Hiring in Germany
Top companies from around the world have recognized the advantages of hiring in Germany, but its labor regulations can be complex. Employment relationships in Germany are governed by laws such as the German Civil Code (Bürgerliches Gesetzbuch – BGB), the General Act on Equal Treatment (Allgemeines Gleichbehandlungsgesetz – AGG), and various statutory instruments, as well as collective agreements and individual contracts. The BGB serves as the primary legal framework, outlining workers’ rights, employer obligations, and procedures for labor disputes.
Additionally, German law places specific regulations on the use of temporary and agency workers. The Temporary Employment Act (Arbeitnehmerüberlassungsgesetz – AÜG) ensures that agency workers receive equal treatment in terms of basic working and employment conditions after a nine-month assignment with the same employer. Employers must provide written employment contracts detailing terms and conditions and ensure compliance with statutory requirements such as the minimum wage and working time regulations.
Because of the complexity of Germany’s labor and tax laws, compliant employment contracts are a critical business requirement. With Safeguard Global as your partner, you can hire employees in Germany with confidence, knowing that every contract meets legal standards. We also provide guidance on cultural expectations and hiring best practices while helping you stay current with regulatory changes.
Relying on an employer of record (EOR) in Germany
An employer of record (EOR) provides an easier way for organizations to hire and pay local talent in Germany. Because of its in-country presence, the EOR can employ the workers a company needs and lease them to that company, taking care to comply with Germany’s labor laws. As a result, the organization doesn’t have to establish a legal presence or manage compliance in Germany.
The EOR can hire and onboard employees in as little as two weeks and manage ongoing responsibilities such as payroll, benefits, and taxes. A full-service EOR can also manage recruitment. Together, these EOR services significantly reduce the administrative burden for an organization.
Visit our employer of record services page to learn how we can help you meet your international employment needs in Germany.
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How to hire in Germany
As one of the top economic powers in Europe, companies often need to hire workers in Germany. Its central location in Europe and workforce of 44 million people make the country an attractive hiring destination for international business.
Employers who want to hire in Germany from another country must first have a firm understanding of local labor laws. Businesses have three options for hiring workers overseas:
- Hire directly through your own German entity
- Hire through a global PEO
- Hire and pay independent contractors
Each method of hiring depends on the overall strategy and goals of your organization. This guide will help you better understand how to hire in Germany for your unique needs.
Hiring workers in Germany
Hiring foreign workers can be as simple or complex as the needs of your short and long-term goals, time and budget. The better you understand your market and hiring requirements, the more success you’ll have with international expansion.
Related: Market expansion strategies that work
1. Hire directly through your own German entity
Setting up your own legal entity in Germany will grant your business full autonomy to hire talent directly. The process of establishing an entity can take anywhere from 10-20 weeks and costs over €10,000, depending on the subsidiary type. Although it takes more time and money upfront, it gives your business more stability and control in the long run.
Related: 7 questions about international entity setup, answered
Hiring through your own entity means you are responsible and liable for all employment regulations. Ignorance is not a valid excuse for noncompliance. Make sure you have a firm understanding of all HR and payroll requirements to avoid government fines and penalties. If you don’t have the bandwidth to support your foreign employees, you can always work with an in-country partner for support.
Related: Thinking about expanding business to Germany? Start here
This has always been a more traditional route for global expansion in the past. Although more costly and time-consuming, it provides a strong foundation for consistent growth.
2. Hire through a global PEO
A global PEO is a common solution for companies seeking a more streamlined approach to hiring German employees. A professional employer organization (PEO), also called an employer of record (EOR), does all the administrative tasks for you. They use their own legal entity to hire employees on your behalf and complies with all employment regulations.
Using a global PEO means you don’t have to worry about onboarding, payroll, benefits, or risk mitigation. All you have to worry about is the day-to-day tasks of the employee. This is why this option has become a popular alternative to establishing a legal entity of their own. It’s a faster, more flexible strategy for rapid growth and testing new markets.
Partnering with a global PEO to hire in Germany empowers businesses to establish a remote workforce quickly before committing to a long-term expansion strategy.
3. Hire and pay independent contractors in Germany
The third option for employers is to engage with independent contractors in Germany instead of hiring full- or part-time employees. Germany boasts a large freelancer workforce of over 3.1 million contractors. Contractors are self-employed, and therefore do not receive employer benefits, and they pay their own taxes. These workers can be hired for short-term or project-based jobs, and is often a fast and flexible hiring solution.
However, businesses still need to have an understanding of German employment classifications before hiring a contractor. For instance, there is an important distinction between being self-employed (Gewerbetreibender) and being a freelancer (Freiberufler). Freelancing generally applies to intellectual roles, while the other applies to trades or business ownership.
Related: Eliminate international contractor risk
Hiring a contingent workforce in Germany is cost-effective as long as you avoid worker misclassification risks. Violating these employment laws will result in back pay, back taxes, civil lawsuits, and other legal penalties.
The costs of hiring in Germany
Businesses need to consider far more than just the salary or benefits offered to an employee. In addition to their base compensation, Germany requires employers to contribute to various social programs.
- Pension insurance: The total requirement is 18.6% of salaries up to €84,600. Half is paid by the employer (9.3%) and the other half is paid by the employee.
- Unemployment insurance: The total requirement is 2.4% of salaries up to €84,600, with both parties contributing half (1.2%).
- Health insurance: The total requirement is 14.6% of salaries up to €58,050, with both parties contributing half (7.3%).
- Long-term care insurance: The total requirement is 3.05% of salaries up to €58,050, with both parties contributing half (1.525%).
- Workers compensation: This accident insurance depends on the industrial sector and accident risk, but the employers are responsible for the costs.
- Insolvency contribution: Only payable by the employer to 0.09% of salaries up to €84,600.
Related: Global hiring playbook
Assuming you’ve hired an employee in Germany for more than the gross salary listed, you can expect to pay a little more than €14,000 for these tax contributions for each employee. It’s important to keep this in mind as you put together your recruiting and hiring strategy in these foreign countries.
FAQs about how to hire in Germany
Hiring in a foreign country is a complicated process. For those hoping to DIY their global expansion, we’ve compiled some common questions to help you get started. Understanding and complying with German employment laws is critical for long-term success.
What are some common employment laws and practices?
Most of these questions only apply if you plan to hire directly or hire independent contractors. A global PEO will manage all of these compliance regulations on your behalf.
Employment contracts: Germany offers both fixed- and indefinite-term contracts, but fixed contracts can’t surpass two years.
Minimum wage: Germany’s minimum wage stands at €12.41 per hour as of 2024.
Working hours: The standard workday in Germany comprises eight hours with a customary 30-minute break, although some workplaces opt for an hour-long break.
Overtime: Overtime compensation is determined within the employment contract and lacks statutory regulation.
Related: What international employers need to know about Germany overtime laws
Probationary period: Typically, a probation period of six months applies to most permanent employees in Germany, extending up to 12 months for senior, executive, and managerial roles, albeit without statutory obligation.
Termination: Notice periods for termination vary based on termination grounds, tenure, and provisions outlined in the employment agreement or collective bargaining agreements.
Severance: No statutory severance is mandated in Germany; instead, employees negotiate severance terms with the German works council, if applicable.
Annual leave: Employees in Germany are entitled to a minimum of 20 days of paid leave annually.
Maternity leave: Maternity leave benefits extend six weeks before childbirth and eight weeks after, with the allowance contingent on the earnings from the preceding calendar months.
Parental leave: German parents have the privilege of taking up to 12 months of unpaid parental leave, with the option to split it between both parents or have one parent take the entire duration.
Sick leave: Upon completing four weeks of service, employees are entitled to sick pay, entitling them to their regular wage for up to six weeks of illness.
Holidays: Germany observes nine national public holidays annually, with individual states recognizing additional holidays specific to their regions.
What is 13th-month pay in Germany?
Although not required, 13th-month pay is offered by many companies hiring in Germany. This grants an employee an additional month’s salary as an incentive to enhance their talent acquisition and retention strategy. Usually companies will pay this supplemental benefit in November before the holidays.
Related: Use an employer of record to hire German workers
What are some common German payroll regulations?
Payroll is another area that requires a fair bit of compliance. German workers must be paid in their local currency of Euros and fall within required pay frequency and contribution amounts. Germany operates on a monthly payroll cycle in most cases. Employers need to pay 19.6% of employee salaries to social security programs, which were listed above.
Related: Germany employer taxes: A guide for global companies
What is an AUG license?
The AUG (Arbeitsnehmerüberlassung) license, also referred to as the labor leasing act, is a required employment permit in Germany. This license is the most common way businesses hire temporary or fixed-term workers without their own business entity in the country.
Similar to an eor, this license allows a third-party leasing firm like Safeguard Global to hire employees through its own entity on the client’s behalf. However, unlike an eor, employment liability is shared between the employees, the leasing firm, and the client. The other downside is that these AUG engagements are limited to an 18-month timeframe, after which a company must either end the contract or hire them via their own legal entity.
Related: The little-known alternative to an AUG license in Germany
Hiring employees in Germany is easy with Global PEO Services
The German market is bursting with new talent and opportunities for growth. We have the experience and expertise to help you navigate complex international employment laws to expand your workforce. Global PEO Services, a Safeguard Global company, simplifies your expansion strategy and empowers you to focus on hitting your growth objectives.
We handle all the onboarding, payroll, HR, benefits administration, taxes and compliance. No matter what your hiring needs are, we can help you quickly and cost-effectively acquire the best workers in Germany. Speak with one of our global business advisors today to learn more.
HR & Benefits in Germany
Your Employees, Our HR
Get the HR support you need in Germany without setting up a legal entity or hiring HR personnel. Save time and enjoy peace of mind as our experts manage all aspects of your Germany HR.
Germany Recruitment Solutions
Need help finding talent? Our dedicated team of experienced recruiters can help you find and hire the employees you need, fast. We have an in-depth understanding of local job markets and provide you with access to exclusive talent networks, so you are always choosing from the best available candidates.
A solution for every staffing need:
- Contingent Hire
- Permanent Hire
- Recruitment Process Outsourcing (RPO)
Best in Class Employee Benefits
We provide high-quality benefits packages for your employees and their families. Our robust heath and benefits plans are designed to enhance local mandatory benefits while addressing employee expectations and cultural nuances.
Our employee benefits plans include:
- Top of the line health benefits (medical, dental, vision)
- Life insurance and short-term / long-term disability
- Employee assistance program – phone/online counseling & support
- Employee wellness program – health & wellness classes
- Business travel insurance
Guaranteed HR Compliance
Stay compliant without the complexity. Our experts manage the HR compliance requirements for your Germany teams and consistently monitor changes to labor laws so you are always informed and up to date.
Payroll in Germany
Pay Employees Without the Hassle
Pay employees in Germany without setting up a legal entity. Get peace of mind as we manage all aspects of your Germany payroll, ensuring your employees are always paid accurately, on time, and in their local currency.
Cross-Border Payments & Payroll Compliance
Run compliant payroll in Germany no matter where your business is located. Our Germany payroll experts get you set up fast and ensure you are always in compliance with local payroll requirements.
Struggling to Manage Payroll for Independent Contractors?
Pay your contractors easily and without the risk. Rather than taking on the liabilities associated with employing an independent contractor, we allow you to hire them as employees through our Germany PEO. They continue to work for you, while we manage all aspects of payroll, HR, and compliance.
The Solution to Low Headcount Payroll
Eliminate complexity and reduce the cost associated with running payroll for just a few employees. With Global PEO Services, you gain full access to our pre-existing Germany payroll infrastructure, teams, and processes. Stay flexible, save time, all while getting the payroll services and support you need.
Payroll & PEO in Germany
Germany Payroll Outsourcing & Management Services
Hire and pay employees in Germany without setting up a legal entity. With our Germany payroll and PEO services, you select the candidate, and we handle the rest.
After successfully hiring and onboarding your employees, we manage all aspects of the payroll process, ensuring your employees are always paid accurately and on time.
Our Germany payroll experts have an in-depth understanding of local payroll requirements and provide you with in-depth guidance and compliance support.
Our Germany PEO Payroll Solutions Cover:
Struggling to Manage Payroll for Independent Contractors?
Global PEO Services eliminates the complexity and liabilities associated with employing and paying independent contractors. We allow you to hire your contractors as employees through our Germany PEO. The individual continues to work for you, while we manage all aspects of payroll, HR, tax, and compliance.
The Solution to Low Headcount Payroll
Finding a payroll option for countries where you have low headcounts can be a challenge. Global PEO Services provides the solution. By using our Germany PEO to manage your payroll, you leverage our pre-existing payroll infrastructure, teams, and processes, even if you only need payroll for just one employee. Stay flexible, save time, all while getting the payroll services and support you need.