Employer of Record in Germany

Employment agreements in Germany

When employing an individual in Germany, the terms of employment are usually agreed to in a written employment agreement. Except for fixed-term employment and non-compete obligations, which must be in writing, verbal agreements are permissible but not recommended.

The employer must provide a written statement of the employment terms to the employee within one month of starting employment. The written statement must include the following:

• Employment start date
• Usual work location
• Brief job description
• Salary and other elements of remuneration
• Working hours
• Annual holidays
• Notice period
• Applicable collective bargaining agreements

Probationary periods in Germany

Probationary periods in Germany are fairly common. They usually last no longer than six months but are not required by statute.

Average working hours in Germany

Under the Working Hours Act, daily working hours must not exceed eight hours. Based on six working days per week, employees can't exceed 48 hours per week.

How an employer of record helps you hire in Germany

An employer of record (EOR) allows you to hire in Germany without the headache of setting up a legal entity in Germany. Because most companies don’t have the resources or extensive knowledge to compliantly hire in international markets, an EOR helps you engage top talent from anywhere and support them based on their local needs. 

As an industry-leading EOR in Germany, Velocity Global is a trusted partner in hiring in Germany. By acting as the legal employer, we hire your new team members through local, compliant employment contracts—and you get back the time and flexibility to focus on your growing business.

Payroll cycles in Germany

The payroll cycle in Germany is generally a monthly cycle, with wages paid around the end of each month. 

Wages in Germany

Germany introduced a statutory minimum wage in 2015. Previously, minimum wages in Germany were set exclusively by collective bargaining agreements. Since January 1, 2015, the Minimum Wage Act (Mindestlohngesetz) applies to all employees employed in Germany and is reassessed every two years. As of June 10, 2022, Germany’s parliament approved an increase of the minimum wage to EUR12 gross per hour, beginning October 1, 2022.

Bonus payments in Germany

It is common in Germany to reward employees through contractual or discretionary bonus payments. However, it is not required by law. Employers must carefully review when scheduling a contractual bonus as changes to the plan are very restricted. If the contractual bonus plan is not met, employees can claim damages, often resulting in the payment of the on-target bonus amount. Payment of a discretionary bonus is decided at the end of each fiscal year.

How an EOR helps you run payroll in Germany

An employer of record (EOR) in Germany helps you compliantly manage your global team payroll, ensuring consistent and accurate pay and tax withholdings for employees living in Germany. Think of an EOR as your international HR team that understands the complex labor laws and payroll regulations of different markets. 

Partnering with a trusted EOR partner like Velocity Global for global payroll administration in Germany offers numerous benefits, like access to a centralized platform for payroll data and reporting, secure data privacy and protection, and time and cost savings.

Tax due dates in Germany

The submission deadline for taxes in Germany is July 31 of each year. 

Tax thresholds in Germany

Non-residents of Germany only pay income tax on the income earned in Germany. Individuals are considered German residents if they have spent 183 days in the country within a tax year. Germany has entered into double taxation treaties (DTT) with many countries, so these principles must also be taken into account for tax purposes.

As of 2022, the income tax rates in Germany are:

• 0% for income up to EUR9,984
• 14%-42% for income between EUR9,985 and up to EUR58,596
• 42% for income between EUR58,597 and up to EUR277,825
• 45% for income over EUR277,826

Social security contributions are paid upon employees’ gross annual earnings, where the contributions are shared equally between the employer and the employee.

• National pension: 18.6% contribution
• National health insurance: 14.6% contribution
• National unemployment insurance: 2.5% contribution
• Old-age nursing care: 3.05% contribution

Health insurance in Germany

Germany’s national health system (Gesetzliche Krankenversicherung (GKV) provides universal health coverage, which ensures anyone who works for an employer in Germany will have their medical expenses covered from the day they start working. This system covers workers in case of injury, illness, maternity, paternity, disability, and death. An employee’s family can also benefit from this coverage. The medical expenses covered in full or in part include:

• Medical and paramedical expenses
• Prescription medication expenses
• Hospital expenses

Pension in Germany

In Germany, the statutory old-age insurance fund ensures that employees can maintain an appropriate standard of living when they retire. Payments are generally made starting at age 67, and the maximum payout currently amounts to 67% of the average net income during the insured employee’s working life.

How an EOR helps you calculate taxes in Germany

Payroll taxes are taxes imposed on employers and employees. They vary between countries, making compliance a hurdle for businesses that may not have the expertise or resources to navigate payroll taxes in Germany. 

As an employer of record (EOR) with a tenured global footprint, Velocity Global is knowledgeable in handling all aspects of payroll for you, including calculating and filing payroll taxes, withholding and remitting taxes, and issuing tax forms in Germany.

Annual leave in Germany

Under the Federal Holiday Act (Bundesurlaubsgesetz), the minimum annual leave entitlement is 20 days issued upon a five-day working week and 24 days issued upon a six-day working week. However, most employers usually give between 27 and 30 days of annual leave in Germany.

Parental leave in Germany

Maternity protection is for employees who are pregnant or breastfeeding a child. This includes the protection of health in the workplace combined with a right to working conditions that are appropriate for maternity care, protection against dismissal, and income protection.

The maternity leave period in Germany is the time during which employees are not allowed to work before and after birth. This usually begins six weeks before the expected due date and ends eight weeks after the birth.

Employers must allow employees to leave for medical examinations related to pregnancy. Employers are not able to reduce wages or salary for this leave.

Until the child’s first birthday, employers must give employees time off to breastfeed if they wish.

In addition to maternity leave, both female and male employees are entitled to take a supplementary parental leave up to each child’s third birthday. The employee and employer can agree to transfer up to 24 months of parental leave up to the child’s eighth birthday.

A parental allowance is paid by the government, not the employer, for a maximum duration of 12 months. Employees are entitled to a parental allowance of 65% of the last net income, but not more than EUR1,800 per month. Under the Parental Allowance Plus system, employees will receive the same amount of remuneration but stretched over a 24-month period.

Parental leave in Germany is one of the most progressive policy plans in the world. German citizens benefit from the scale of paid leave, employment protections, benefits regardless of employment status, and considerations for both mothers and fathers, as well as separated parents, single parents, adoptive parents, and widows.

Sick leave in Germany

The Continued Remuneration Act (Entgeltfortzahlungsgesetz) grants employees six weeks of statutory sick pay upon four weeks of employment. Employers with fewer than 30 employees can apply to the employers’ cost-sharing fund (Aufwendungsausgleichsgesetz), where they can recover sick pay.

Regional and national holidays in Germany

Germany has 13 public holidays, which are not included in the minimum paid leave entitlement. However, employers generally give their employees all of Germany’s public holidays off work. The 13 national holidays in Germany are:

• New Year’s Day (January 1)
• Epiphany (January 6)
• Good Friday (April, the specific day fluctuates each year)
• Easter Monday (April, the specific day fluctuates each year)
• Labor Day (May 1)
• Ascension Day (May, the specific day fluctuates each year)
• Whit Monday (May or June, the specific day fluctuates each year)
• Corpus Christi (June 11)
• Day of German Unity (October 3)
• Day of Reformation (October 31)
• All Saints Day (November 1)
• Christmas Day (December 25)
• St. Stephen’s Day (December 26)

How an EOR helps you manage leave and PTO in Germany

An employer of record (EOR) supports companies by managing annual leave, paid time off (PTO), and even local holidays all over the world—including Germany. When it comes to handling a company's annual leave requirements, an EOR ensures compliance with local labor laws in Germany at every step. 

Some EOR partners, like Velocity Global, provide a platform that helps you oversee employee time off in Germany. By outsourcing leave and time-off management to Velocity Global, you can ensure accurate tracking, compliance, and seamless administration, freeing up valuable time and resources for other business priorities.

Federal benefits in Germany

Employee benefits in Germany include comprehensive social security and health insurance that covers all life risks for residents. Employed residents and their families are fully eligible for Germany’s social security system, which includes:

• Health, maternity, paternity, disability, and death insurance
• Occupational accident and illness insurance
• Government pension contributions
• Family allowances
• Unemployment benefits

Supplemental benefits in Germany 

Supplemental benefits are bonus benefits an employer provides to boost their workers' benefits package. Examples include:

• Health insurance
• Private pension
• Life and disability benefits

While 90% of employees in Germany qualify for public health insurance, those earning over €64,350 annually can opt for private health insurance, which often provides broader coverage and more comprehensive benefits. Many German companies offer private pension plans to employees to supplement the public retirement system. Employees may see a decrease in social security benefits in the future, making private pensions an attractive benefit for German employees. Life insurance is a common supplemental benefit in Germany, typically providing survivors with benefits equal to twice the pensionable pay. Supplemental benefits also frequently include long-term disability (LTD) and total permanent disability (TPD) benefits. TPD benefits are usually a lump sum of twice the pensionable pay, while LTD benefits are an annuity at about 20% of pensionable pay, payable until recovery, retirement, or death. Other supplemental benefits German employers may offer to attract top talent are additional PTO, housing and child subsidies, equity awards, travel allowance, and gym or wellness perks.

How an EOR helps you administer benefits in Germany

As the legal employer for your employees living in Germany, an employer of record (EOR) administers statutory benefits and ensures they are enrolled and contributing to the appropriate government benefits. Additionally, an EOR partner manages the administration of supplemental benefits, including ensuring employees in Germany receive tailored, expert-vetted, and competitive supplemental benefits packages. 

Velocity Global makes understanding foreign statutory and supplemental benefits easy and offers your workforce competitive benefits packages tailored specifically to Germany and beyond.

Notice periods in Germany

The statutory notice period an employer must observe when terminating employment varies. It can range from two weeks during a six-month probation period to four weeks for employees on passing their probation and up to seven months after 20 years of service. The employment agreement can allow for longer notice periods, and collective bargaining agreements can allow for shorter notice periods.

An employer cannot pay an employee instead of providing notice. If a severe breach of contract occurs, the employer can immediately terminate employment. This immediate termination notice must be served within two weeks of the employer gaining knowledge of what caused the dismissal.

Severance pay in Germany

There is no statutory severance in Germany. Employees are only entitled to severance under an agreement with the German works council. However, many employers and employees agree on severance pay to avoid lengthy court proceedings. This severance usually amounts to 50% of the monthly salary per year of service. The severance pay varies significantly depending on the strength of the case for dismissal and the previous practice of the employer.

How an EOR helps you process terminations in Germany

An employer of record (EOR) is responsible for processing terminations in the event you need to terminate an employee in Germany. This may include adhering to local labor laws and regulations regarding termination procedures, including notice periods, severance pay, and any other statutory requirements. 

As an EOR with experience in terminations, Velocity Global helps businesses minimize the risk of legal disputes or liabilities in Germany.