Germany’s highly skilled labor pool and culture of innovation may entice you to target the country for hiring while planning international expansion. Before you dive too deep into the process, explore your options. In this article, we discuss three ways to hire employees in Germany (find a more detailed explanation of employment considerations on our Germany IPEO page).
Germany Hiring Option #1: Independent Contractors
If you’re not ready to establish a subsidiary in Germany, one alternate option is hiring independent contractors. The employment laws and pricey entitlements are not applicable to this class of workers, which makes it a less risky option for employers. Read more about Germany’s employment laws for international employers.
Hiring independent contractors is not entirely free from risks; you can have a valid contract, but if the court labels the contractor as an employee, they are subject to statutory rights and protections. If this occurs, you—as the employer—you are responsible for back taxes, contributions, and employee benefits, according to Siegwart German American Law firm.
Germany’s resource for foreign employers explains that it is irrelevant whether you establish a service contract, Dienstvertrag, or an independent service contract, Freier Dienstvertrag. The deciding factor is how the employer and worker handle the contents of the contract.
It’s also important to note that you cannot hire an independent contractor that works in a foreign country through a U.S.-based employment contract. This post explains the rules for hiring overseas in detail.
Typically, a worker in Germany is safely classified as an independent contractor if they can answer a definitive “yes” to the following questions:
- Do they control the nature of their work?
- Are they free from supervision, control, and instruction in the process?
- Can they set their hours and overall schedule?
- Do they only receive pay for completed work?
- Do they have other paying clients?
- Do they market their services to the public?
- Are they liable for their business expenses?
An issue with a contractor’s status usually won’t arise until their contract expires. The foreign worker might file a complaint to claim benefits such as severance and holiday pay. Avoid a legal battle by keeping clear records of your working relationship. Unfortunately, it’s left up to the labor courts to determine if they have the rights associated with full employee status.
Germany Hiring Option #2: Subsidiary Company Setup
Deciding to set up a subsidiary in a country is a commitment. You should have a robust global expansion strategy that includes a substantial budget, acute market research, goals, and plans for future growth. The entire process consumes time, money and energy. You’ll need a subsidiary if you want to hire German employees in-house. Setting up a subsidiary creates a non-independent company separated from your domestic headquarters, but is fully operational in Germany. It usually has a defined management team, assets, and financial sheets.
Hiring in Germany is difficult. Termination restrictions can prevent an employee from leaving a contract for up to six months. This might limit your talent pool. It’s also something you should consider when hiring employees because your at-will contracts do not exist.
You’ll also have to manage tax withholdings for employees, which include income tax, solidarity surcharge, and church tax. German employees are also entitled to benefits including health care and at least 20 paid days to use for vacation.
Once you’re established in Germany and have a system for managing these requirements, you have access to a large pool of highly-skilled, reliable workers.
Germany Hiring Option #3: Use An International PEO
If you’re not ready to commit to a subsidiary and you’re wary about hiring an independent contractor, use an International PEO (Professional Employer Organization). Velocity Global’s International PEO solution allows companies to quickly and compliantly expand into Germany (or virtually anywhere) without establishing a legal entity, saving organizations up to 60% when compared to entity establishment.
If you’d like to explore this option, reach out to Velocity Global today to learn how we can help you establish your presence in Germany in as few as 48 hours. Ready to widen your global footprint? Let’s talk.
Updated on 11/11/2019