SPEAK TO AN EXPERT
Hiring employees compliantly in Germany means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Germany so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:
(a) Establish your own new legal entity, banking, accounting and payroll service in Germany; or
(b) use an Employer of Record like Global Expansion who can handle all of the details for you.
Labor Laws in Germany
Employment laws in Germany are uniquely suited to the country’s way of life, and crucial to understand if you want to employ local talent in this country. Get the details on Germany employment laws and Germany policies here.
Employee Probation Period
- In Germany, the probationary period usually makes up the first three months of employment.
- The maximum probationary period is six months.
Annual Leave in Germany
- Employees are entitled to a minimum of 24 days leave, however 30 is common. Additional leave may be granted to employees who perform intense or dangerous work.
- In general, vacation must be used before December 31 of the same year. Otherwise, unused days may not be carried over to the following year.
- However, if for business or personal reasons don’t allow the employee to take paid leave, unused leave can be transferred to the following year but must be used by March 31st.
Holidays in Germany
Germany celebrates nine national public holidays as well as additional public holidays that vary by state:
|Day of German Unity|
|St. Stephen’s Day|
Maternity Leave Germany
- Mothers are entitled to 6 weeks leave at full pay prior to their child's birth, and eight weeks at full pay after birth. In the case of premature or multiple births, 12 weeks paid leave is permitted. After six weeks the insurance provider will cover the fees.
Paternity Leave Germany
- Parental leave is leave of 36 months till the child turns three. This leave can be divided as chosen between the parents. The eight weeks of maternity leave is counted towards this. During parental leave, parents can choose to work part-time up to 30 hours per week.
Sick Leave in Germany
- Employees are entitled to at least six weeks of sick leave at full salary if the employee can present a medical certificate from their doctor.
- After six weeks, the employee will receive sickness benefits directly from their health insurance company. The reimbursement rate for the employee is 70% of the gross salary (until the social security ceiling) but not more than 90% of net salary.
Working Hours in Germany
- Employee working hours may not exceed 8 hours per day and 48 hours per week. The typical work week consists of 35-40 hours.
- A work week varies between 38-40 hours.
Overtime in Germany
- Overtime payment is only required when stated in employees’ individual contracts or collective labor agreements.
Notice Period in Germany
- The minimum statutory period is four weeks, and it is increased by one month each time the worker has completed his/her 5 th, 8 th, 10 th , 12 and 15 th year of working for the same employer.
- The maximum entitlement is seven months, after the worker has completed 20 years of service.
Severance in Germany
- Under the Employment Protection Act, an individual employee on permanent contract is entitled to severance pay if the employer indicates in the notice of dismissal that the dismissal is based on operational grounds and offers compensation or if the worker does not file a complaint against the dismissal within three weeks’ time.
- In this case, severance payments of half a month’s wage for each year of the employment relationship can be filed.
- The maximum payment stipulated by law equals to 12 months' salary.
- This rises to 15 months' salary for employees aged 50 or older, with at least 15 years of continuous service, and to 18 months' salary for employees aged at least 55 and with at least 20 years of continuous service.
13th / 14th Month Pay
- There is no statutory requirement to pay the 13th or 14th month salary.
- However, over 80% of employees receive a Christmas bonus as a result of a collective agreement.
Germany Salary and Wages
Accurately estimate your costs when employing in Germany in 2023. Includes base salary, dependents, benefits, taxes, social contributions, and payroll costs. Monthly or yearly calculation period.
Income Tax in Germany
- All resident individuals are taxed on their worldwide income. Non-resident individuals are taxed (usually by withholding) on German source income only.
- Taxable income covers income from the following categories:
- Agriculture and forestry.
- Trade or business.
- Independent professions.
- Capital investment.
- Rents and royalties.
- Other income (as defined by tax law).
- The total income after deductions in each category, which may be further reduced by lump-sum deductions or, within limits, by actual payment for special expenses defined by tax law, represents the taxable income.
- Germany has progressive tax rates ranging as follows (2023 tax year): -
Personal Income Tax Rates
Taxable Income Range for Single Taxpayers (EUR)
Tax Rate (%)
|10,908||62,810||14 to 42*|
Note: - * Geometrically progressive rates start at 14% and rise to 42%.
Social Security in Germany
- People employed in Germany have to contribute to four principal social security schemes.
- The contributions are in general paid half by the employer and half by the employee.
- The following social security contributions (as of January 2022) are levied on employment income.
- Pension Insurance
- Health Insurance
- Unemployment Insurance
- Long-term care Insurance
- Work accident Scheme
- Insolvency Contribution
- Work accident scheme depends on the industrial sector and the accident risk; these contributions are borne by the employer.
- Insolvency contribution only payable by the employer amounts to 0.09%, up to the income ceiling of EUR 84,600
Maximum Income Ceiling
EUR 84,600 annually (81,000 in the new federal states)
|Health Insurance||EUR 58,050 annually||14.6%||7.3%||7.3%|
|Unemployment Insurance||EUR 82,800 annually (77,400 in the new federal states)||2.4%||1.2%||1.2%|
|Long-Term Care Insurance||EUR 56,250 annually||3.05%*||1.525%||1.525%|
Note: - * 3.4% for childless individuals, beginning with age 23
- To work in Germany as a highly-qualified worker, you must first obtain a visa to enter Germany.
- You do not need a visa if you are from Australia, Canada, Israel, Japan, New Zealand, South Korea or the USA.
- Once in Germany, you must obtain a residence/settlement permit allowing you to work.
- A qualified expert can apply for a residence permit for job search for a maximum duration of 6 months. The highly-qualified expert has been awarded a university degree. If the university degree was not awarded in Germany, it must either be recognized or equivalent to a German university degree.
- Highly-qualified workers include:
- Scientists with special knowledge
- University teachers or assistants with executive functions.
- Migrants with a completed university degree can apply for a Blue Card EU. If the university degree was not awarded in Germany, it must either be recognized or equivalent to a German university degree. The applicants must present an employment contract / a binding employment offer with a specified minimum salary. This salary stands at two thirds of the annual contribution assessment ceiling for general old age pension insurance
- For occupations that face a labor shortage, the limit stands at 52% of the total amount.
Type of Visa/Permit
|Job Seeker Visa||
Value Added Tax
- Proceeds of sales and services provided in Germany are subject to VAT under the common system of the European Union (EU) at the standard rate of 19%.
- There is a reduced rate of 7% for food, books, hotel accommodation, cultural services and other goods and services.
- An entrepreneurial taxpayer generally is entitled to deduct the VAT charged on input from that payable on output.
*Reduced rate applies to food, books, hotel accommodation, cultural services and other goods and services.
- A contract of employment can be terminated by the employer or the employee. Dismissals require written form (paper form). Electronic termination (e.g. via email) is not possible. Both parties, employer and employee, have to observe the statutory notification periods.
- The German Employment Protection Act (Kündigungsschutzgesetz) establishes certain rules for dismissals, drawing distinctions between:
- Dismissal for personal reasons
- Dismissal for conduct-related reasons
- Dismissal for business reasons
- The Employment Protection Act only applies to companies with a staff of more than ten employees and with respect to continuous employment relationships of more than six months in the same company.
- If these conditions do not apply, employers generally have an unfettered right to terminate employment contracts within statutory notice periods.
Dismissal for Personal Reasons
- If employees are not physically or mentally suited to their job in the long term, termination is possible if the burden on the company is unreasonable.
- Justifiable reasons include long-term illness with a negative prognosis, or an alcohol or drug addiction with no reasonable prospect of successful treatment.
- However, employers must first implement reasonable stop-gap measures such as staff reorganization or the hiring of temporary staff.
Dismissal for Conduct-Related Reasons
- Employee misconduct can justify dismissal. However, a dismissal must always remain an option of last resort.
- Less severe options, such as redeployment of the employee, have to be considered prior to dismissal.
- Dismissal for conduct-related reasons generally also requires a prior written warning.
Dismissal for Business Reasons
- Termination for business-related reasons may be permitted if the employee’s job is rendered dispensable due to changes in the business organization such as:
- Plant closure
- Insufficient work due to a shortage of orders
- The business decision to cut back jobs under these circumstances is only limited reviewable by labor courts.
Mandatory Benefits in Germany
- The main statute on individual employment law is the Civil Code, which forms the basis of all individual employment contracts.
- These are mandatory benefits as prescribed by law.
- Employees are regularly insured in the social security system, which comprises statutory pension, health, nursing care, unemployment and occupational accidents insurance.
- As a rule, contributions to the statutory schemes are borne in equal shares by the employer and the employee.
- However, childless employees over 23 years of age contribute slightly more to nursing care insurance, and contributions to occupational accidents insurance are borne solely by the employer.
- Typical social security benefits are retirement pensions, disability pensions, survivors’ pensions, healthcare and nursing care, as well as unemployment benefits.
- Statutory benefits also include paid vacation and holidays, sick pay and maternity benefits.
Mandatory Benefits overview
Occupational Accidents Insurance
Paid Vacation and Holidays
Payments And Invoicing
- A large proportion of taxpayers in Germany, both expats and German citizens, choose to submit an annual income tax return to the Federal Central Tax Office.
- By submitting a tax declaration, you check that you have paid the correct amount of tax for the previous financial year. On average, nine out of 10 people who submit a tax return receive a refund.
Accrued Benefits in Germany
|Christmas Bonus %
Based on one month bonus (December - not compulsory but 80% get this bonus)
|Christmas Bonus Over Vacations %||0%|
|Severance per Year%||No statutory requirement|
Employees are entitled to 24 days of annual leave (6.59% of annual salary)
|6.59% of annual salary|
Employees are entitled to 20 days of notice period for one year of service or more (5.49%)
|Christmas Bonus Over Notifications %||0%|
|Vacations Plus %||0%|
Total percentage of Salary (yearly)
The total employment accruals as a percentage of salary per anum are equal to 20.41%
Payroll Accrual in Germany
Country Accruals Additional Information
|Pension insurance and unemployment ceiling||€85,200.00|
|Health insurance and long term care ceiling||€58,050.00|
|Health Insurance Contribution||7.30%|
|long term care insurance||1.53%|
The following social security contributions (as of January 2021) are levied on employment income. Employer contributions are generally tax-free. Pension insurance: 18.6%, up to an income ceiling of EUR 85,200 annually (EUR 80,400 in the new federal states). A contribution of 9.3% each is borne by both the employer and the employee.
Unemployment insurance: 2.4%, up to an income ceiling of EUR 85,200 annually (EUR 80,400 in the new federal states). A contribution of 1.2% each is borne by both the employer and the employee.
Health insurance: 14.6%, up to an income ceiling of EUR 58,050 annually. A contribution of 7.3% each is borne by both the employer and the employee.
Long-term care insurance: 3.05% (3.3% for childless individuals, beginning with age 23), up to an income ceiling of EUR 58,050 annually. The contribution is borne 1.525% by the employer and 1.525% (1.775% for childless individuals, beginning with age 23)by the employee.
Work accident scheme depends on the industrial sector and the accident risk; these contributions are borne by the employer. Insolvency contribution only payable by the employer amounts to 0.12%, up to the income ceiling of EUR 85,200 annually (EUR 80,400 in the new federal states).
An individual can apply for private health and long-term care insurance if certain conditions are met. Self-employed individuals generally do not have to pay mandatory social security contributions.
Payroll Accruals Additional information
|Annual Leave||Employees are entitled to a minimum of 24 days leave,||This equals 6.57% (24/365 days) of annual income|
|Maternity Leave||Mothers are entitled to 6 weeks leave at full pay prior to their child's birth, and eight weeks at full pay after birth. In the case of premature or multiple births, 12 weeks paid leave is permitted. After six weeks the insurance provider will cover the fees.||This equals 11.5% (6/52 weeks) of annual income|
|Parental Leave||Parental leave is leave of 36 months till the child turns three. This leave can be divided as chosen between the parents. The eight weeks of maternity leave is counted towards this. During parental leave, parents can choose to work part-time up to 30 hours per week.||This equals 300% (36/12 months) of annual income|
|Sick Leave||Employees are entitled to at least six weeks of sick leave at full salary if the employee can present a medical certificate from their doctor.||This equals 11.5% (6/52 weeks) of annual income|
|Severance||Under the Employment Protection Act, an individual employee on permanent contract is entitled to severance pay if the employer indicates in the notice of dismissal that the dismissal is based on operational grounds and offers compensation or if the worker does not file a complaint against the dismissal within three weeks’ time.
In this case, severance payments of half a month’s wage for each year of the employment relationship can be filed.
The maximum payment stipulated by law equals to 12 months' salary.
|Maximum pay equals 12 months salary|
|Social Security||Employers must make the following contributions: - Pension Insurance 9.3%; Health Insurance 7.3%; Unemployment Insurance 1.25%; Long Term Care Insurance 1.525%||This equals 19.37% of annual income|
Why use Global Expansion to hire in Germany
Establishing a branch office or subsidiary in Germany can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Germany labor laws are complex.
The company also has a responsibility to comply with specific employment practices dictated by Germany law to maintain its good standing as an equal opportunity employer.
Global Expansion makes it easy for you to expand into Germany. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.
We enable you to stay in control of everything. Our Germany Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.