Employer of Record Guide in Germany
Germany's robust economy and skilled workforce make it an attractive expansion destination, but navigating its complex employment regulations can feel overwhelming. This comprehensive guide breaks down everything you need to know to hire compliantly and confidently in Europe's largest economy.
Capital City
Currency
Languages
Population size
Services available in this country:
Key stats and facts
Germany offers access to exceptional talent across high-demand sectors like software development, engineering, and renewable energy. Understanding the market fundamentals—from Berlin's startup ecosystem to Munich's tech hub—sets the foundation for successful hiring decisions.
Major economic hubs
Skills in demand
Currency
Language
GDP per Capita
Standard Tax Rate
Your EOR guide in Germany
German employment law is detailed and employee-focused, covering everything from strict working time regulations to generous leave policies. Here's your practical roadmap to payroll, compliance, and onboarding requirements that will keep your German operations running smoothly.
Minimum Wage
Germany has a national minimum wage of €12.41 per hour, effective January 1, 2024. This applies to all employees aged 18 and over, with limited exceptions for apprentices and certain training programmes.
The minimum wage is reviewed annually by the Minimum Wage Commission and typically increases each January. Employers must maintain detailed records of working hours for minimum wage employees.
Payroll Cycle
German payroll operates on a monthly cycle, with salaries typically paid at the end of each month. Some companies may pay on the 15th of the following month, but monthly payment is the standard practice.
Key Requirements:
- Salary payments must be made in euros
- Electronic bank transfers are the preferred method
- Payslips must be provided in German
- Annual salary is typically divided into 12 monthly payments, though some sectors provide 13th or 14th month bonuses
Individual Income Tax
Germany operates a progressive income tax system with rates ranging from 14% to 45%, plus a solidarity surcharge of 5.5% on income tax.
| Annual Income (EUR) | Tax Rate |
|---|---|
| Up to €10,908 | 0% |
| €10,909 to €62,809 | 14% to 42% (progressive) |
| €62,810 to €277,825 | 42% |
| Over €277,826 | 45% |
Additional Considerations:
- Church tax (8-9%) applies to registered church members
- Solidarity surcharge of 5.5% on income tax
- Tax classes (Steuerklassen) affect withholding rates based on marital status
Tax Residency Criteria
Individuals are considered German tax residents if they:
- Have their habitual residence in Germany, or
- Stay in Germany for more than 183 days in a calendar year, or
- Have their centre of vital interests in Germany
Tax residents pay German income tax on worldwide income, while non-residents only pay tax on German-source income.
Employer Payroll Contributions
German employers must contribute to several mandatory social insurance schemes. Total employer contributions typically range from 19.5% to 21% of gross salary.
| Contribution Type | Employer Rate | Employee Rate | Total Rate |
|---|---|---|---|
| Pension Insurance | 9.3% | 9.3% | 18.6% |
| Unemployment Insurance | 1.3% | 1.3% | 2.6% |
| Health Insurance | 7.3% + supplement | 7.3% + supplement | ~14.6% + supplement |
| Long-term Care Insurance | 1.7% | 1.7% (+ 0.6% for childless over 23) | 3.4% |
| Accident Insurance | 1.3% (varies by industry) | 0% | 1.3% |
Additional Costs:
- Continued salary payments during illness (up to 6 weeks)
- Vacation pay and holiday bonuses
- Potential works council contributions
Working Hours
The German Working Time Act (Arbeitszeitgesetz) sets strict limits on working hours:
- Standard work week: 40 hours (8 hours per day, 5 days per week)
- Maximum daily hours: 8 hours (extendable to 10 hours if averaged over 6 months)
- Maximum weekly hours: 48 hours averaged over 6 months
- Rest periods: Minimum 11 consecutive hours between work days
- Sunday work: Generally prohibited except for essential services
Exempt Categories:
- Senior executives (leitende Angestellte)
- Certain healthcare professionals
- Some transport workers (with specific regulations)
Overtime Pay
Overtime compensation is not mandated by law but is typically required by collective agreements or employment contracts.
- Overtime threshold: Hours worked beyond contractual working time
- Compensation: Either paid overtime (typically 125-150% of regular rate) or compensatory time off
- Maximum limits: Daily and weekly hour limits must still be respected
- Documentation: Employers must maintain detailed records of all working hours
Bonus Payments
While not legally mandated, bonus payments are common and often contractually agreed:
- Christmas bonus (Weihnachtsgeld): Typically one month's salary
- Vacation bonus (Urlaubsgeld): Often 50% of monthly salary
- 13th/14th month salary: Common in many sectors
- Performance bonuses: Subject to individual or collective agreements
Full-Time vs. Part-Time
- Full-time: Typically 35-40 hours per week, depending on sector
- Part-time: Any arrangement below full-time hours
- Mini-jobs: Up to €520 per month with reduced social contributions
- Midi-jobs: €520.01 to €2,000 per month with graduated social contributions
Part-time employees have the same rights as full-time employees on a pro-rata basis.
Vacation Leave
German employees are entitled to a minimum of 24 working days of paid vacation per year (based on a 6-day work week). For a 5-day work week, this equals 20 days.
- Accrual: Full entitlement after 6 months of employment
- Carry-over: Unused vacation must typically be taken by March 31 of the following year
- Payout: Vacation pay is calculated at regular salary rates
- Collective agreements: Often provide 25-30 days annually
Sick Leave
German sick leave provisions are among the most generous globally:
- Continued pay: Full salary for up to 6 weeks per illness
- Medical certificate: Required from day 3 (or day 1 if specified in contract)
- Statutory sick pay: After 6 weeks, health insurance pays 70% of gross salary
- Job protection: Employees cannot be terminated due to illness during first 6 weeks
Maternity Leave
- Duration: 6 weeks before and 8 weeks after birth (10 weeks for multiple births)
- Pay: Full salary (Mutterschaftsgeld) paid by health insurance and employer
- Job protection: Absolute prohibition on termination during pregnancy and maternity leave
- Medical appointments: Paid time off for prenatal appointments
Parental Leave
- Duration: Up to 3 years per child (can be split between parents)
- Parental allowance (Elterngeld): 65-67% of previous net income for 12-14 months
- Job guarantee: Right to return to same or equivalent position
- Flexible arrangements: Can work up to 30 hours per week during parental leave
Bereavement Leave
- Immediate family: Typically 1-3 days paid leave
- Legal framework: Not mandated by law but commonly provided
- Collective agreements: May specify longer periods
- Special circumstances: Additional unpaid leave may be granted
Personal & Family Leave
- Care leave: Up to 10 days per year for caring for close relatives
- Emergency leave: Reasonable time off for family emergencies
- Educational leave: Varies by state (Bildungsurlaub)
- Civic duties: Paid leave for jury duty, elections, etc.
Summary
| Leave Type | Duration | Paid? | Funding |
|---|---|---|---|
| Vacation | 24+ working days/year | Yes | Employer |
| Sick Leave | Up to 6 weeks per illness | Yes | Employer |
| Maternity Leave | 14 weeks total | Yes | Insurance + Employer |
| Parental Leave | Up to 3 years | Partial | Government |
| Bereavement | 1-3 days | Yes | Employer |
| Care Leave | Up to 10 days/year | Partial | Government |
Termination Types
Ordinary Termination (ordentliche Kündigung):
- Requires notice period
- Must be socially justified after 6 months (Protection Against Dismissal Act)
- Written form required
Extraordinary Termination (außerordentliche Kündigung):
- Immediate termination for serious cause
- No notice period required
- High burden of proof on employer
Notice Period Requirements
Notice periods depend on length of service and are mandated by law:
| Length of Employment | Notice Period |
|---|---|
| Up to 2 years | 4 weeks to 15th or end of month |
| 2-5 years | 1 month to end of month |
| 5-8 years | 2 months to end of month |
| 8-10 years | 3 months to end of month |
| 10-12 years | 4 months to end of month |
| 12-15 years | 5 months to end of month |
| 15-20 years | 6 months to end of month |
| Over 20 years | 7 months to end of month |
Severance Pay
Severance pay is not automatically required but may be due in certain circumstances:
- Collective agreements: May specify severance entitlements
- Settlement agreements: Often include severance payments
- Social plan: Required for mass redundancies
- Typical amount: 0.5 months' salary per year of service
Probationary Periods
- Maximum duration: 6 months
- Notice period: 2 weeks during probation
- Termination: Easier dismissal during probation period
- Social justification: Not required during probation
Final Pay Requirements
- Timing: Final salary payment by end of month following termination
- Components: Base salary, accrued vacation, overtime, bonuses
- Deductions: Only legally permitted deductions allowed
- Certificate: Work certificate (Arbeitszeugnis) must be provided
Anti-Discrimination & Retaliation Laws
Strong protection against discrimination based on:
- Age, gender, race, religion
- Disability, sexual orientation
- Pregnancy and family status
- Trade union membership
- Whistleblowing activities
National Statutory Holidays
Germany observes several national public holidays, with some variations by state:
| Holiday | Date | National/Regional |
|---|---|---|
| New Year's Day | January 1 | National |
| Epiphany | January 6 | Regional (BW, BY, ST) |
| Good Friday | Varies | National |
| Easter Monday | Varies | National |
| Labour Day | May 1 | National |
| Ascension Day | Varies | National |
| Whit Monday | Varies | National |
| Corpus Christi | Varies | Regional |
| German Unity Day | October 3 | National |
| Reformation Day | October 31 | Regional |
| All Saints' Day | November 1 | Regional |
| Christmas Day | December 25 | National |
| Boxing Day | December 26 | National |
Regional Variations
Each German state (Bundesland) may have additional holidays:
- Bavaria: Epiphany, Corpus Christi, Assumption Day, All Saints' Day
- Baden-Württemberg: Epiphany, Corpus Christi, All Saints' Day
- North Rhine-Westphalia: Corpus Christi, All Saints' Day
- Saxony: Reformation Day, Repentance Day
Holiday Pay Rules
- Entitlement: All employees receive full pay for public holidays
- Working on holidays: Premium pay (typically double time) plus substitute day off
- Part-time employees: Pro-rata entitlement based on working pattern
- Collective agreements: May provide additional holiday benefits
Required Documents for Employment
Employment Contract Requirements:
- Written contract mandatory
- Must include: job description, salary, working hours, vacation entitlement, notice periods
- German language required (translations acceptable with German version controlling)
Employee Documentation:
- Tax identification number (Steuerliche Identifikationsnummer)
- Social security number
- Health insurance certificate
- Bank account details (IBAN)
- Work permit (for non-EU citizens)
Background Checks & References
- Criminal record checks: Only permitted for specific roles (finance, childcare, security)
- Credit checks: Restricted to positions involving financial responsibility
- Reference checks: Common and legally permissible
- Data protection: Must comply with GDPR requirements
Data Protection & Privacy
Germany has strict data protection laws under GDPR and national legislation:
- Consent requirements: Explicit consent for data processing
- Data minimisation: Only collect necessary information
- Employee rights: Access, correction, deletion rights
- Cross-border transfers: Special requirements for data transfers outside EU
Work Permits & Visas
EU Citizens: No work permit required Non-EU Citizens: Require work permit and residence permit Blue Card: For highly skilled workers Processing time: 4-12 weeks for work permits
IP Assignment & Confidentiality
- Employee inventions: Special laws govern ownership of employee inventions
- Compensation: Inventors entitled to reasonable compensation
- Confidentiality: Standard clauses permitted but must be reasonable
- Non-compete: Restricted and requires compensation during restriction period
Onboarding Timeline
| Step | Timeline |
|---|---|
| Job offer accepted | Day 0 |
| Work permit application (if needed) | Day 1-30 |
| Employment contract signed | Day 30-35 |
| Social security registration | Day 35-40 |
| Health insurance enrolment | Day 35-40 |
| Tax registration | Day 40-45 |
| First day of work | Day 45-60 |
What the EOR Handles
Borderless AI manages:
- Employment contract preparation
- Social security registration
- Tax compliance and withholding
- Health insurance enrolment
- Payroll processing
- Local labour law compliance
Worker Classification: Employee vs Contractor
German law strictly distinguishes between employees (Arbeitnehmer) and freelancers (freie Mitarbeiter):
Employee Indicators:
- Integration into company organisation
- Bound by instructions and working time
- Provision of workplace and tools
- Regular salary payments
- Personal performance of work
Contractor Indicators:
- Entrepreneurial freedom
- Own business equipment
- Multiple clients
- Invoice-based payments
- Ability to delegate work
Risks of Misclassification:
- Retroactive social security contributions
- Tax penalties
- Employment law protections apply retroactively
Works Councils & Co-Determination
German law provides for employee representation through works councils:
- Threshold: Companies with 5+ employees can elect works council
- Rights: Information, consultation, and co-determination rights
- Topics: Working conditions, dismissals, training, data protection
- Board representation: Employees represented on supervisory boards of larger companies
Cultural Norms & Workplace Expectations
German workplace culture emphasises:
- Punctuality: Strict adherence to schedules and deadlines
- Direct communication: Frank, honest feedback is expected
- Work-life balance: Clear separation between work and personal time
- Hierarchy: Respect for authority but open discussion encouraged
- Quality focus: Thorough, precise work valued over speed
Remote Work Considerations
Remote work (Homeoffice) has specific legal requirements:
- Health and safety: Employer responsible for ergonomic workspace
- Working time: Same hour limits apply to remote work
- Data protection: Secure handling of company data at home
- Equipment: Employer typically provides necessary equipment
- Tax implications: Home office deductions may apply
Anti-Discrimination Laws
Germany has comprehensive anti-discrimination protection:
- General Equal Treatment Act (AGG): Prohibits discrimination based on race, ethnicity, gender, religion, disability, age, sexual orientation
- Positive duties: Employers must actively prevent discrimination
- Remedies: Compensation and reinstatement available
- Pregnancy protection: Extensive protections for pregnant employees and new mothers
Built-in benefits packages for Germany
When the world is your competition, it pays to incentivize new hires and existing alike. Borderless AI benefits packages typically inlucde:
Medical Insurance
Dental Insurance
Retirement Contribution
Life Insurance
Vision Insurance
Explore other countries
Calculate how much it costs to hire
Get an accurate and comprehensive estimate of the cost to hire in over 170 countries
Unlock global hiring potential
Simplify your payroll and hiring processes today.
