Germany has been at the forefront of innovation for years. The country's ability to transform ideas into products is unparalleled, as seen by its 8th-place ranking in the Global Innovation Index. Take driverless cars, for instance, where German engineering and technology have played a pivotal role in shaping the future of transportation. This country's dedication to pushing boundaries continues to inspire the world.
At the heart of all this innovation is a talent pool full of highly skilled and educated individuals. So, if you’re looking to expand your team – consider tapping into it. There are important factors to take into consideration, though. This is especially true if you’re based in a country like Japan, which has a very different approach to work. So, let’s get into the nuances of hiring in Germany as a Japanese company.
How to Begin the Hiring Process
Before hiring in Germany, there are three different routes you can take. Make sure to choose an option that makes sense for you.
Engage Independent Contractors
- Onboarding independent contractors in Germany is a common practice, but there are many important points to consider.
- Independent contractors have flexibility in choosing work hours, taking on other clients (including competitors), and subcontracting.
- This setup might not replicate a traditional employer-employee relationship that comes with permanent roles and certain benefits or protections.
- Misclassifying contractors as full-time employees can lead to higher taxes and legal consequences.
Set Up a Foreign Entity in Germany
- Another option is setting up a local subsidiary in Germany to directly hire talent.
- This approach gives Japanese employers control over various aspects like hiring, payroll, and creating a physical presence.
- Establishing a foreign entity requires extensive legal knowledge and strategic planning.
- Professional advice from experts in compliance laws can guide you through this process.
Partner with an Employer of Record (EOR)
- Partnering with an EOR service provider, like Borderless, is a cost-effective and compliant option.
- An EOR acts as the legal employer, ensuring adherence to local employment laws.
- It takes care of employment contracts, the minimum statutory notice period, payroll taxes, deductions, contributions, and tax forms for employees.
- This approach minimizes tax and labor law compliance concerns, allowing you to focus on growing your business.
Know Where to Look for Talent
- Munich: A top creative city with a bustling tech scene makes it perfect for hiring talent. It's a hub for growth and networking with global companies like BMW and Siemens.
- Berlin: Berlin's lively startup scene and research landscape, along with the launch of new startups daily (like Zalando and Soundcloud), make it a prime talent source.
- Stuttgart: Stuttgart is often referred to as an "innovation hub," and it's easy to see why. The city has a rich tradition of excelling in arts, sciences, and industry, making it a powerhouse for research in Europe.
- Karlsruhe: Karlsruhe is a dynamic talent hub for innovation and growth. With a notable start-up scene and a strong focus on applied artificial intelligence, the city offers a prime environment for sourcing top talent.
- Heidelberg: Heidelberg is home to a vibrant student population full of potential and ready for a challenge.
These German cities are ideal for companies looking to hire in Germany. Yet, they're just a glimpse of the talent-rich options across the country. Germany is home to numerous cities and towns teeming with skilled individuals.
How Do Work Cultures Differ Between Germany and Japan?
It’s important to note that Germany and Japan have different approaches to work. In Germany, for example, there's a strong emphasis on work-life balance. The typical workweek ranges from 35 to 40 hours, with efficiency being key to ensuring ample personal time.
Germans highly value leisure time and consider vacations a key part of well-being. The work environment promotes open communication, collaboration, and flat organizational structures, encouraging employees to voice their ideas.
On the other hand, Japan places a strong emphasis on extended work hours and company loyalty. The issue of "karoshi," or death from overwork, emerged due to Japan's culture of excessive working hours. It's common for employees to surpass the standard 40-hour week and stay late at work.
These are just a few differences between work culture in Japan and Germany. Recognizing them can help you improve your approach to recruiting, onboarding, and managing your German team members.
Remember to adapt strategies that match your employees’ expectations to help build a positive workplace atmosphere. This will help you foster effective cross-cultural cooperation and better relationships with German colleagues.
Things to Keep in Mind
If you're thinking about hiring in Germany, it's important to know the key factors that affect employment. Gathering insights like the typical notice period in Germany and the benefits of an Employer of Record can help you understand the nuances of hiring in Germany. Let's get into it.
Language
In Germany, the official language is German, spoken by over 95% of the population. Around 56% of Germans are skilled in English, ranking Germany 10th among English-speaking countries. English education starts early, with most learning it as a second language in primary schools.
Currency
Germany's currency is the Euro (€, EUR), which has been in use since 2002.
How Much Does It Cost to Hire an Employee in Germany?
When you hire in Germany, it’s helpful to know how much you can expect to pay. The costs can add up, so let’s explore each one to give you a well-rounded understanding of the cost of hiring in Germany.
Payroll
In Germany, payroll frequency is typically on a monthly basis. This means that employees receive their salary or wages once a month, usually around the end of the month.
Minimum Wage
Starting in 2024, the minimum wage in Germany will be €12.41 per hour. This applies to most workers and aims to ensure fair pay.
Employer Taxes
When it comes to employee compensation in Germany, it's important to understand employer costs and taxes. Here's a breakdown of the key components:
- Pension: 9.30%
- Health Insurance: 7.3%
- Nursing Care Insurance: 1.525%
- Unemployment Insurance: 1.25%
- Accident Insurance (average): 1.18%
These cover retirement, health, care, unemployment, and accidents, ensuring your German team members are taken care of.
You'll also need to withhold and remit employee contributions to social security and taxes:
- Pension: 9.3%
- Health Insurance: 7.3%
- Nursing Care Insurance: 1.525%
- Unemployment Insurance: 1.25%
- Income Tax: 0-45%
When hiring in Germany as a Japanese employer, it's crucial to note the different income tax approaches of both countries. You should recognize the importance of employer taxes in supporting employees and workforce strength and i these costs into financial planning and compensation strategies. It’s also important that you stay informed about tax changes and requirements to ensure compliance and responsible employment practices in Germany.
Leave Entitlements
Your company is responsible for providing the proper paid time off and benefits to employees in Germany according to federal laws. All eligible employees must receive the required benefits, including:
Public Holidays
In Germany, Paid Time Off (PTO) encompasses nine official paid public holidays that are recognized across all 16 federal states. These holidays are uniform, but individual states also have the authority to establish their own holidays, leading to some variations.
For instance, Bavaria stands out with the highest number of recognized holidays at 13 per year, while other states generally have between 10 and 12 days of annual leave.
These are the observed holidays:
- 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
Moving on to Personal Leave Entitlements in Germany, the country offers remarkably generous leave policies that stand out not only in Europe but globally. Some of these entitlements include:
Annual Statutory Leave
The Federal Holidays Act dictates that German employees are entitled to a minimum of 20 days of annual leave for a five-day working week and 24 days for a six-day working week. Many employer-employee agreements, however, extend this allowance, often averaging around 28 vacation days for full-time workers.
Maternity and Parental Leave
Expectant employees in Germany are typically granted 14 weeks of maternity leave. This period generally commences six weeks before the anticipated due date and concludes eight weeks after the child's birth.
Companies are also obliged to provide time off for pregnancy-related medical check-ups and appointments. Both male and female employees have the option to take extra parental leave until their child turns three years old.
Sick Leave
Employees in Germany are entitled to up to six weeks of paid sick leave upon presenting a sick note (Arbeitsunfähigkeitsbescheinigung) from their doctor. If the absence surpasses six weeks, the responsibility for providing sickness-related benefits shifts to insurance institutions.
The healthcare landscape in Germany is another important aspect to consider. The country mandates that all citizens and residents have health insurance. The contribution amount is income-dependent, following the principle of solidarity.
Both employers and employees share equal contributions to the national health insurance plan and statutory nursing care insurance. These contributions ensure support for individuals needing long-term assistance due to various health conditions or disabilities.
Overtime
In Germany, the usual workweek is 40 hours over 5 days, Monday to Friday, with 8 hours each day. Overtime isn't mandated by law for extra pay, but employers can choose to compensate it with time off or money.
Overtime involves working up to 2 extra hours daily or 12 hours weekly. The pay rate remains the same as regular hours. Planning ahead, employees should inform employers at least 4 days before planned overtime.
Termination
In Germany, employers have various grounds for terminating an employee's contract. However, if the employee's tenure exceeds six months, the dismissal must be substantiated. There are several valid reasons for termination.
Firstly, a person-related reason could be extended illness, which may lead to termination. Alternatively, termination can occur with the consent of the employee through a mutual termination agreement.
Secondly, conduct-related reasons involve situations where an employee repeatedly breaches employment terms despite prior warnings or is involved in severe misconduct, such as theft or fraud.
Lastly, operation-related reasons include scenarios like company closure or economic downturn, where the employer might need to reduce their workforce. It's important for both employers and employees to be aware of these potential reasons for dismissal within the German employment framework.
In Germany, if a company has more than ten employees, a law called the Act Against Unfair Dismissal (Kündigungsschutzgesetz - KSchG) applies to protect employees from unfair dismissal.
Notice Period
The notice period an employer must provide to their German employee is linked to the length of the employment relationship. If an employee has been with the company for less than nine months, they will receive a shorter notice period of four weeks. Those employed for over twenty years will receive a longer notice period, going up to seven months.
The notice period starts once an employer officially issues a letter informing the employee of their termination. These details should be stated in the employment agreement when you hire employees in Germany.
Probation Period
During the probationary period, which can last up to 6 months, the notice period for starting a new job is two weeks. The notice period can be shortened to two weeks if there are other rules in place, like agreements made through collective bargaining.
While in the probationary period, employers can terminate employees without a specific reason, unless the termination is deemed unethical or against faith. This should also be stated in the employment contract.
Severance Pay
Severance pay is not legally mandated in Germany. However, specific employment agreements may have severance packages in their clauses.
Borderless Benefits Packages in Germany
We believe in helping you take care of your team. Our benefits packages can include the following.
- Medical Insurance
- Dental Insurance
- Vision Insurance
- Life Insurance
- Retirement Contributions
With these comprehensive benefits, you can attract and retain top talent in Germany. Our goal is to help you give your employees the peace of mind they deserve.
How Do I Maintain Compliance in Germany?
Navigating compliance in Germany can be a hassle. Handling it on your own requires a solid understanding of local laws, notice periods, employment regulations, and more. You need to understand the specifics of leave entitlements, benefits, taxes, and the notice period in Germany, to steer clear of legal issues.
When you partner with an EOR, Germany's talent pool opens up. An Employer of Record like Borderless ensures you remain compliant and avoid fines and legal pitfalls. We collaborate closely to ensure you comply with local regulations every step of the way.
Focus on driving growth while we handle everything surrounding onboarding, management, and payment for your German team members. Ready to simplify the hiring process? Book a demo with us today.
Disclaimer
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
