Employment Law in Germany

Contracts

In Germany, employment contracts can be fixed-term or permanent, depending on the nature of the job and the agreement between the employer and employee. Permanent employment contracts must include benefits such as health insurance, pension contributions, paid leave, and unemployment insurance. Fixed-term employees are entitled to the same benefits as permanent employees, and without a justified reason, fixed-term contracts cannot exceed two years or be renewed more than three times within that period.

Germany also has apprenticeship contracts, mainly for training, which are governed by the Vocational Training Act.

Termination and notice periods

In Germany, statutory laws generally require written notice for termination, with periods ranging from four weeks to seven months based on the employee's length of service. In most cases, terminated employees are entitled to a warning and a fair hearing. Just cause for a dismissal includes the following:

• Serious misconduct
• Repeated violations
• Incapacity 
• Operational requirements
• Insubordination
• Theft
• Other significant breaches 

Employees may be entitled to severance pay, particularly in cases of redundancy, calculated based on their length of service and salary. As your Employer of Record (EOR) in Germany, we can assist you in managing employee terminations by providing legal guidance and a personalized process to ensure compliance with labor laws and minimize legal risks.

Probation periods

In Germany, probation periods are indirectly addressed in local law, typically lasting up to six months in the private sector, with similar provisions applicable in government employment, as stipulated in the German Civil Code.

Working hours and overtime

The standard working week in Germany typically consists of 40 hours, spread across five days, with a legal maximum of 48 hours per week averaged over a six-month reference period. Employees are entitled to 11 consecutive hours of rest in every 24-hour period and one full day off each week. 

Any work conducted beyond the standard working hours is considered overtime. While German law does not mandate a specific rate for overtime pay, it is common for employers to offer premium rates, such as time and a half or compensatory time off, based on the employee’s contract or collective agreement. Some industries have sector-specific agreements that define overtime compensation rules. 

Taxes

In Germany, withholding tax, or Lohnsteuer, is deducted by employers before paying salaries to employees. Employers must also deduct these taxes from vendor payments and contractor fees. Deductions are based on applicable income tax rates. Wage taxes must be deposited by the 10th of the following month, and periodic returns must be filed.

Employer payroll contributions

Germany's social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments.