Employer of Record & Payroll

Germany Employer of Record & Payroll

COVID-19 status update

As the situation in Germany continues to develop, Safeguard Global will be providing in-country intellect to our clients regarding legislative changes affecting employees and impacting businesses, as well as government recommendations on how to keep employees safe and healthy. You can access that information in our COVID-19 Resource Center.

As of today, we have not identified any disruption that will impact our ability to provide the service our clients expect.

Germany employer of record and payroll

If expanding to and employing workers in Germany is on your radar, it’s important to consider how labor laws and cultural norms affect your growth and workforce strategy.

Here you can learn about the payroll, benefits, tax and compliance requirements for your workers in Germany. Safeguard Global provides employer of record, sometimes known as a global PEO, and payroll services to emerging and established multinationals in Germany. If you have additional questions, please reach out―our team is here to assist you.

Hiring in Germany

German work visa
Anyone intending to work in Germany must apply for a residence permit and a work permit.  Non-EU nationals must apply for a permit from the German embassy or consulate before making the trip to Germany.

Labor and employment laws in Germany
Employers may not discriminate against employees or prospective employees on the basis of:

  • Race
  • Ethnic origin (language, culture, tradition, customs, etc.)
  • Gender
  • Disability
  • Age
  • Religion or ideology (including political or other beliefs)
  • Sexual orientation/identity

Additionally, when organizations reach a certain number of employees, they are required to hire people with a disability in at least 5% of the jobs. If an employer fails to fulfill the quota, it will be required to pay compensatory tax.

Unions and collective bargaining in Germany
Unions are usually organized by industry in order to negotiate collective bargaining agreements with employers on salaries, hours, and other terms and conditions of employment. Employers approve agreements as part of regional associations rather than as individual companies.

Collective bargaining always takes precedence over work agreements, and works councils play a significant role in labor relations in Germany, having the right to be informed and consulted on a variety of matters.

Privacy in Germany
In 2018, the General Data Protection Regulation (GDPR) superseded the Data Protection Directive as the primary law governing data privacy in the EU. GDPR establishes minimum requirements for processing and retaining employee data, and it allows EU member nations to introduce more restrictive local legislation. Stricter requirements can also be established in collective bargaining agreements or work contracts.

There are additional laws regulating employee monitoring, surveillance and background check protections for employees, as well as their rights to know about the data that is being collected about them.

German employment contracts
Both verbal and written employment contracts are valid and binding for both employees and employers in Germany. At minimum, German employment contracts should include:

  • Employer and employee names and addresses
  • Start date
  • Job description
  • Work location
  • Weekly hours
  • Amount and method of payment
  • Leave entitlement
  • Required notice period
  • Reference to applicable collective agreements
  • Probationary period
  • Provision enabling the employer to assign other tasks within the company in accordance with employee’s capabilities and knowledge
  • Provision on how to address overtime working hours

Most contracts are established for an indefinite period; however, fixed-term employment contracts are allowed under narrowly defined parameters and include provisions on company size, extensions for such employment arrangements, and duration of the contract.

Compensation in Germany

The national hourly minimum wage is 9.35 euros, and all wages must be calculated and paid in euros. Employment contracts generally dictate when wages must be paid, and wage payment must be accompanied by a written payslip.

Overtime pay is not required or regulated by statutory law, and in principle it is possible to have some overtime work included in monthly remuneration. Overtime must only be compensated if it occurs regularly, is necessary to fulfill the workload or if it’s required. Otherwise, overtime may be compensated by granting additional time off.

Labor laws do not require that bonuses be paid in addition to wages. However, various bonuses are commonly provided, including:

  • Gratuities
  • Profit-sharing
  • Supplemental pay
  • Commissions
  • Piecework rates
  • Company car

There are additional legal claims for when a gratuity or bonus would be required, including a collective bargaining or employment agreement and operational practices.

Termination and severance in Germany

Termination by employer: An employee can only be dismissed for cause; additionally, the employee is entitled to a pre-termination works council hearing, at which the reasons for termination are discussed. Termination can only occur in response to at least one of three statutorily defined reasons for termination: personal (e.g., excessive absenteeism or reduced work capacity), conduct-related (e.g., willfully or severely negligent breach of contract) or business-related (e.g., changes in the employer organization).

There is a dismissal special protection in Germany, applicable to employees who are generally more in danger of being dismissed than others. For a dismissal in these cases, the permission of the competent authority must have been obtained in advance of termination.

There are formal actions that must be conducted by the employer for the termination to considered valid:

  • Works council hearing
  • Clear and unambiguous dismissal reasoning
  • Written dismissal notice (an oral notice is null and void)
  • Signature by the person competent to terminate
  • Notice delivery
  • Observation of notice period
  • Notice to works council must at least one week ahead of any termination

The notice period requirement increases according to the length of service, and shorter notice periods are only permissible if the relevant collective agreement provides for them. 

Contract of cancellation: Employment may also be canceled at any time by a mutually agreed upon contract between the employer and the employee with or without severance payment. Neither the provisions on protection against dismissal nor the obligation to notify the works council is applicable in such cases.

Closings and mass layoffs: The Act on Protection Against Unfair Dismissal requires employers with more than 20 employees to notify the Federal Employment Agency of planned mass dismissals. If the employer fails to submit notification of the mass layoff, all dismissals based on the layoff will be invalid. After notification to the Federal Employment Agency that layoffs are to occur, there is a blocking period followed by a period during which all the dismissals must be executed.

Payment on termination: Employees have no statutory right to severance pay and are only entitled to severance payments under a collective bargaining agreement or social plan with the works council. However, it is common for employers and employees to settle termination claims that have been filed with the labor court in return for payment of negotiated severance. 

Unemployment insurance: Unemployment insurance is mandatory. To be eligible for unemployment benefits, a claimant must meet historical employment and contribution eligibility requirements; the duration of benefits depends on an individual’s age and length of employment.

Working hours in Germany

Employees cannot be expected to work more than eight hours per day. However, work hours can be extended to a maximum of 10 hours per day if the average of work hours per week does not exceed eight work hours per day within 24 weeks. There are requirements for breaks throughout the day and the expectation of daily uninterrupted rest for employees.

Changes in standard work hours in Germany
Employees may request to change their full-time employment to part time for up to five years, and then return to full-time employment. However, the employee and employer must meet certain guidelines for this type of change; as well as for the decline of the request.

Employees can be required to perform overtime hours only if there is a provision in the employment agreement or in a collective bargaining agreement giving the employer that right. There is no legal provision for premium pay.

Probation periods
A probationary period is permitted and commonly required, and it must be expressly agreed to by the employee. As a rule, the probationary period may not be longer than six months.

All employment acts, collective agreements and employment laws apply during the probation period.

Noncompete agreements in Germany

Employees are prohibited from entering into competition with their employer for the duration of their employment. However, business activities outside the employer’s sector are allowed. A post-employment noncompete agreement can only be enforced if it meets requirements such as:

  • Protecting the reasonable interests of the company
  • Not hindering the employee’s career
  • Not exceeding two years
  • Requiring the employer to pay a percentage of the final annual salary of the employee for each year of prohibition

Benefits in Germany

Pension plans
The legal retirement age is 63 to 67 years old, depending upon how many an employee has contributed to the plan. The standard pension insurance contribution is a shared contribution (50/50) between employee and employer. The employer transfers the total amount of both contributions to the insurer.

The employee and employer standard pension insurance contribution rates are subject to a pension insurance contribution ceiling.

The amount paid in pension benefits depends on:

  • Number and amount of contributions made
  • Time over which contributions are paid
  • Employee’s income

State pension plans usually provide only basic benefits, and a company pension is another way of financing employee retirement. Employers may offer company pension plans but they are not obligated by law.

Social security and health insurance
Employees are legally required to belong to the national social security system. Additionally, employers are required to report new hires to the competent health insurer, to which all contributions to the social security system are made.

The German social security system covers health insurance, unemployment insurance, nursing care insurance, pension or old-age benefits and accident insurance.

Workers’ compensation in Germany
Employers make contributions to the employee accident insurance system, which is administered by associations set up for all branches of trade and industry. Contributions vary according to an individual employer’s accident record. Employees become eligible for compensation in the case of a workplace accident that occurs during or in connection with the performance of services under their employment contracts. This definition also covers accidents occurring while employees are commuting between home and work.

Leave in Germany

Vacation time in Germany
Employees who work five days a week are entitled to 20 days of vacation, and employees who work six days a week are entitled to 4 weeks, with vacation granted en bloc. Employees are eligible for their full vacation entitlement if they have been employed for at least six months. There are regulations on when and how unused leave can roll into the next calendar year, as well as on whether money can be substituted for leave.

In practice, almost all employees in Germany have more vacation leave than mandated by the government because it’s usually defined in collective bargaining or work agreements. In the absence of a collective bargaining agreement, the employment contract regulates vacations.

Sick leave in Germany
After four weeks of employment, employees are entitled to sick leave and the right to receive sick pay for up to 100% of their salary for six weeks. The employee is expected to provide medical certification if unable to work, and it should include the expected duration of the leave. If the six-week sick leave limit has been exhausted, employees are entitled to receive a sickness allowance paid by their statutory health insurance plan.

Maternity and paternity leave in Germany
Maternity leave in Germany is required six weeks prior to the birth of a child, unless the employee agrees to continue working, and eight to 12 weeks after the birth of the child. Following the birth of the child, the mother has a right to parental leave until the child reaches the age of three.

Upon return from maternity leave, the employee is guaranteed her previous job if the object, scope and nature of the work to be done is exactly defined by contract or by actual practice.

There are additional requirements for employees who deliver prematurely, working hours for expectant and breastfeeding mothers, and for employees who have a miscarriage.

There is no benefit specific to fathers, although either parent may take advantage of parental leave.

Public holidays in Germany
Germany observes nine national holidays, as well as additional holidays specific to individual regions. The national holidays are:

  • New Year’s Day (January 1)
  • Good Friday
  • Easter Monday
  • Labor Day (May 1)
  • Ascension
  • Whit Monday
  • German Unity Day (October 3)
  • Christmas Day (December 25)
  • St. Stephen’s Day (December 26)

German taxes

Businesses operating an entity in Germany are responsible for the following taxes:

Trade tax (Gewerbesteuer): Trade tax obligations commence as soon as business operations begin or as soon as the business is entered into the commercial register. The base rate for trade tax is 3.5%, which is multiplied by a municipal tax rate (anywhere between 200% and 580%), resulting in a total trade tax rate of somewhere between 7% and 20.3%.

Corporation tax (Körperschaftsteuer): The corporation tax is fixed at 15%, with an additional 5.5% solidarity surcharge (Solidaritätszuschlag), bringing the total tax rate to 15.825% of taxable income (i.e., annual profit). Corporations that have their management or registered office in Germany are liable to pay corporation tax and solidarity surcharge.

VAT (Umsatzsteuer): Some businesses will need to pay a Value Added Tax (VAT), which is applied to services as well as goods. The standard current rate is 19%, which makes up about a quarter of the German government’s revenue.

Church tax (Kirchensteuer): If an organization is affiliated with any religious organizations, the employer may also be liable to pay a church tax, between 8% and 9%.

Employers in Germany are responsible for the following taxes:

Payroll tax in Germany (Lohsteuer): Employers employing German citizens or residents in Germany are covered under federal tax laws. A resident employer is defined by having a residence, habitual abode, place of management, headquarters, permanent establishment or permanent representative in Germany.

Payroll taxes are deducted from employee salaries and include contributions to the social security system, pension plans and health insurance plans. Personal income is subject to tax at progressive rates, from 0% to 45%. Payroll taxes account for a third of the German government’s revenue.

The information provided on or through this website is for informational purposes only and does not constitute legal advice. Safeguard Global expressly disclaims any liability with respect to warranty or representation concerning the information contained herein, including the lost essence, interpretation, accuracy and/or completeness of the information in transit and language translation.

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