Germany has long been one of the most attractive countries to international companies for finding and hiring talent. Not only does Germany have one of the strongest economies in the world, but their highly-educated and skilled prospects have always proved highly desirable, especially for Canadian companies wanting to hire in Germany.
As of 2023, the German government began to tempt skilled workers from international markets to make the move to Germany by simplifying immigration rules and offering potential hires the possibility of easily-acquired citizenship. For Canadian companies looking to hire in Germany, this could mean a potential increase in English-speaking workers in addition to the already linguistically-skilled local talent.
However, Germany is notorious for their lengthy processes and strict legal practices, especially regarding work permits, meaning there are certain things Canadian companies will need to consider when looking to hire in Germany. Aside from compliance with Germany’s federal government, it’s important to adhere to the different rules and regulations regarding labor, payroll, employee benefits, taxes, and more.
In this guide, we’ll cover how a Canadian company can hire skilled workers in Germany. We’ll also explore what Canadian companies need to know if partnering with an Employer of Record (EOR) to oversee the legalities and potential costs of hiring in Germany.
Can a Canadian Company Hire in Germany?
Yes! There are no rules or regulations that restrict Canadian companies to hire employees in Germany. However, many legalities and local laws must be considered to ensure you are following Germany’s employment laws. Below are some things to keep in mind when hiring in Germany and a few ways a Canadian company might employ German skilled workers.
3 Ways Canadian Companies Can Hire in Germany
1. Hire German Skilled Workers as Contractors
While hiring workers as contractors in Germany might be the easiest option, there are still certain things that Canadian companies must consider to ensure all legal working conditions are met.
Independent contractors in Germany are self-employed individuals who provide their services to the company while choosing their own working hours and schedules. As with Canada, a Germany-based contractor is treated independently from a company’s internal employees. Independently-hired contractors are not paid a fixed salary or provided with work equipment by the company of hire.
This allows companies more flexibility and is more cost-effective when hiring for specialized services or one-time projects. Independent contractors may also provide their services to a company for extended periods of time.
However, Canadian companies considering hiring independent contractors must be aware of all associated legal risks with misclassifying contractors as full-time employees. Companies may be liable to pay various misclassification fines.
Such fines can include employer liability for up to four years of social security contribution payments, including 12% annualized interest for accidental misclassification, and liability of up to 30 years of back payments. This also includes potential criminal charges for intentionally misusing independent contractors. German authorities are also known to actively seek out misclassified workers more aggressively than most countries.
2. Set Up a Foreign Entity in Germany
Another option for Canadian companies to hire German skilled workers is to set up a foreign entity. Opening an entity in Germany allows you to create a branch or subsidiary to hire workers directly. Setting up a foreign entity allows Canadian companies complete control when hiring local workers, managing payroll, and establishing a local branch.
Depending on the nature of the business, your company may need to obtain proper permits or licenses from local or federal authorities to operate legally within Germany.
Establishing a foreign entity is a good option if your company plans on hiring multiple workers or creating a more established long-term presence. It is, however, a costly and time-consuming process that requires knowledge of the country’s legal, corporate, and payroll laws and regulations. Consider consulting with local legal professionals, professional institutions, or an Employer of Record in Germany (EOR Germany) if this is the path your company is considering.
3. Partner With an Employer of Record in Germany (EOR Germany)
The third – and arguably easiest option – is to partner with an employer of record (EOR) to hire, pay, and manage your German hires. Because the EOR partner is already set up as a legal entity within Germany, they will help ensure that your company is in alignment with local labor laws and requirements.
An EOR Germany partner will act as the legal employer for your staff in Germany. Employer of record services include international payroll solutions for company employees. They also cover tax deductions for statutory benefits like health insurance, nursing care insurance, pension schemes, etc.
However, international companies, including Canadian ones, are limited to an employment time of 18 months per employee when working with an EOR in Germany. After 18 months, the Canadian company is not allowed to employ a team member through the EOR company they initially hired through.
Suppose your company is looking into the German market as a long-term opinion. In that case, you might need to consider registering as a foreign employer to retain employees for longer periods of time.
Ultimately, an EOR Germany partner is the easiest option and will help streamline everything from employment agreements to payroll while protecting against legal mishaps. This way, you can focus on growing your business and even consider other long-term expansion options headache-free.
Things to Consider When You Hire Employees in Germany
Although it’s easy enough for Canadian companies to hire in Germany, there are various legal issues and government requirements that will affect both the company and the individual German skilled worker.
Local Employment Law
Understanding Germany’s local laws is one of the fundamentals of hiring in Germany. The country’s current minimum wage is €12 per hour, and working hours are typically eight hours per day, 40 hours per week.
Additional overtime pay in Germany is not legally mandated. Overtime can be compensated in paid time off or an additional payment. German employees can work up to two hours of overtime per day (12 hours per week) and are paid the same for overtime as their regular hourly rate. Employees are required to notify their employers four days in advance of any anticipated overtime.
Social Security Contributions and Payroll Tax
In Germany, social security contribution responsibilities are divided equally between the employer and the employee, except for accident insurance, which is paid only by the employer. Shared contributions include national pensions, health insurance, nursing care insurance, and unemployment insurance. The company will be responsible for contributing 20% on top of the employee's salary to social security.
In Germany, non-residents are only responsible for paying income tax on income earned within Germany. If an employee spends roughly half a year working in Germany, they are considered a German resident and must pay tax and any additional contributions.
Employment Contracts and Probation Periods
Both the employer and the employee must mutually agree upon employment contracts and probation periods terms. The employer must provide a written employment agreement within one month of the employee being hired that outlines job responsibilities, compensation, and other terms of employment, including employment start date, location, salary, working hours, holidays, notice period, and any other agreed upon terms of employment.
Probationary periods can last up to six months, though the standard notice period for newly-hired employees is two weeks. Two weeks is the minimum accepted notice period during the employee’s probationary period. During the probationary period, the company does not need a reason to fire the employee.
Notice Period and Termination Process
An employer must provide notice when terminating a German employee. However, the notice period is determined by the length of employment, with a minimum of four weeks for employment of fewer than nine months – all the way up to seven months for employees of more than twenty years.
Companies may provide any number of reasons for deciding to terminate an employee so long as the reason for termination is justifiable if the employee has been working for over six months. Possible reasons may include long-term illness (with the employee's consent via a signed agreement), violations of the employment terms after prior warning, and company closure or economy-related issues.
An employer cannot pay an employee instead of providing termination notice, though the employer can immediately terminate employment if a serious breach of the agreed-upon employment contract occurs.
Common Employee Benefits in Germany
Your company should also ensure that all employees based in Germany are given appropriate paid time off and benefits as required by German federal law. Employers must provide legally mandated benefits to all eligible employees, including:
Paid Time Off (PTO)
There are nine official paid public holidays that are observed across all 16 federal states in Germany. Though these nine are typically observed across all federal states, control over public holidays is ultimately given to individual states.
Therefore, some federal states recognize holidays not recognized elsewhere in Germany. The state with the most recognized public holidays (13 days per year) is Bavaria, while other states may offer between 10 and 12 days off per year.
- New Year’s (Neujahr): January 1
- Good Friday (Karfreitag): April 7
- Easter Monday (Ostermontag): April 10
- Labor Day (Tag der Arbeit): May 1
- Ascension Day (Christi Himmelfahrt): May 18
- Whitmonday (Pfingstmontag): May 29
- German Unification Day (Tag der Deutschen Einheit): October 3
- Christmas Day (Erster Weihnachtstag): December 25
- Boxing Day (Zweiter Weihnachtstag): December 26
Personal Leave Entitlements
Germany offers some of the most progressive and generous leave entitlements, not only in Europe but in the world. These include:
Annual Statutory Leave
According to the Federal Holidays Act, German employees are entitled to a minimum annual leave of 20 days for a five-day working week, and 24 days for a six-day working week. Most employer-employee agreements, however, include a larger number of days that averaged at least 28 vacation days for full-time workers.
Maternity and Parental Leave
In Germany, employees are typically allowed 14 weeks of maternity leave. Leave usually begins six weeks before the expected due date and ends eight weeks after the birth of a child. Additionally, companies must allow employees time off for pregnancy-related medical examinations and other pregnancy-related appointments. Both female and male employees are entitled to take additional parental leave until the child's third birthday.
Sick Leave
Employees in Germany are allowed six weeks of paid sick leave provided they obtain a sick note (Arbeitsunfähigkeitsbescheinigung) from their doctor. If the period of absence is beyond six weeks, it becomes the responsibility of the insurance institution to provide any sickness-related benefits to the employee.
Health Insurance and Nursing Care
All German citizens and residents are required by law to have health insurance. Regardless of their income, all legal residents of Germany should have adequate healthcare coverage and access to affordable medical care when needed – no matter how much they contribute. The amount an individual is required to contribute is determined by income level.
Germany’s statutory health insurance (gesetzliche Krankenversicherung, GKV) operates on the principle of solidarity, so residents who earn more contribute more than those who earn less. The employer and employee must contribute equal amounts to the national health insurance plan.
The employer and employee must also contribute equal amounts to national statutory nursing care insurance. This insurance benefits those in need of nursing care who have to rely on others, either permanently or long-term, for assistance with everyday routines due to a physical, mental or psychological illness or handicap.
Employee Pensions
All German skilled workers, including contracted employees, are legally required to belong to one of Germany’s old-age insurance systems. Under state pension, insured employees are entitled to one of two old-age pensions.
These include the Basic Old-age Pension and Early Pension due to age (which can be applied from the age of 63 if 35 years of qualifying pension contributions can be proved). The employer and employee must contribute equal amounts to the national health insurance plan equaling 18.6% in total.
Common Risks for Canadian Companies Hiring in Germany
While employing remote workers in Germany offers many benefits to Canadian companies, there are still many things to consider when hiring in Germany. It’s essential to understand employment regulations, German tax laws, and the risks involved if the rules are not observed. In this section, we will briefly discuss some of the most common risks for Canadian companies to consider when hiring German skilled workers.
Misclassification of Employees
It is essential to ensure that employees are classified correctly when hiring in Germany. If a full-time employee is misclassified as a contractor, they can claim entitlement to employee benefits. This means your company could face fines, legal issues, and employee entitlement back pay obligations.
German authorities are also notorious for actively seeking out misclassified employees more regularly and aggressively than authorities in other countries. To avoid such fines, consider working with a legal expert, such as an employer of record (EOR), who can help your company avoid misclassification through proper contracts, accurate reporting, and accurate payroll deductions.
Inaccurate Payroll Contributions
As mentioned before, Germany offers some of the most generous employee benefits in the world. However, this also means that Germany’s payroll contributions will vary from other countries, and if miscalculated, companies could face serious fines. Social security contributions are shared equally between employers and employees in Germany. They include a combined total of:
- 18.6% for pension
- 14.6% for health insurance
- 2.5% for unemployment
- 3.05% for old-age nursing care
- 1.18% additional contribution for accident insurance typically paid by employers
Potential Immigration Requirements
Canadian companies must ensure that employees of interest have appropriate authorization to work in Germany if they are not citizens or residents. It’s important to understand Germany’s immigration criteria to ensure your employees obtain the proper documentation or working visa to be employed in Germany.
Germany offers a variety of visas, including the Schengen visa, which allows individuals to reside in Germany for a maximum of 90 days; however, they are not permitted to engage in any paid activity during this time. Canadian companies must be wary that Germany offers such visas to ensure employees obtain proper working visas before hire to avoid fines.
Permanent Establishment Taxes
If your company decides to open a fixed location within Germany, such as a foreign entity, then you will also be responsible for complying with Germany’s corporate tax laws. Unpaid taxes, interest, penalties, and employer liabilities are all reasons for legal action to be taken against your company by authorities in Germany.
As an established EOR with legal entities in 170+ countries, Borderless is highly knowledgeable and experienced in assisting Canadian employers looking to hire in Germany. Book a demo today to see how Borderless can help you hire quickly and efficiently.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
