How to hire and pay employees in Germany

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Germany

Before hiring

EMPLOYEES IN
Germany

Before hiring employees in Germany, there are a few important things you’ll need to know. If you’re looking at establishing a business entity in Germany, you should know that it can take up to six months to get started. Because of the volume of financial filings, it’s typically recommended to work with a tax advisor. 

It’s mandatory for health insurance to be provided to German employees and this can be done through either a public or private outlet.

We know this might sound overwhelming—but it doesn’t have to be. A solution like Oyster eliminates the barriers for you. With Oyster, you can automate compliance across 180+ countries, easily managing HR and payroll—all in one, easy-to-use platform. 

Get an overview of what you need to know when hiring in Germany below.

At a glance

CURRENCY

EUR

OFFICIAL LANGUAGE

GERMAN

PAYROLL FREQUENCY

MONTHLY (Paid around 25th of the month)

PUBLIC HOLIDAYS

9

(based on region;
see here
)

EMPLOYER TAXES

~21%

of gross salary

13th / 14th SALARY

Not mandatory, but a 13th salary is paid as an end of year bonus in some agreements

Good to know

 

  • Health insurance is mandatory in Germany and can be provided through either a public or private scheme. It is uncommon, however, to reimburse additional private insurances like dental and vision, as these would be taxable. Pensions are common and employers often contribute to private pension funds on behalf of their employees.
  • Overtime payments are required to any worker who works over 48 hours per week, unless the employee already earns over a certain amount. This is around ~€70-80K p.a. depending on the region.

Labor laws in

Germany

Working hours and overtime

Employees work a maximum of 40 hours a week—typically eight hours a day. Employees in Germany must be given at least 11 hours of resting time between two working days.

In Germany, overtime has to be specifically stated in an employee's contract, and higher wage earners are not eligible for overtime payments. The salary cap for overtime payments ends at ~€80K p.a. in Western Germany or ~€70K p.a. in Eastern Germany.

Employment contracts

There is no concept of at-will employment in Germany, as all employment must be under contract.

Indefinite employment agreements may be either oral or written, but fixed-term employment agreements must be in writing. The exact wording used in a contract is of paramount importance, so the contract is usually in German. Sometimes, especially where businesses operate internationally, English is used or a bilingual version of the contract is provided (with the German wording taking precedence in cases of doubt).

Probationary period

A common probation period in Germany is three months, though it can be up to six months. During the probation period, the contract may be terminated by either party at will by giving a minimum of two weeks’ notice.

Pensions

In Germany, every employer is obligated to make pension contributions through deferred compensation. These contributions flow directly into the pension contract without deduction of taxes or social security contributions. The full contribution rate to the statutory pension insurance is 18.6% of gross remuneration but no less than EUR 32.55. The company pension plan can take several different forms, including direct insurance, a direct pension fund, a support fund, or a direct commitment from the employer.

Non-compete agreements

Non-compete agreements in Germany must be limited in scope and duration, and must include compensation for the entire non-compete period. They must amount to at least 50% of the latest salary of the employee (including any bonus payments and gratuities).

The employer may waive the non-compete before termination, but the obligation to pay the necessary compensation continues for a period of 12 months following the declaration of the waiver.

Calculate costs to hire internationally

Benefits and leave in

Germany

Vacation time

It is mandatory for employers to provide 20 days of paid holidays per year based on a five-day workweek, or 24 days for a six-way workweek, though companies typically supplement this with additional vacation. It is customary to provide 6-10 additional holidays beyond the statutory minimum.

Sick leave

An employee who has been working for more than four weeks is entitled to sick pay for up to six weeks. The employee must notify the employer immediately of the inability to work and its expected duration. From the third calendar day on, the employee must submit a medical certificate.

If the illness persists beyond six weeks, employees covered by statutory health insurance can receive sick pay (Krankengeld) from their health insurance provider for up to an additional 72 weeks, with variations for those with private health insurance. This sick pay is usually 70% of the employee's gross pay.

Maternity and paternity leave

Maternity leave: In Germany, mothers get six weeks of fully paid leave prior to a child's birth, and eight weeks of fully paid leave after the childbirth. In the case of a premature birth, the leave period lasts 12 weeks after the birth.

Paternity leave: Under German law, fathers are not entitled to statutory paternity leave before or during childbirth. However, under the German Civil Code, employees may be entitled to short periods of paid leave (e.g., in case they have to care for their dependents), which may entitle a father to apply for paid leave during childbirth.

Parental leave

Both mothers and fathers can take unpaid parental leave of up to three years for each child. Parental leave can start no earlier than the date on which the child is born; if the employee is the child’s mother, it starts when the maternity leave ends. Parental leave ends no later than on the child’s 8th birthday. Parents can choose to work part-time during this leave period.

Parents can also apply for Parental Allowance, which they can claim from the day the child is born. This allows them to receive monthly payments from the state for a certain period of time based on their family and income situation.

Holidays

There are nine nationwide public holidays in Germany: New Year’s Day, Good Friday, Easter Monday, May Day, Ascension Day, Whit Monday, Day of German Unity, Christmas Day, and Boxing Day.

Different states have their own additional public holidays.

Employer tax

An employer can expect to contribute about 21% on top of an employee’s salary to social security. This includes pension contributions, health insurance, unemployment insurance, nursing care insurance, and accident insurance. 

Individual tax

Employees in Germany are taxed federally from 0% to 45% depending on their income bracket. Social security contributions total 20% and include contributions for pension, health insurance, unemployment insurance, and nursing care insurance. 

Termination in

Germany

Termination requirements

In Germany, employees who have worked at a company with more than 10 employees for more than six months can only be terminated for certain causes. An employer must provide written notice of termination, and the decision of the employer can be legally challenged by the employee in court.

Notice period

In Germany, an employee must be informed (in writing) four weeks in advance of separation during the first two years of employment. After that, the notice period increases depending on the employment duration.

Severance pay

Even though there is no statutory severance in Germany, in practice, many employers and employees will agree on severance pay provisions to avoid court proceedings. This severance will often amount to 50% of the monthly salary per year of service. This can vary depending on the strength of the case for dismissal and the previous practice of the employers. In Germany, it’s typical for companies to pay severance packages of up to six months of an employee’s salary to settle termination of employment.

Start hiring employees in

Germany

Setting up a business entity everywhere you want to hire a new employee isn’t scalable—it takes too long and the legal fees are high. At the same time, understanding and adhering to the local labor laws and employee expectations can be complex and time consuming. And it’s hard to find reliable information on up-to-date employment information for all the countries where you’re considering hiring. Not to mention tracking down invoices and managing employee contracts over email and spreadsheets—that gets messy fast. 

We can’t afford to take risks when it comes to compliance—we need to make sure we follow the local guidelines, especially when it comes to taxes and legalities. 

With Oyster, you can manage HR and payroll, and automate compliance across 180+ countries—all in one, easy-to-use platform.

Disclaimer: The information provided in this resource is for general educational purposes only and shall not be construed as legal advice. While Oyster strives to provide current and accurate information, Oyster makes no warranties or representations as to the correctness of the content provided and accepts no liability or responsibility for any errors or omissions in the content provided. By using this resource you acknowledge and agree that you do so at your own risk. The content of this resource is subject to change without notice.

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