Germany is a great place to grow your business and workforce. Germany is Europe’s top economy, the world’s fourth-largest economy, and according to the World Bank, is one of the easiest countries to do business. Germany is also one of the most innovative countries on the globe and a promising market for tech firms considering global expansion.
So how does employment in Germany work, and how do you employ German talent from another country? The following guide provides insight into how to employ someone in Germany quickly and compliantly.
Employment in Germany is complex, and navigating the country’s tax structures is challenging without the right resources. Below are some fundamentals to know when hiring remote employees in Germany.
Payroll Tax and Social Security
Social security contributions are shared equally between the employer and the employee and include national pension, universal health insurance, national unemployment insurance, and old-age nursing care.
In Germany, non-residents only pay income tax on the income earned in Germany. If an individual spends 183 days in the country within a tax year, they are considered a German resident.
Onboarding and Probation Periods
In Germany, employment terms are typically agreed to in a written employment agreement. The employer must provide a written statement of the contract terms within one month of the employee starting employment.
The written agreement should include the employment start date, work location, job description, salary, working hours, holidays, notice period, and applicable collective bargaining agreements.
Probation periods are also commonly used in Germany but are not required. Probation periods typically last no longer than six months.
Germany has some of the most progressive and generous employee leave entitlements in the world, including:
- Annual leave. Germany’s minimum annual leave entitlement is 20 days for a five-day working week and 24 days for a six-day working week.
- Parental leave. Parental leave typically begins six weeks before the expected due date and ends eight weeks after the birth. Employers must also allow employees to leave for pregnancy-related medical examinations. Both female and male employees are entitled to take a supplementary parental leave up to each child’s third birthday.
- Sick leave. Employees in Germany are granted six weeks of sick pay upon four weeks of employment.
- National and regular holidays. Germany has 13 public holidays, and employees generally take off work.
Learn more about employee benefits in Germany.
Termination and Notice Periods
An employer must provide statutory notice when terminating a German employee. However, the notice period can vary from two weeks to four weeks and up to seven months after 20 years of service.
An employer cannot pay an employee instead of providing notice, and statutory severance is not required. The employer can immediately terminate employment if a severe breach of the employment contract occurs.
Find more information on Germany employment law.
There are three main methods to employ someone in Germany from another country. While each has pros and cons, the route you choose depends on your short and long-term goals, time, and budget.
1. Establish a German Entity
Establishing an entity in Germany gives you full autonomy to hire talent directly and handle employment logistics internally. Setting up an entity in Germany allows you to create a local branch, hire employees, and run payroll.
Setting up an entity is a good option if you want to hire many employees or plan to develop a long-term presence in the country. However, entity establishment is costly and time-consuming. Employers shouldn't pursue this method unless they are prepared and ready for the time and cost commitment.
2. Use an Employer of Record in Germany
An employer of record (EoR) is a legal entity that hires, pays, and manages your global workforce. An EoR is familiar with Germany’s employment laws and regulations and handles compliance, risk mitigation, hiring, onboarding, and payroll on your behalf.
Partnering with an EoR allows you to set up your remote workforce quickly and test out the German market before diving into long-term expansion in the country.
Learn more: What Is an Employer of Record?
3. Hire and Pay Contractors
Alternatively, you can engage a contractor in Germany rather than hire employees. A contractor is a self-employed individual that you can use for short-term projects or sporadic needs.
Still, while engaging contractors is a more flexible and cost-effective solution compared to hiring employees, it comes with severe worker misclassification risks, which can lead companies to face back pay, back taxes, and reputational damage.
Consider the following questions when hiring and paying remote employees in Germany:
Can a U.K. Company Employ Someone in Germany?
Yes, a U.K. company can employ German workers. If the employee is a resident of Germany, then the German tax laws and regulations apply to them.
However, employees wishing to immigrate to Germany must prove financial stability, have health insurance, and obtain a German visa. Applicable German visas include a working visa or a business visa for those needing to remain in Germany to conduct business for longer than 90 days within six months.
What Are the Risks of Employing Someone in Germany?
While employing remote workers in Germany offers many benefits, there are still risks with hiring someone in a different country. Employment regulations vary from country to country, so it’s essential to understand German tax laws and the compliance risks involved if you do not follow them.
- Misclassification. If an employee is misclassified as a contractor, they could claim entitlement to employee benefits, and your company could face fines, legal issues, and employee entitlement back pay obligations. German authorities also actively seek out misclassified employees more regularly and aggressively than other countries. Consider working with a legal expert, such as an EoR, who can help you avoid misclassification through compliant contracts, accurate reporting, and accurate payroll.
- Permanent establishment. A company has triggered permanent establishment if it has a fixed location in Germany and generates revenue. Having a permanent establishment means that you must comply with Germany’s corporate taxes. Failure to do so results in several legal issues, such as unpaid taxes, interest, penalties, and employer liabilities.
- Inaccurate payroll contributions. Germany’s payroll contributions vary from other countries, and you could face fines if miscalculated. In Germany, social security contributions are shared equally between the employer and the employee and include 18.6% for pension, 14.6% for health insurance, 2.5% for unemployment, and 3.05% for old-age nursing care.
- Immigration requirements. You may encounter a scenario where you need to hire talent in Germany, but they are not residents or citizens of the country. It’s important to know the immigration criteria to ensure your employees are legally employed and living in Germany. The short-stay Schengen visa allows you to reside in Germany for a maximum of 90 days within a 180-day period; however, you are not allowed to engage in paid activity during this time, so an employee would need to obtain a working visa.
Germany’s market is full of opportunities, and its foreign employment laws shouldn’t deter you from growing your workforce across international borders. Working with a knowledgeable and experienced partner like Velocity Global helps you navigate German regulations and stay compliant.
Velocity Global's Employer of Record (EoR) solution handles onboarding, payroll, benefits administration, and compliance so you can quickly and cost-effectively hire top-tier talent in Germany without setting up an entity or navigating complex labor and tax laws.
Contact us to learn how we can support you and your growing workforce in Germany and 185+ countries.