How to hire and pay employees in Germany
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Before hiring
Before Hiring
Before you hire your first employee in Germany, you need to decide whether to establish a local entity or work with an Employer of Record (EOR).
Setting up a GmbH (limited liability company) takes 6+ months, requires €25,000 in share capital, and costs €10,000-€15,000 in legal and registration fees. You'll also need a physical office address, a local managing director, and ongoing accounting and payroll infrastructure.
An EOR lets you employ people in Germany within days without entity setup, which matters when you're competing for talent in tight markets like Berlin or Munich.
But here's what many platforms won't tell you: Germany's employment laws are complex enough that self-service tools often leave you exposed. Mandatory health insurance enrollment, works council consultation requirements, and GDPR-compliant data transfers aren't checkbox items—they require local expertise and ongoing support to get right.
Recent News
If you want to hire employees in Germany without unpleasant surprises, you have to track what's changing in payroll costs, wage floors, and hiring administration.
Germany is predictable in many ways—but "predictable" doesn't mean "static." The last 12 months brought updates that can change how you draft offers, run payroll, and budget employer costs.
Minimum wage increases (and the knock-on effects you can't ignore)
Germany's statutory minimum wage increased to €13.90/hour effective January 1, 2026 (up from €12.82/hour in 2025).
The Minimum Wage Commission has also set a further increase to €14.60/hour effective January 1, 2027, which matters if you're planning multi-year hiring or pricing. If you employ hourly workers, recheck that base pay (not "extras" that may not count) stays compliant under MiLoG. One practical risk: variable hours can pull the realized hourly rate below the statutory floor if time tracking is messy. Make time recording and monthly minimum-wage checks part of payroll hygiene, not a "later" project. If your comp bands sit close to the minimum wage, plan for wage compression pressure across adjacent levels.
Mini-job threshold changes (easy to get wrong, expensive when you do)
The mini-job earnings cap increased to €556/month starting January 1, 2025, and it moves as minimum wage changes.
If you hire mini-jobbers and their pay creeps above the cap, the role can "flip" into a different category with different social security treatment—and a different employer cost profile. Align contracted hours and hourly wage intentionally so you don't create accidental noncompliance or unbudgeted costs.
Payroll cost shifts: higher social security ceilings in 2026
Germany updates social security contribution assessment ceilings annually, and new ceilings took effect January 1, 2026. The pension/unemployment assessment ceiling increased to €101,400/year (about €8,450/month), and the health/long-term care assessment ceiling increased to €69,750/year (about €5,812.50/month).
For higher earners, this can raise employer costs because contributions apply up to a higher cap. This is the kind of change that makes Finance skeptical when HR says, "Germany is straightforward." Update your total cost-of-employment models and make sure your payroll provider applies the 2026 values. If you're comparing Germany offers to other EU markets, refresh your assumptions before you finalize headcount plans.
Hiring paperwork got more digital in 2025 (but not everything is "click to sign")
From January 1, 2025, Germany's Fourth Bureaucracy Relief Act (BEG IV) expanded when employment contracts and "proof of essential terms" (Nachweisgesetz) can be handled in text form rather than strict wet-ink requirements.
That can speed up onboarding, especially for remote hires, because you're not waiting on postal delivery to start the clock. But some clauses and contract types may still have stricter form requirements—so don't assume every document is safely digital.
Immigration: EU Blue Card salary thresholds increased in 2026
If you're hiring non-EU talent, the EU Blue Card minimum salary thresholds increased effective January 1, 2026.
The standard threshold is widely reported at €50,700/year (up from €48,300 in 2025), and the shortage occupation/recent graduate threshold at about €45,934/year (up from ~€43,760 in 2025). Offers that were "just enough" in 2025 can become noncompliant for applications filed in 2026. Build headroom above the threshold and be careful with compensation components—immigration authorities don't always treat variable pay and allowances the way recruiters expect.
Also note that Germany ended the informal "remonstration" appeal path for visa refusals on July 1, 2025, which makes first-shot document quality more important than ever. Treat immigration packets like payroll filings: precise, consistent, and audit-ready.
Pay transparency is moving from "someday" to a real deadline
The EU Pay Transparency Directive must be implemented by June 7, 2026, and Germany has been actively preparing (including an expert commission formed in July 2025 and a final report published October 24, 2025).
Even before final German rules land, the direction is clear: compensation architecture becomes a compliance issue, not just a comp philosophy debate. If you're scaling, now is the time to document job levels, pay bands, and the objective criteria you use to set pay. Hiring in Germany is absolutely doable—but the details change, and the cost drivers don't politely announce themselves in your budget model. If you want support that combines software with real humans who can help you navigate offers, payroll, and compliance decisions, it's time to start hiring globally with Oyster HR.
At a glance
CURRENCY
EUR
OFFICIAL LANGUAGE
GERMAN
PAYROLL FREQUENCY
MONTHLY (Paid around 25th of the month)
EMPLOYER TAXES
~21%
13th / 14th SALARY
Not mandatory, but a 13th salary is paid as an end of year bonus in some agreements
Good to know
Good to know
Top countries hiring in
Germany
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Labor laws in
Germany
Working hours and overtime
The standard working week in Germany is 40 hours, though many industries operate on 35-38 hour weeks through collective bargaining agreements.
Employees cannot work more than 8 hours per day or 48 hours per week on average over six months, with limited exceptions for temporary increased workload. Every employee must have at least 11 consecutive hours of rest between work days.
Overtime isn't automatically compensated at a premium rate unless specified in the employment contract or collective agreement. Many employers offer time-in-lieu (Zeitausgleich) or flat overtime compensation built into senior salaries.
Whatever arrangement you choose, document it clearly in the employment contract to avoid disputes later.
Minimum wage
The minimum wage levels set by the federal government are as follows:
- EUR 12.41 gross per hour from January 1, 2024
- EUR 12.82 gross per hour from January 1, 2025
Employment contracts
Employment contracts in Germany must be provided in writing within one month of the employee's start date, though best practice is to have signed contracts before day one.
The contract must specify role, salary, working hours, vacation days, notice period, probationary period, and workplace location. While German is the default language, contracts for international hires typically need bilingual versions.
Germany doesn't recognize at-will employment, so your contract must clearly define grounds for termination and notice periods. Standard contract templates won't cover every situation—work with local legal experts to ensure compliance, especially for senior roles or specialized arrangements.
Probationary period
Probationary periods in Germany can last up to six months, though three to six months is standard. During probation, either party can terminate the employment relationship with two weeks' notice without needing to provide cause. Once probation ends, full termination protection (Kündigungsschutz) applies, and you'll need documented performance issues or business reasons to end the employment. Use the probationary period strategically: document performance expectations clearly, provide regular feedback, and address concerns early. After probation ends, terminating an employee becomes significantly more complex and expensive.
If you have doubts during month five, extending probation is only possible if a shorter probation period was initially agreed, and only up to the six-month maximum—you'll need to make a decision before the six-month mark.
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.
Estimate your savings when using Oyster
Use this calculator to get an estimate of employment costs using Oyster.
(Spoiler alert: It’s much cheaper than setting up entities around the world!)
Benefits and leave in
Germany
Vacation time
German law mandates a minimum of 20 vacation days per year based on a five-day work week (24 days for a six-day week). Most employers offer 25-30 days to stay competitive, particularly in tech and professional services sectors.
Vacation is accrued at once at the beginning of the year, and may only be carried over to the next calendar year if urgent operational reasons or reasons relating to the employee justify this; if carried over, vacation must generally be granted and taken in the first 3 months of the following year. You must allow employees to take at least two consecutive weeks of vacation per year. Vacation cannot be bought out or forfeited except in specific circumstances like termination.
When planning your team's capacity, remember that many Germans take extended summer holidays (2-3 weeks) and vacation days don't include public holidays, which add another 9-13 days depending on the state.
Sick leave
Employees who are unable to work due to illness continue to receive 100% of their salary for up to six weeks per illness period, paid by the employer. After six weeks, statutory health insurance (Krankengasse) takes over with sick pay (Krankengeld). In addition to personal sick leave, Germany also provides a separate child sickness benefit, allowing parents to take paid time off to care for sick children.
Employees must inform their employer immediately if they are unable to work, along with how long they expect to be sick; they must also have their sickness confirmed by a doctor. Employees with statutory health insurance no longer need to submit the paper certificate to their employer, as it is transmitted electronically, but privately insured employees (or employees sick while abroad) must still provide a paper certificate.
Frequent short-term absences can justify termination if they create operational disruption, but long-term illness alone doesn't. Budget for sick leave costs when planning compensation—the six-week full pay requirement is a real expense that catches many first-time employers off guard. Unlike vacation time, unused sick days don't carry over or get paid out.
Maternity and paternity leave
Parental leave
Germany offers extensive parental leave (Elternzeit) of up to three years per child, available to both parents. The remaining parental leave can be split between parents and taken flexibly until the child turns eight.
Statutory parental allowance (Elterngeld) replaces 65-67% of net income up to a maximum of €1,800 per month for 12-14 months, funded by the government. Many employers top up this amount to 90-100% of salary for 3-6 months to remain competitive. Parents can also work up to 32 hours per week during parental leave while still receiving partial benefits.
Employees on parental leave have strong job protection rights—under German law, they cannot be terminated from the time they request leave through the end of the leave period, except in extraordinary circumstances. When they return, they're entitled to their previous role or an equivalent position. Plan for longer handover periods and backfill arrangements when team members take parental leave.
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
Employers in Germany contribute to mandatory social security contributions. Contribution rates 2024 are as follows:
- 9.3% for pension insurance
- 7.3% for health insurance
- 1.3% for unemployment insurance
- Nursing care insurance contributions that vary
These percentages are based on gross salary up to annual contribution ceilings that adjust yearly. You'll also pay a solidarity surcharge (Solidaritätszuschlag) of 5.5% on corporate income tax, though this doesn't apply to individual payroll. Additional costs include mandatory accident insurance (workers' compensation), which is paid solely by the employer and varies by insurer and risk.
When budgeting for a German hire, calculate additional employer-side taxes and contributions above base salary.
Individual tax
Germany operates a progressive income tax system with rates from 0% to 45%. The basic personal allowance is €11,604 (2024), meaning income below this threshold is tax-free. Tax rates then progress from 14% to 42% on income between €11,605 and €277,825, with a top rate of 45% applying to income above €277,826.
Employees are assigned to tax classes (Steuerklassen I-VI) that determine withholding rates, with class I for single employees being most common. Married couples can optimize their combined tax burden by choosing different class combinations. Germany also imposes a church tax (Kirchensteuer) of 8-9% of income tax for registered church members, which employers must withhold from payroll.
Termination in
Germany
Terminating an employee in Germany is legally complex and requires documented justification. After the probationary period ends, you can only terminate for three reasons:
- Personal conduct (repeated performance issues, misconduct)
- Operational reasons (genuine redundancy, business restructuring)
- Personal circumstances (long-term inability to perform duties)
You must prove that continued employment is unreasonable and that less severe measures (warnings, role changes) won't resolve the issue. The Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz) applies to employees after six months and provides strong job security. Terminations must be in writing, delivered by hand or registered mail, and must specify the notice period.
Employees can challenge terminations in labor court, but to be effective, they must file the complaint within three weeks of receiving the notice. If the court finds the termination unjustified, you may be required to reinstate the employee or pay significant compensation (typically 6-12 months' salary, sometimes more for long-tenured employees). Severance isn't legally required unless specified in a social plan or collective agreement, but offering severance in exchange for waiving legal challenges is common practice. Budget legal fees of €3,000-€10,000 per termination for anything beyond probationary period endings.
Statutory notice periods in Germany start at four weeks and increase with tenure. During probation, either party can terminate with two weeks' notice.
After probation, employees must give four weeks' notice (to the 15th or end of month), while employer notice periods scale with service:
- Four weeks for under two years
- One month for 2–4 years
- Two months for 5–7 years
- Three months for 8–9 years
- Increasing to seven months for 20+ years of service
Employment contracts can specify longer notice periods, but cannot reduce statutory minimums for employer-initiated terminations. Garden leave (Freistellung) is permitted but requires explicit agreement or provision in the contract. During the notice period, employees remain entitled to full salary and benefits, must be available for work unless released from this duty, and continue accruing vacation days.
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
You have two paths to employ people in Germany: establish your own entity or work with an Employer of Record. Setting up a GmbH makes sense if you're planning significant German operations (10+ employees within 18 months, physical office space, local sales), but it's a 6+ month process requiring €25,000+ in capital and ongoing operational overhead. The alternative—using an EOR—lets you employ German team members within days while maintaining full compliance.
Here's where most platforms fall short: Germany's employment complexity requires more than software. GDPR-compliant data handling, works council consultation, health insurance enrollment, and termination protection rules aren't checkbox items. When you're handling your first German parental leave situation or navigating a performance issue during probation extension discussions, self-service portals disappear. You need local HR and legal expertise available when questions arise, not just when things break.
With Oyster, you get both the technology platform to manage contracts, payroll, and benefits alongside access to German employment law experts who help you navigate complex situations. We handle entity-level compliance, tax registrations, and social security filings while giving you transparency into costs—no surprise fees, no asterisks. Whether you're hiring your first German employee or your fiftieth, you'll know exactly what employment costs, what your obligations are, and how to stay compliant. Talk to our team to determine the right approach for your situation.
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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FAQs
How much does it cost to hire an employee in Germany?
Total employment costs in Germany run approximately 120-123% of gross salary when you factor in mandatory employer contributions, which amount to approximately 21 percent of an employee's gross wage.
For example, a €70,000 base salary costs roughly €84,000-€86,000 annually including social security (19.5-20.5%), accident insurance (0.5-3%), and administrative overhead. This doesn't include voluntary benefits like supplementary pension contributions, gym memberships, or meal vouchers that many employers offer to stay competitive.
If you're setting up your own entity, add €10,000-€15,000 in initial setup costs, €2,000-€4,000 annually for accounting and payroll services, and ongoing HR administration overhead. An EOR eliminates entity costs but typically charges a service fee—evaluate total cost of ownership based on your hiring timeline and scale. Check out our free cost calculator for more personalized information.
Can I hire a German employee as a contractor instead?
Contractor misclassification risk in Germany is significant and expensive. German authorities (Deutsche Rentenversicherung) actively audit worker classification, and penalties include back payment of employer social security contributions, fines up to €500,000, and criminal liability in severe cases.
The key test is whether the worker is economically dependent on one client, follows your work instructions, and is integrated into your operations—if yes, they're likely an employee regardless of contract title. If you genuinely need project-based work with defined deliverables and the person maintains multiple clients, contractor relationships are appropriate. But if you're hiring someone who will work set hours, use your equipment, attend your meetings, and work exclusively for you—that's employment, and you need to treat it as such from day one.
What's the difference between hiring in Germany with an EOR vs. setting up my own entity?
Entity setup gives you maximum control but requires 6+ months, significant upfront investment (€25,000+ capital, €10,000-€15,000 legal and registration fees), and ongoing administrative infrastructure. You'll need German-registered office space, local accounting and payroll services, tax registrations, and internal HR expertise to handle employment law compliance. This makes sense when you're planning sustained operations with 10+ employees or need a physical presence for sales and customer relationships.
An EOR becomes your legal employer in Germany, handling all compliance, payroll, benefits administration, and employment obligations while you maintain day-to-day management of the employee's work. You can hire within days, avoid entity setup costs, and scale up or down without unwinding corporate structures. The trade-off is less control over employment terms (you must work within the EOR's established frameworks) and per-employee service fees. For most companies hiring their first 1-10 German employees, EOR provides faster speed-to-market at lower total cost.
How do works councils affect my ability to hire and manage employees?
Works councils (Betriebsrat) become relevant once you have five or more employees in Germany. Employees can elect council representatives who then have legally mandated consultation and co-determination rights on hiring, terminations, working hours, workplace monitoring, and compensation systems.
This doesn't mean councils can veto your decisions, but you must consult them before implementation—for example, when consulting on a termination, the works council has up to one week to respond—and they can delay or challenge actions they believe violate employee rights. For growing companies, this means building works council consultation into your planning timeline—especially for terminations, reorganizations, or policy changes. Violations of consultation requirements can invalidate management decisions (particularly terminations) and expose you to legal challenges. Many international employers partner with local HR experts or their EOR to navigate works council relationships effectively.
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