Germany

Germany PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record service in Germany to companies willing to enter the German market or hire local/expat employees in this country.

Traditional approach requires establishing a subsidiary in Germany.  However our solution allows you to start the operations in Germany within days hence save time and money.  WeHG would hire candidates on your behalf while you maintain full operational control of their work. So legally they would be our employees, on our local payroll, 100% compliant but will work on your behalf. .

Germany fast facts

Population, million: 83,02
Land area: 357,168 km²
Capital: Berlin
Local currency: EUR

Hiring, Negotiating and Doing Business in Germany

The employment relationship is governed and regulated by:

  • Statutory laws.
  • The employment agreement.
  • Collective agreements (if any), such as works agreements with the works council or collective bargaining agreements with the union.

Necessity of written employment contract

If the employment is for a fixed term, this must always be agreed in writing. Should the parties fail to do so, the employment agreement shall be deemed to have been concluded for an unlimited period of time.

There is no legally fixed form for a contract of employment. Nonetheless, it is highly advisable to define certain points, such as:

  • The description of the location and activity;
  • The date of appointment and notice periods (in the case of fixed-term employment contracts the duration of the contract);
  • The daily or weekly working time;
  • Arranging of a probationary period;
  • The level of the wage (gross) and possible bonuses;
  • Vacation entitlement;
  • Non-disclosure agreements or non-compete obligations;
  • Contractual penalties

Different forms of engagement: employment, contracting, work with private entrepreneur

Generally, workers can be categorised as follows:

  • Dependent workers in an employer-employee relationship (employee).
  • Independent workers (self-employed contractors, such as freelancers and consultants).

An employee is someone who performs services under an employment agreement, under the direction and supervision of the employer.

An independent worker performs services on the basis of a service agreement and assumes the sole risk for his business. Even where a contract specifically describes a worker as an independent worker, that worker can still, in fact, be an employee given the circumstances of their employment relationship, and can still be entitled to the same rights as an employee.

German Employment Contract

Employment agreements

It is legally required to have a locally compliant employment contract in Germany. The contract should spell out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Germany should always state the salary and any compensation amounts in Euro rather than a foreign currency.

The legal framework for fixed-term employment contracts is set by the German Part-time and Fixed-term Employment Act (Teilzeit- und Befristungsgesetz; ”TzBfG”). As its title indicates, this act has two subjects: part-time work and fixed-term work. Regarding fixed-term work, the act differentiates between fixed-term employment contracts with a “valid reason” (mit Sachgrund) and contracts without such a “valid reason” (ohne Sachgrund).

A fixed-term employment contract without “valid reasons” is subject to some restrictions. In short, the employer may only extend such a fixed-term contract a maximum of three times and may not exceed the duration of two years in total. These restrictions and other important rules will be discussed in detail as the golden rules in the following article.

Fixed-term employment contracts with “valid reasons” are – for example – contracts that are entered into to hire employees as temporary replacements for others on parental leave or to cover increased workloads during a special temporary project. In practice, however, most fixed-term employment contracts are not based on “valid reasons” in the meaning of the TzBfG (sachgrundlose Befristung).

Germany working hours

The workweek is defined as the 6 days of Monday-Saturday. The working hours during normal workdays may not exceed eight hours and therefore 48 hours per week. The workday can be extended under certain circumstances to ten hours. Night work is only allowed for eight hours per working day. On-call work that requires the employee’s presence at the workplace also counts as working time and in some cases as overtime. On-call work in the form of constant availability, for example stand-by work, on the other hand, does not count as working time. Work on Sundays and public holidays is generally prohibited.

A working day of more than six, but no more than nine hours, requires a scheduled 30 minute rest break. This can be may be split into two breaks of 15 minutes. A 45 minute break is required after six hours of work in the case of a working day of more than nine hours. At the end of the working day, there must be an uninterrupted rest period of a minimum of 11 hours.

Overtime

Employees working hours may not exceed eight hours per day and 48 hours per week. They may be extended to up to ten hours per day provided the hours worked additionally are balanced out by free time within six months.

Overtime has to be compensated for with additional time off. An overtime bonus is possible but it is not legally specified. Overtime bonuses have to be paid only when required by individual contracts or in applicable collective labor agreements.

Vacation leave in Germany

In Germany the minimum holiday/vacation entitlement is 24 working days a year. This is based on a working week of six working days (excluding Sundays). The German system distinguishes between working days (Werktage) and office days (Arbeitstage). Since office days are generally only from Monday to Friday, the four-week minimum vacation amounts to 20 office days. Employers regularly grant more than the minimum vacation. Between 25 and 30 days per year is common practice.

German Maternity Leave

Pregnant women are not obliged to work at all in the last six weeks leading up to the expected date of birth, unless they explicitly declare their willingness to do so. The same applies to a period of eight weeks following the birth, during which the mother is absolutely forbidden to work.

Maternity leave starts automatically without any notice. However, if the pregnant woman has a medical certificate that states that the health of the mother or the unborn child will be endangered due to the employment, the employer may be prohibited from employing the employee before the start of the six-week period before childbirth (individual maternity protection period).

During the six weeks prior to birth and the eight weeks following birth, women are entitled to maternity pay that is equivalent to their monthly remuneration during the last three months before the start of their maternity leave.

German Severance Laws

Termination of employment

Any notice of termination, whether issued by the employer or by the employee, must be made in writing in order to be legally effective and is to be served to the other party. Should the terminating party fail to comply with this requirement as to the written form, the notice of termination is invalid.

Notice periods

Any notice of termination, whether issued by the employer or by the employee, must be made in writing in order to be legally effective and is to be served to the other party. Should the terminating party fail to comply with this requirement as to the written form, the notice of termination is invalid.

The employer must observe the applicable notice period when terminating the employment relationship. The statutory notice period varies from two weeks during a six-month probation period, to four weeks for employees on passing their probation, and up to seven months after 20 years’ service.

The employment agreement can provide for longer notice periods. Collective bargaining agreements can provide for shorter notice periods.

The employer cannot unilaterally pay the employee in lieu of notice (that is, make a one-time payment instead of continuing to pay the remuneration throughout the notice period).

Severance payments

There is no statutory severance in Germany. Employees are only entitled to severance payments under a social plan with the works council (often agreed on in the case of mass layoffs) or under a collective bargaining agreement.

However, in practice, many employers and employees will agree on severance pay provisions to avoid lengthy court proceedings concerning the effectiveness of the termination. This severance will often amount to 50% of the monthly salary per year of service. However, this can vary significantly depending on the strength of the case for dismissal and the previous practice of the employer.

German Tax

Personal income tax

Income for 1 person

Income for married couple

Tax rate

up to €8,652

up to €17,304

tax free amount

up to €53,665

up to €107,330

progressive from 14% to 42%

from €53,666 up to €254,446 

from €107,331 up to €508,892

42%

over €254,447

over €508,893

45%

In addition to this there is the “solidarity surcharge” of 5.5% of the tax, to cover the continuing costs of integrating the states of the former East Germany.

Germany allows a variety of deductions that can lower taxable income. Deductions are granted for circumstances such as children under 18 (or under 27 if still attending school and without earnings), specified insurance premiums, charitable and political contributions to German entities up to certain limits and unavoidable extraordinary expenses above a certain limit (such as illness).

 

Сategory

Tax rate

Notes

Old Age (pension)

9.35%

 

Health

7.3%

In addition, the health insurance will impose a surcharge up to 0.9%.

Unemployment

1.5%

 

Nursing Care

1.175%

1.425% childless employees over 23 years old, 1.675% in Saxony

Accident

1.6%

depends on risk covered

Sick Pay (AOK, 80%)

0.7%

Depends on coverage and health insurance.

Maternity (AOK)

0.24%

 

Insolvency (AOK)

0.15%

Payment of outstanding salary in case of bankruptcy

Health Insurance Benefits in Germany

If an employee is not able to perform their contractual duties because of a physical or mental incapacity or illness, he or she can take time off from work. The employer must, however, be informed immediately. If an absence for illness extends over three consecutive days, the employee must submit a doctor’s note to the employer.

German law requires that employees be paid 100 percent of their salary or wages by their employer during the first six weeks of sickness. Under certain circumstances, this six-week period can be triggered more than once a year.

If an employee again falls ill due to the same underlying illness, the six-week period will start again if six months have passed since the end of the last sick leave, or if one year has passed since the beginning of the first sick leave. If the underlying cause of illness is a new one, the six-week period automatically starts again.

Following the six-week period, employees are entitled to statutory/private insurance sickness benefits. The sickness allowance amounts to 70% of an employee’s normal pay. The maximum period for payment of this allowance is 78 weeks.

Additional Benefits in Germany

13,14th salary

Not a legal requirement. Many employers pay 13 monthly payments a year, which is normally paid out in December for Christmas or split between summer and Christmas. In some management positions, you might even get a 14th salary.

German Holidays

Germany celebrates nine national public holidays as well as additional public holidays that vary by state:

  • New Year
  • Good Friday
  • Easter Monday
  • Labour Day
  • Ascension
  • Whit Monday
  • Day of German Unity
  • Christmas
  • St. Stephen’s Day

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.

 

FAQ Germany

  • Working hours in Germany

    The workweek is defined as the 6 days of Monday-Saturday. The working hours during normal workdays may not exceed eight hours and therefore 48 hours per week.

  • What are the main holidays in Germany?

    Germany celebrates nine national public holidays as well as additional public holidays that vary by state:

    • New Year
    • Good Friday
    • Easter Monday
    • Labour Day
    • Ascension
    • Whit Monday
    • Day of German Unity
    • Christmas St. Stephen’s Day
  • Is there a severance payment in Germany?

    There is no statutory severance in Germany. Employees are only entitled to severance payments under a social plan with the works council (often agreed on in the case of mass layoffs) or under a collective bargaining agreement.

  • Hannah Kohl
    Author:
    Hannah Kohl. Head of Customer Success. Has extensive experience in the HR and IT industries. Helped 100+ international clients to achieve their global goals.

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