German Labor Laws 

Several labor laws govern employer-employee relationships in Germany. Here is an overview of the most important German labor laws:

Working Hours

• The Working Hours Act, Young Workers Protection Act, and Maternity Protection Act govern working hours in Germany. 
• The standard daily working hours is 8 hours, except Sundays. 
• Maximum working hours in Germany is 48 working hours. 

Equality 

• The principle of equality is a fundamental right under the Basic Law (Art. 3) in Germany. It prevents discrimination based on sex, race, nationality, disability, religion, political beliefs, and trade union activities. 
• One must note that the Civil Code prohibits discrimination on grounds of sex, even before employment is formalized. 

Health and Safety 

• The German labor law places a strong emphasis on safety standards and employee well-being. 
• It is regulated through the Occupational Safety and Health Act (Arbeitsschutzgesetz). It mandates employers to assess and mitigate psychological and physical health hazards in the workplace. 

Work Breaks

• If an individual works six to nine hours daily, they are entitled to a 30-minute break. This break must be scheduled no later than six hours into their work shift. 
• For those working more than nine hours a day, the break is extended to 45 minutes. 

Probation

• The probation period in Germany is six months. 
• During this time, the employer retains the right to terminate the employee with only a two-week notice period. 
• This is provided in Civil Code Section 622, paragraph 3.

Termination of Contract

• German labor law regulates termination through the Civil Code and the Protection Against Dismissals Act. 
• After a six-month qualifying period, it applies to workplaces with more than five full-time employees. 
• Notice periods are determined by law. They start at four weeks and increase with years of service, capped at seven months after 20 years. 
• Extraordinary dismissal can occur for serious misconduct within two weeks of discovering the issue. 

Work Permits in Germany

Individuals, non-nationals of EU/EEA countries, must obtain a residence permit to work in Germany. There are three types of residence permits (Permanent Residence Permit, EU Blue Card, and Temporary Residence Permit for Employment Purposes) depending on individual circumstances.

Getting a work visa in Germany is mandatory for residents of all countries except the following: 

• EU/EEA
• Canada
• Australia
• Israel
• The Republic of Korea
• Japan
• Switzerland
• New Zealand
• USA

Payroll and Taxes in Germany

Taxation and payroll in Germany need careful consideration by employers. Here are certain aspects of the payroll and taxes that employers must make note of:

Minimum Wage

• Minimum wages in Germany are set at €12 per hour as of 2023. 

Income Tax

Income tax rates for employees follow a progressive scale, ranging from 0% to 45%. This progressive taxation system is based on different income brackets. The tax brackets (as of 2023) are as follows:

Corporate Tax

• Businesses are subject to a 15% national corporate tax. 
• Additionally, a 5.5% solidarity fee is imposed to support reunion costs. 

Social Tax

• Employer and employee contributions combine to fund the social insurance system and constitute a significant share of the employer tax in Germany. 
• This encompasses benefits like unemployment insurance, healthcare coverage, pensions, and long-term care. 
• The contribution rates for pensions stand at 9.3% for both employees and employers, 7.3% for both parties for health insurance, and 1.525% for long-term care.

Employee Benefits in Germany

Germany’s welfare system is one of the most comprehensive. The labor laws offer many employee benefits that help maintain a healthy work-life balance. 

Here are some benefits employers hiring in Germany must know:

Health Insurance

• Statutory benefits in Germany include a health insurance of 14.6%. It is split equally between the employee and the employer (7.3% each). 

Paid Leave

• The leave policy in Germany prompts employers to grant employees 20 paid days off annually, based on a five-day work week. 
• It is also customary for German employers to provide paid time off for national public holidays.

Sick Leave

• Employers must offer six weeks of paid sick leave after four weeks of work to employees. 
• If an employee is sick for more than three days, they must provide a medical certificate to their employer.

Maternity Leave 

• In Germany, self-employed mothers in the social security system can take maternity leave. 
• Maternity leave in Germany spans 14 weeks, starting up to six weeks before the expected delivery date and ending the day after birth. 
• For mothers with multiple children, two extra weeks are added for each additional child.

Paternity Leave

• As of now, there is no paternity leave in Germany. 
• Starting in 2024, German fathers can take two weeks of paid paternity leave. 

Parental Leave

• Parental leave in Germany is available to both mothers and fathers. 
• Parents are allowed three years of unpaid parental leave, which could be covered under parental allowance. 

Bereavement Leave

• Bereavement leave typically entails granting employees two days for mourning and attending the funeral of a close relative. 
• The specifics of this provision generally are stipulated within the employment contract.

Overtime Benefits

• Standard work shifts generally last eight hours, with a maximum limit of 10 hours. The maximum allowable workweek is 48 hours, encompassing Monday through Saturday. 
• Employees get 25% more than their normal wage as overtime compensation. 

Pension Plans

In Germany, all employees must participate in the public pension plan, ensuring comprehensive retirement coverage. Employers must share the contribution burden, covering half of the pension rate. It presently stands at 18.6% of an individual's salary.

Cost of Hiring an Employee in Germany

The cost of hiring in Germany covers various components, including the employee's salary, mandatory contributions, and additional benefits. These aspects are all critical to establishing a robust business and thus require careful consideration. 

Establishing a Subsidiary vs. Employer of Record (EOR) in Germany

Top Job Listing Sites in Germany

In Germany, several job listing websites are popular for job seekers and employers. Some of the top job listing sites in Germany include:

1. Indeed: It is an online job platform that provides job seekers with an extensive array of job listings from various sources and offers a user-friendly search and application process.

2. Monster: Monster is a prominent job site in Germany, facilitating connections between job seekers and over a thousand global recruiters who utilize the platform to access resumes. 

3. Stellenanzeigen.de: It offers a wide range of job listings, connecting individuals with opportunities in diverse industries and geographic locations within Germany. 

4. Kimeta: The platform empowers individuals to discover job listings from diverse sources, such as company websites, job boards, and career pages. By consolidating job postings from various sources, it is a valuable resource for individuals seeking employment opportunities within the German job market.

5. LinkedIn: German companies and recruiters use LinkedIn for talent acquisition, posting job openings, and promoting their brands. It has become an integral part of the professional landscape in Germany. 

How to Hire Top Talent in Germany

If you are planning to hire employees in Germany, you can choose from the following alternatives:

Option 1: Set up a subsidiary

• Setting up a subsidiary in Germany allows companies to establish a direct local presence, gaining more control over operations and recruitment. 
• Setting up a subsidiary is advantageous as it enables operational control and autonomy in recruitment.
• However, this option is expensive and time-consuming. 

Option 2: Hire as a contractor

• Instead of hiring full-time employees, companies can engage professionals on a contractual basis, providing flexibility and potential cost savings. 
• This way, employers can avoid long-term obligations. It will also give employers potential budget benefits and adaptability to workforce fluctuations in response to project demands.

Option 3: Collaborate with an EOR

• An EOR, such as Skuad, can hire employees in Germany on your behalf, facilitating access to local talent without establishing a formal in-country presence. 
• Skuad takes care of managing payroll, benefits, and ensures compliance with local labor laws, enabling you to focus on your primary business operations. This streamlined process minimizes administrative complexities, reduces legal risks, and expedites the onboarding of foreign employees.

Compliance Risks of Hiring Employees in Germany

Like all other countries, there are certain compliance risks in Germany. However, they can be effective with partners such as Skuad. Here are certain compliance risks that you may encounter:

• Legal Requirements: Germany has strict labor laws that mandate businesses follow requirements regarding employment contracts, minimum salaries, working hours, and termination processes. Non-compliance might lead to legal problems and sanctions.

• Worker's Rights: Employee rights violations related to working hours, overtime, and leave entitlement can lead to legal disputes and claims.

• Discrimination and Equality: Discrimination based on gender, age, or nationality is prohibited under German law. Employers indulging in discriminatory practices could invite legal action.

• Tax Compliance: It is employers’ responsibility to withhold and remit income tax, social security payments, and other taxes. Failure to do so can result in tax-related penalties.

• Data Protection: German data protection laws are stringent, and employers must handle employee data carefully. Violating data protection regulations can lead to fines and legal consequences.
  
• Misclassification Risk: Potential legal and financial risks are associated with incorrectly classifying workers as independent contractors (self-employed) when, according to German labor laws, they should be classified as employees. This misclassification can lead to several significant compliance issues,

Hiring Trend in Germany

Recent years have seen several trends emerging in Germany. One of the most common trends is hiring remote employees in Germany. Around 28% of German employees prefer remote work that offers them the flexibility to work from home. As one-third of the workforce desires permanent remote work, the growing demand for remote jobs is highlighted.

Recruiters have also noticed the rise of using AI while hiring. AI can aid in recruitment by screening applications and automating tasks. The extent to which AI is used should depend on available time and the importance of assessing soft skills. Recruiters can then verify the outcomes and save some time.

Hire Employees in Germany with Skuad 

Want to establish your presence in Germany but unsure how to navigate compliance requirements related to employee hiring? Skuad offers flexible and risk-aversive solutions. 

You can hire in Germany with Skuad, a global employment and payroll platform offering convenient solutions for your international team. Skuad enables centralized and compliant management of your entire workforce, regardless of work location, all within a single, unified platform. Skuad simplifies hiring worldwide, allowing great onboarding experience in 160+ countries.

‍Book a demo with Skuad today!

FAQs 

1. How do I employ someone in Germany? 

To hire employees in Germany, you must establish yourself as a legal business entity. Then, within one month of an employee's start date, you must provide a written employment contract that includes essential terms. A cost-effective and flexible alternative to hiring employees in Germany is partnering with a global EOR like Skuad.

2. How can I employ employees in Germany without a German legal entity? 

As a foreign company hiring employees in Germany, you must designate a permanent representative (PR) who must meet specific criteria for obtaining a German payroll tax number. You can also consider partnering with EOR platforms such as Skuad. 

3. How to hire remote employees in Germany?

Companies must establish a legal entity when hiring in Germany. However, they can also collaborate with a global employment solutions provider such as Skuad, which offers employer-of-record services.