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Hiring in Germany

statutory labor requirements

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

  • 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.

Public Holidays

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

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

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.

Paternity 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.

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.
  • 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.

Work Hours

  • 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

  • Overtime payment is only required when stated in employees’ individual contracts or collective labor agreements.

Notice Period

  • The statutory notice periods are ruled by article 622 German Civil Code. The basic notice period is four weeks effective as of either the fifteenth or the end of the calendar month. 
  • It may be reduced to two weeks during a probationary period of six months and it extends in steps after two years of service with the company up to seven months to the end of a calendar month (in case of twenty years of service, whereas years of employment below the age of twenty-six are disregarded). 
  • Employer and employee may agree on longer notice periods but the notice period to be observed by the employee must not exceed the period to be observed by the employer. 
  • As in the case of an ordinary notice the termination of employment does not become effective until the end of the notice period. 
  • The employee remains employed throughout this period, thus being entitled to his salary and all benefits under the employment contract and under all other agreements and applicable regulations

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.
  • 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

  • Yes
  • 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.

income tax

  • 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.
    • Employment.
    • 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.
  • To improve the economic situation and infrastructure for certain regions in need, the German government is levying a 5.5% solidarity surcharge tax. The surcharge is imposed as a percentage on all individual income taxes.
  • Members of officially recognized churches pay church tax as a surcharge on their income tax. The rates are either 8% or 9%, depending on the federal state where the individual resides.
  • There are no local or state income taxes levied in Germany.

Personal Income Tax Rates

Taxable Income Range for Single Taxpayers (EUR)

Taxable Income Range for Married Taxpayers (EUR)

Tax Rate (%)

Over

Not Over

Over

Not Over

0

9,408

0

18,816

0

9,408

57,051

18,816

114,102

14*

57,051

270,500

114,102

541,000

42

270,500

And above

541,000

And above

45

 

Note: - * Geometrically progressive rates start at 14% and rise to 42%.

deductible expenses

Employment Expenses

  • Various properly documented and necessarily incurred income related expenses may be deducted by an individual unless they are - in cases of employment relationship - reimbursed by the employer.
  • For employees’ common tax deductions include:
    • costs of travelling to and from work
    • business literature
    • professional dues, and
    • work equipment.
  • There is a blanket employee allowance for business deductions of EUR 1,000 per year. 
  • To the extent actual employment connected expenses exceed the lump sum of EUR 1,000, they are deductible if they can be substantiated.

Personal Deductions

Alimony Payments

  • Individual taxpayers may take deductions up to EUR 13,805 for the alimony paid to a divorced partner.

Charitable contributions

  • Contributions to German charities and certain international charities are deductible up to 20% of adjusted gross income. 
  • Church tax is also fully deductible.

Childcare expenses

  • Fulfilling certain requirements, the actual expenses for child care can be deducted up to a maximum of EUR 4,000 per year/child for children younger than 14 years or for handicapped children.

Education expenses

  • 30% of tuition fees (except for housing, care, and food) of a recognized private school located in the EU/EEA countries or of German schools is applicable, if special tax relief for children is granted and if graduation is approved by the government. 
  • The special expenses which can be claimed are limited to EUR 5,000 per annum per child.

Social security contributions

  • Social security contributions and insurance premiums can be deducted up to specified limits, as follows.

Health insurance and long-term care contributions

  • Contributions to a health insurance are completely tax deductible as far as these contributions are paid for primary basic healthcare.
  • Contributions to a long-term care insurance are also tax deductible.

Unemployment insurance contributions

  • Additionally, contributions paid to certain other insurance policies (e.g. unemployment insurance) can be deducted up to a maximum of EUR 2,800 per year (EUR 1,900 for employees and pensioners). 
  • This only applies if these amounts have not already been utilized for health and long-term care insurance contributions.

Pension scheme contributions

    • Contributions to old-age pension schemes are, in general, tax deductible up to an overall limit of EUR 25,046 (EUR 50,092 for married taxpayers filing jointly). 
    • However, for a transitional period (2005 to 2025) only a reduced amount can be deducted. 
    • In 2020, the tax deduction amounts to 90% of the actual contributions, at a maximum of 90% of EUR 25,046 (EUR 50,092), and increases by 2% in each of the subsequent years up to the year 2025. 
  • For employees contributing to the state pension scheme, the deductible amount will be reduced by contributions paid by the employer to the state pension scheme, as those contributions are already tax exempt under the income tax act.

Mortgage deduction

  • Mortgage interest is only deductible against income from the property (i.e. not deductible for privately used property).

Standard deductions

  • A lump sum special expense deduction totalling EUR 36 for a single person or EUR 72 for married couples is provided without need for proof. 
  • Furthermore, there are also a number of other specific allowances and reliefs, for example, for children, the elderly and the disabled.

Personal allowances

  • Deductions are allowed for extraordinary burdens such as:
    • Subsistence for parents and children with low income (documentary evidence of low income is required) if entitled by law. 
    • The maximum deduction is EUR 9,408 and may be reduced by the standard of living of the country and the personal income situation of the beneficiaries.
    • Deductions for children who are being educated in Germany or abroad (within limitations), who are older than 18, and living outside the parents' household amounting to EUR 924 per year. 
    • If the child lives abroad, the amount may be reduced by the standard of living of the appropriate country.
  • Further deductions may be granted, for example, for handicapped family members and expenses for household help.

Business deductions

  • Fixed assets and intangibles are subject to depreciation or amortization.
  • For businesses common tax deductions are:
    • interest expenses
    • personnel expenses
    • operating materials, and
    • work equipment

The allowances shown below are deductible in computing taxable income.

Per Year/ Per Taxpayer

EUR

Employee's allowance

1000

Investor's allowance (for interest, dividends, and capital gains)

801

Social security allowance

Variable

Lump sum special expense deduction

36

Child allowance - per child registered in Germany and per parent

3,906

immigration

  • 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

Description

Job Seeker Visa

Documents

  • A valid passport
  • Copy of passport
  • 3 passport pictures based on biometric specification
  • CV
  • Diploma of your degree
  • Proof of Accommodation in Germany
  • Proof of financial costs to cover the costs
  • Birth certificate
  • Proof of health insurance

Validity

  • 6 months

Eligibility

  • Bachelor of Master’s Degree from a German university or an equivalent foreign degree
  • Have a minimum of 5 years of experience in your related field of study
  • Proof of sufficient funds
  • Travel and medical insurance until you get your work permit

Working Visa

 

Business 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.

 

VAT

General Rate

19%

Reduced Rate

7%*

*Reduced rate applies to food, books, hotel accommodation, cultural services and other goods and services.

withholding tax

Investment Income

  • A withholding tax with compensation effect is applicable on investment income. 
  • The flat tax rate amounts to 25% income tax and 5.5% solidarity surcharge on income tax.
  • There is, however, a tax free amount for total investment income of € 801 for single filers and € 1,602 for married couples filing a joint return. 
  • Foreign tax on investment income may be credited against the withholding tax when filing an income tax return. For investment funds holdings taxation may be triggered even on retained earnings.
  • The withholding tax with compensation effect on investment income also applies for capital gains deriving from the sale of shares, warrants, bonds etc. bought after December 31, 2008, irrespective of the holding period.

Domestic Dividend Payments

  • Withholding tax of 25% plus a 5.5% solidarity surcharge (making a total of 26.375%), is generally payable on domestic dividend payments. 
  • However, dividend payments made to corporations are usually free of withholding tax, while those paid to partnerships are subject to a withholding tax of 60% of the dividend payment.

Dividends Paid to Connected Companies in EU Countries

  • Dividends paid to connected companies in EU countries are exempt, subject to a 10% shareholding requirement.

Dividends Paid to Non-resident Companies

  • Generally, a rate of 26.375% applies (ie, 25% withholding tax (WHT) plus 5.50% solidarity surcharge on WHT, although exemptions may be available under the EU Parent-Subsidiary Directive, if applicable). 
  • There is a reduction of WHT under most German tax treaties for qualified dividends.
  • In addition, on the basis of domestic law, foreign corporations may claim a refund of 40% of the WHT, subject to certain substance requirements.

Patent royalties and certain copyright royalties paid to non-resident companies

  • Generally, 15.825% WHT applies. 
  • Exemptions may be available under the EU Interest-Royalties Directive, if applicable.
  • There is reduction of WHT under most German tax treaties.

Payment/Income

Withholding Tax

Investment Income

  • 25% income tax and 5.5% solidarity surcharge on income tax.
  • a tax free amount for total investment income of € 801 for single filers and € 1,602 for married couples filing a joint return.

Domestic Dividend Payments 

  • Withholding tax of 25% plus a 5.5% solidarity surcharge (making a total of 26.375%), is generally payable on domestic dividend payments. 
  • dividend payments made to corporations are usually free of withholding tax
  • Payments made to partnerships are subject to a withholding tax of 60% of the dividend payment

Dividend Paid to Connected Companies in EU countries

  • Exempt, subject to a 10% shareholding requirement

Dividends Paid to Non-Resident Companies

  • A rate of 26.375% applies (i.e., 25% withholding tax (WHT) plus 5.50% solidarity surcharge on WHT

Patent Royalties and Copyright Royalties Paid to Non-Resident Companies

  • Generally, 15.825% WHT applies. 

termination 

  • 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
      • Restructuring
      • 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.

statutory benefits

  • 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. 
  • High earners may opt out of statutory health and nursing care insurance and enroll in private health and nursing care insurance instead. 
  • 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.



Statutory Benefits

Pension Insurance

Health Insurance

Nursing Care

Unemployment Insurance

Occupational Accidents Insurance

Retirement Pensions

Disability Pensions

Survivors’ Pensions

Paid Vacation and Holidays

Sick Pay

Maternity Benefits

 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.

employee accruals

   
Christmas Bonus%

Based on one month bonus (December - not compulsory but 80% get this bonus)
8.33%

Christmas Bonus Over Vacations %

0%

Severance per Year %

No statutory requirement

Vacations % Employees are entitled to 24 days of annual leave (6.59% of annual salary)
Notice %

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%

employer accruals

Additional information (Country Accruals)

   
Pension insurance and unemployment ceiling €85,200.00
Health insurance and long term care ceiling €58,050.00
Pension insurance 9.30%
Unemployment insurance 1.20%
Health Insurance Contribution 7.30%
long term care insurance 1.53%
insolvency contribution 0.12%
Sick leave 12.33%
Maternity 14 weeks
Christmas Bonus 8.33%
Vacations 8.22%
Description 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.

 

Employer Accruals Additional information

    Employment Accruals
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

 

 

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