Hiring talent in Germany presents an exciting opportunity for foreign employers. However, companies interested in engaging German employees must also adhere to the country’s local labor laws, which include providing mandatory benefits.
Beyond mandatory benefits, employers should also provide supplemental benefits to their employees in Germany if they want to attract and retain top talent.
Read this guide to learn mandatory and common employee benefits in Germany and how to compliantly provide these benefits to your remote workforce.
Mandatory employee benefits in Germany include national health insurance, national pension, unemployment insurance, long-term care insurance, and occupational accident insurance. Additionally, German employees typically receive supplemental benefits, such as a private pension, supplemental health insurance, and supplemental life and disability benefits.
German employment law requires employers to provide several statutory benefits to employees in Germany. Below are mandatory employee benefits required by law.
Learn more: What Are Statutory Benefits?
German law requires everyone working or living in Germany to carry health insurance, and most are on public health insurance plans. Companies interested in hiring employees in Germany must contribute to their health insurance premiums.
The flat contribution rate for statutory health insurance is 14.6% and is shared evenly between the employee and employer. Individuals earning over €64,350 annually may choose to opt out of public health insurance and enroll in private health insurance.
There are three aspects of the German retirement system: company pension plans, private retirement investments, and the public retirement insurance system (social security). Company pension plans typically supplement the public retirement system.
Germany’s social security plan is mandatory for all employers and employees, and both must contribute. The current contribution rate for public pension is 18.6% and is shared evenly between the employee and employer.
While company pension plans aren’t mandatory, many companies offer a pension to help cover shortfalls from the public retirement insurance system.
Long-term care insurance, or nursing care insurance, covers employees that need ongoing treatment or care due to an accident, illness, or old age. The contribution rate for long-term care insurance is 3.05% and is shared evenly between the employee and employer.
All German employees who work at least 18 hours per week qualify for unemployment insurance. Employees who have been employed for at least 12 months of the previous two years receive the benefit from the first day of being dismissed from work or 12 weeks after resignation. The contribution rate for unemployment insurance is 2.5% and is shared evenly between the employee and employer.
Occupational Accident Insurance
Also known as workers’ compensation, occupational accident insurance covers employees who experience work-related accidents or illnesses. Contributions are borne by the employer and cover payments for medical treatment and services needed to aid employees' reintegration into the workforce. Contribution rates depend on the industry and employees’ accident risk.
German companies must provide three types of mandatory leave: annual, parental, and sick leave.
German employers must provide 20 paid days off for employees per year based on a five-day work week (and 24 days off for employees working a six-day work week).
While not included in the paid leave entitlement, German employers typically give their employees paid time off for the following national public holidays:
- New Year’s Day
- Good Friday
- Easter Monday
- Labor Monday
- Ascension Day
- German Unity Day
- Christmas Day
- St. Stephen’s Day
Holidays in Germany also vary by region, so certain employees may expect to receive time off for regional-specific holidays in addition to national public holidays.
Maternity and Paternity Leave
German employment law requires employees who give birth to receive six weeks of paid leave before their due date and another eight weeks after birth. Employees who have premature or multiple births are allowed up to 12 weeks.
On top of that, German employees who become parents can take up to 24 months of leave within three years of birth—the cost of which is covered by the government. Companies cannot terminate employees during parental leave.
Read more in our complete guide to paid maternity leave by country.
German employers must provide their employees with six weeks of paid sick leave upon four weeks of employment. However, employees must submit a doctor’s note to their employer for sick leave that extends beyond three days.
Learn more about Germany’s statutory employee benefits and labor laws.
In addition to the above mandatory benefits, many German companies provide supplemental benefits to attract new talent. Below are several common employee benefits that give employers a competitive edge.
Learn more: What Are Supplemental Benefits?
Private Pension Plan
As discussed, many 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.
Supplemental Life and Disability Benefits
Life insurance is another common supplemental benefit that German employees typically receive. Life insurance benefits usually amount to two times the pensionable pay to the employee’s survivors and are subject to income tax.
Supplemental benefits packages in Germany often include long-term disability (LTD) or total permanent disability (TPD) benefits. The TPD benefit is typically a lump sum and amounts to twice the pensionable pay, while the LTD benefit is an annuity at about 20% of pensionable pay. The annuity is usually payable until recovery, retirement, or death. Additionally, both disability benefits are subject to income tax.
Supplemental Health Insurance
While 90% of employees in Germany qualify for public health insurance, employees earning more than €64,350 may choose to enroll in private health insurance instead. Private health insurance typically offers a broader range of coverage than statutory health insurance, making it an attractive benefit for talent that wants or needs more comprehensive health benefits.
Companies that want to attract and retain top talent in Germany should consider adding fringe benefits as part of their employee benefits packages. Fringe benefits are often geared toward quality of life and can range from additional time off to providing wellness funds for employees.
Below are a few common fringe benefits German employees enjoy:
- Additional PTO. Companies may opt to offer more paid annual leave for employees as a fringe benefit (beyond the 20 days required by law).
- Housing and child subsidies. Housing subsidies may attract talent that must relocate for work. Child subsidies typically reimburse employees who pay for childcare.
- Equity compensation. Granting equity awards to employees gives them a small stake in your company, which encourages employee engagement and retention.
- Travel allowance. A typical travel allowance covers employees’ travel to and from work. For example, an employee may receive a stipend of €0.30 per kilometer.
- Gym membership or wellness funds. Wellness funds are gaining in popularity and typically cover the cost of a gym membership.
Learn more: What Are Fringe Benefits?
While it’s not mandatory to offer 13th-month pay in Germany, many companies choose to provide an extra month’s pay to employees, typically paid out in November.
Companies interested in hiring employees in Germany must be aware of all mandatory and common employee benefits to maintain compliance and gain a competitive edge in the market. Fortunately, you don’t have to go it alone when you partner with Velocity Global.
Our Global Benefits solution helps companies provide competitive employee benefits in Germany that go above and beyond the minimum requirements. Rely on our team of experts to craft market-specific rewards packages that comply with local statutory requirements and stand out from the competition.
Gain a competitive edge among employers and build a top-tier remote team with competitive global benefits. Contact Velocity Global to get started.