
On this page: Employment Contracts | Employment Laws | Social Security Contributions | Personal Income Tax | Employee Benefits | Leave Benefits
Employment Contracts in Germany
Employment contracts in Germany play a crucial role in establishing the legal framework for an employment relationship. While a formal contract in German is highly recommended and considered standard practice, it is not required by law.
Germany introduced Nachweisgesetz (NachwG) to safeguard employees in low-wage sectors. Starting August 2022, German employers must furnish written documentation of employment conditions to their employees. A representative of the employer must sign on the document using wet ink. Employers failing to adhere to NachwG may face fines of up to two thousand euros.
In November 2023, the CDU/CSU (Christian Democratic Union/Christian Social Union) proposed a Digital Nachweis, suggesting that the Nachweis can be presented in a digital format in addition to the traditional written document. However, this proposal is still under discussion and has not been implemented.
Types of Employment Contracts:
|
Contract Type |
Description |
|
Permanent contract |
Long-term security, most common type |
|
Fixed-term contract |
Temporary projects, less security |
|
Minijob contract |
Part-time, simplified regulations, capped at €450 monthly |
|
Part-time contract |
Reduced working hours compared to full-time |
|
Freelance contract |
Self-employed, specific projects, requires business registration |
|
Work contract (Werkvertrag) |
Specific results, not ongoing employment, outside labor regulations |
|
Services contract (Dienstvertrag) |
Similar to work contract, more personal dependence on client |
An Employer of Record (EOR) in Germany assists in crafting precise and compliant employment contracts. Their local expertise ensures that contracts align with Germany's labor laws, covering essential terms while fostering legal clarity for both employers and employees.
Employment Laws in Germany
For foreign employers looking to hire and expand in Germany, understanding the country's employment laws is crucial. The Federal Ministry of Labor and Social Affairs (BMAS) oversees a comprehensive set of regulations, collectively known as BAMS, designed to protect the rights and well-being of employees.
BAMS covers essential areas such as labor laws, setting minimum wages, regulating working hours, and ensuring the rights of workers. Social security policies, including pensions, unemployment benefits, and healthcare, are also integral components of BAMS.
Equity is a core principle, with BAMS actively promoting gender equality, racial equity, and the rights of individuals with disabilities. The ministry's scope extends to occupational safety, health, vocational training, and immigration matters, offering foreign employers a holistic understanding of the employment landscape in Germany.
Explore the essential employment laws in Germany, covering a spectrum of regulations from minimum wages to social security, aimed at guiding foreign employers through the intricacies of workforce management in the country.
Navigating the intricate landscape of employment laws is made seamless with the support of an Employer of Record (EOR) in Germany. They provide expert guidance to ensure adherence to local regulations, minimizing risks and simplifying legal complexities for employers operating in Germany.
Minimum Wages
As of February 10, 2024, the minimum hourly wage in Germany stands at €12.41 before taxes, reflecting an increase from the previous rate of €12.00 per hour implemented on January 1, 2024.
Working Hours
Employees in Germany typically work between 36 and 40 hours per week. Full-time positions commonly involve 7 or 8 hours per day, spread across 5 days a week, often with a 30-minute to 1-hour lunch break. The maximum allowable working week is 48 hours. Extensions to 10 hours per day are permitted under the condition that the average over six months doesn't exceed 8 hours per day.
Work on Sundays and public holidays is generally restricted, with exceptions for specific industries like tourism or healthcare. Breaks are mandatory, with a duration of 30 minutes for workdays lasting 6-9 hours and 45 minutes for those lasting 9-10 hours. It's important to note that collective bargaining agreements between employers and unions may establish different rules for working hours in specific industries or occupations.
Payroll Cycle
In Germany, the payroll cycle typically adheres to a monthly schedule. Employees are commonly paid once a month, and the payment is usually processed on the last working day or the 1st day of the subsequent month.
Probation Period
In Germany, the probation period, referred to as Probezeit in German, has a maximum duration of six months for both fixed-term and open-ended contracts. However, some employers may opt for shorter probation periods or may not have one at all.
It's crucial to note that the probation period must be explicitly stated in the employment contract. Additionally, it cannot be extended unless there are exceptional circumstances agreed upon by both the employer and the employee.
Notice Period
The termination notice period in Germany is contingent on the employee's tenure:
- Probation Period: Generally set at 2 weeks for both employer and employee.
- Post-Probation Period:
- Up to 2 years: 4 weeks
- Up to 5 years: 1 month
- Up to 8 years: 2 months
- Up to 10 years: 3 months
- Up to 12 years: 4 months
- 12+ years: 5 months, with an increase of 1 month per additional year
- Notice periods apply uniformly to both employers and employees, unless otherwise specified in individual contracts or collective bargaining agreements.
- Written notice of termination is mandatory, with notice periods typically concluding on the 15th or the last day of the month.
Severance Pay
Severance pay in Germany isn't mandated by law. Instead, it depends on employment contracts and collective bargaining agreements. Individual contracts may specify severance pay conditions, especially in cases like termination for operational reasons. Many industries have agreements that cover severance pay terms.
In Germany, severance pay is generally calculated as half a month's salary for each year of service. Notably, the maximum severance pay for those under 50 is often limited to 12 months' salary. However, for older employees and those with longer service, the severance amount might be higher.
Understanding the terms in individual contracts and collective agreements is crucial. These documents determine the specific conditions and amounts related to severance pay, allowing for flexibility based on factors like age, years of service, and industry norms.
Overtime Pay
Overtime pay in Germany is not legally mandated, varying depending on individual contracts or collective bargaining agreements. If your contract outlines overtime pay, it will specify rates, commonly ranging from 125% to 175% of the regular hourly wage. Collective bargaining agreements in many industries often provide more specific and potentially better compensation terms than individual contracts. The factors influencing overtime pay include the day of the week, night work, and employee category, with managerial positions having potentially different rules. It's essential to review your employment contract or consult legal experts for specific details in your situation.
13th Month Salary
In Germany, the 13th month salary, often referred to as "13. Monatsgehalt," is a customary but not legally required benefit for many employees. Also known as Christmas Bonus or Additional Payment in contracts, it holds a legal distinction from a Christmas bonus. While prevalent, it's not guaranteed and varies across industries and collective bargaining agreements. Typically equal to one month's gross salary, the payment timing is around November or December, coinciding with the holiday season. Its taxation follows regular income tax and social security contributions, potentially attracting a slightly higher tax rate due to its lump-sum nature. To understand the specifics, it's advisable to review your employment contract.
Personal Income Tax in Germany
Germany's progressive income tax system applies to individuals, with rates starting at 0% and rising to 45% as income increases. Basic tax-free allowances vary based on marital status (€11,604 for singles in 2024), and various deductions and credits can further reduce taxable income. Remember, a solidarity surcharge might apply alongside the main tax rate for higher incomes.
Singles
|
Taxable Income |
Tax Rate |
|
Less than €11,604 |
0% |
|
€11,605 - €66,760 |
14% - 42% |
|
€66,761 - €277,825 |
42% |
|
More than €277,825 |
45% + solidarity surcharge |
Married
|
Taxable Income |
Tax Rate |
Married |
|
Less than €9,948 |
0% |
Less than €19,896 |
|
€9,949 - €14,532 |
14% |
€19,897 - €29,064 |
|
€14,533 - €57,057 |
42% |
€29,065 - €114,114 |
|
€57,058 - €277,825 |
45% |
€114,115 - €555,650 |
|
More than €277,825 |
45% + solidarity surcharge |
More than €555,650 |
Simplifying personal income tax procedures is facilitated by an Employer of Record (EOR) in Germany. They assist with accurate income tax deductions from employee salaries, providing expert advice to ensure compliance with local tax regulations and optimizing employees' financial situations.
Employee Benefits in Germany
When expanding your workforce into Germany, understanding the local employee benefits landscape is crucial. The German government mandates statutory benefits, including retirement, unemployment insurance, healthcare, long-term nursing care, and workers’ compensation. To attract top talent and stay competitive, many employers supplement these with additional benefits. Here's what you need to know:
- Statutory Benefits:
- Retirement plans
- Unemployment insurance
- Healthcare
- Long-term nursing care
- Workers’ compensation
- Supplementary Benefits:
- Additional retirement provisions
- Life insurance
- Lump-sum disability coverage
- Fringe Benefits:
- Company cars
- Job bikes
- Transportation allowances
- Childcare support
- Gym memberships
- Lunch vouchers
Leave Benefits in Germany
Navigating the leave landscape in Germany involves understanding the statutory requirements, prevalent market standards, and the additional benefits that set exceptional employers apart. Here's a breakdown of how holiday, sick, maternity, paternity, and flexible working leaves are typically approached, from the baseline mandated by law to what can be considered exemplary coverage.
In Germany, holiday leave is mandated by law, entitling employees to 24 days for a six-day working week and 20 days for a five-day working week. This statutory provision ensures a baseline of annual leave. However, the market standard often aligns with the statutory requirement of 24 days, while some employers go above and beyond, offering unlimited holiday as a great benefit.
When it comes to sick leave, German employers are obliged to pay 100% of an employee's salary for the initial 6 weeks of illness. Beyond this period, the health fund covers short-term disability, providing 70% of the salary for up to 78 weeks within a 3-year span. Contributions for sick leave are included in retirement payments. For executives and managers, the 6-week minimum coverage is frequently extended, demonstrating a commitment to employee well-being.
Maternity leave in Germany offers robust financial support. Expectant mothers receive 100% of their earnings, commencing six weeks before childbirth and continuing for eight weeks after (or 12 weeks in the case of twins). Employers are fully reimbursed by the state during this period. While around 15% of companies provide maternity pay above the statutory requirements, there isn't a prevalent concept of "great" coverage in this context.
Interestingly, paternity leave lacks a statutory requirement in Germany. However, approximately 15% of companies supplement paternity leave pay, adding an extra layer of support for new fathers. "Great" coverage, in this case, is not applicable, highlighting the general absence of formal requirements in this area.
Flexible working arrangements also reflect variations. While Germany has no statutory requirement for flexible working, a substantial number of employers, approximately 65% or more, provide some form of flexibility, often allowing 1-2 days of remote work. The concept of a "work from anywhere" scheme, constituting great coverage, is relatively limited, typically allowing for 0-1 days in the office.
Optimizing employee benefits strategy is streamlined with an Employer of Record (EOR) in Germany. From enrollment to compliance, they facilitate benefits administration, ensuring that employers can enhance the overall employee experience within the framework of Germany's regulations.
In Germany, harnessing the services of an Employer of Record (EOR) is crucial for businesses navigating the local employment landscape. The EOR adeptly manages intricate compliance matters, navigates payroll complexities, and handles administrative intricacies, enabling companies to concentrate on core objectives without being entangled in regulatory complexities. This collaborative approach ensures that employees are seamlessly integrated with contracts aligning with Germany's labor laws and practices. As the German business environment evolves, the role of an EOR becomes increasingly vital, providing businesses a streamlined entry and growth path in Germany while ensuring compliance and nurturing a favorable work environment.
Social Security Contributions
Employer and Employee Contributions
Component
Employer Contribution
Employee Contribution
Pension Insurance
9.3%
9.3%
Health Insurance
7.3%
7.3%
Unemployment Insurance
1.25%
1.25%
Nursing Care Insurance
1.7%
1.7%
Nursing care insurance: 3.4 percent (for those without children: 4.0 percent)
Pension Insurance aka Deutsche Rentenversicherung
Both employer and employee contribute 9.3% towards pension insurance. The maximum salary considered to calculate pension insurance is capped at EUR 7,550 per month for West Germany and EUR 7,450 per month for East Germany from January 1st, 2024.
Health Insurance aka krankenversicherung
Both employer and employee contribute 7.3% towards public health insurance. The maximum salary considered to calculate health insurance is capped at EUR 4,987.50 Euros per month as of 2023. The contribution rate is 7% if the employees are not entitled to the sick pay.
In Germany, there are three health insurance options: compulsory membership, voluntary membership, and family insurance.
Unemployment insurance aka Arbeitslosenversicherung
Both employer and employee contribute 1.25% towards unemployment insurance. The maximum salary considered to calculate unemployment insurance is capped at EUR 7,550 per month for West Germany and EUR 7,450 per month for East Germany from January 1st, 2024.
The long-term care insurance vs Pflegeversicherung
Both employer and employee contribute 1.7% of the gross salary towards nursing care insurance from January 1st, 2024. Childless employees from the age 23 pay an additional surcharge of 0.6% of the gross salary making the overall contribution 4%.
Employer Contributions
Component
Employer Contribution *
U1: Continued Payment of Wages in the event of illness aka Entgeltfortzahlung im Krankheitsfall
1% to 4%
U2: Maternity protection aka Mutterschutz
0.29% and 0.99%
U3: Insolvency benefit apportionment aka Insolvenzgeldumlag
0.06%
Compulsory accident insurance aka gesetzliche Unfallversicherung
0.15% to 3.64%
Severely disabled levy aka Schwerbehindertenausgleichsabgabe
Varies
* Percentage of contribution refers to the % of maximum salary considered for calculations. It is not % of employee gross salary.
U1: Continued Payment of Wages in the event of illness aka Entgeltfortzahlung im Krankheitsfall
To safeguard smaller businesses, there exists the employer levy U1, akin to wage insurance. Employers with a consistent workforce of fewer than 30 employees are mandated to participate in the pay-as-you-go system.
Under this arrangement, the employer contributes a percentage of each employee's salary to the health insurance company. In cases where the employer is required to continue salary payments during an employee's illness, a portion of the expenditure can be reclaimed from the employee's health insurance provider.
This contribution typically ranges between 1% and 4% of an employee's gross salary, with reimbursement levels generally falling between 40% and 80% of the sustained salary. The precise terms vary depending on the health insurance company, and employers can select from different tariff options.
The maximum salary considered to calculate the contribution is capped at EUR 7,550 per month for West Germany and EUR 7,450 per month for East Germany from January 1st, 2024.
U2: Maternity protection aka Mutterschutz
Maternity leave poses a financial challenge for companies as employees are away for a specified duration. The mandatory U2 contribution is designed to alleviate this burden by providing reimbursement for these expenses. Monthly contribution rates fluctuate between 0.29% and 0.99%, contingent on the health insurance fund.
The maximum salary considered to calculate the contribution is capped at EUR 7,550 per month for West Germany and EUR 7,450 per month for East Germany from January 1st, 2024.
U3: Insolvency benefit apportionment aka Insolvenzgeldumlage
Insolvency allowance ("UI") is funded by a monthly levy from employers. The insolvency money levy, which was previously at 0.09 percent in 2022, has been reduced to 0.06 percent for 2023 and will remain the same in 2024, although the statutory levy rate is 0.15 percent. As per Section 165 SGB III, employees qualify for insolvency benefits if they worked in Germany and are still owed wages for the three months preceding the insolvency event.
Compulsory accident insurance vs gesetzliche Unfallversicherung
The employer contribution rate for gesetzliche Unfallversicherung (statutory accident insurance) in Germany varies depending on the industry and the risk of accidents in that industry. The rates are set by the Berufsgenossenschaften (professional associations) and the Unfallkassen (accident insurance funds), which are the responsible carriers of statutory accident insurance.
The employer contribution is calculated based on the assessment basis, which is the employee's gross salary up to a certain maximum (Beitragsbemessungsgrenze). The current maximum for 2023 is €87,600.
The contribution rates for 2023 range from 0.15% to 3.64% of the assessment basis. For example, the contribution rate for the construction industry is 2.44%, while the contribution rate for the office industry is 0.15%.
Severely disabled levy aka Schwerbehindertenausgleichsabgabe
The Schwerbehindertenausgleichsabgabe, or Severely Disabled Persons' Compensation Levy, in Germany applies to employers with a workforce of at least 20 positions who fail to meet a 5% quota of disabled employees. This levy is calculated annually per unoccupied job, ranging from €125 to €320, depending on the occupational rate.
The employer's contribution is determined by the number of employees below the required percentage of severely disabled persons, with varying rates for different-sized employers:
This contribution is due on the 15th of each month and must be paid to the Integration Office (Integrationsamt) responsible for the employer's region.
An Employer of Record (EOR) in Germany plays a crucial role in managing social security contributions. They handle the deductions from employee salaries and ensure timely payments to the relevant authorities, guaranteeing compliance with Germany's social security regulations.