Germany is notoriously popular amongst international companies seeking top-tier talent. Not only does the country boast a steady and robust economy, it also offers an excellent work-life balance, efficient work practices and a well-educated workforce.
Though Germany offers many appealing benefits, it is also known for its detailed business practices and strict laws. UK companies must account for several factors including compliance with Germany's federal regulations concerning labour laws, social security contributions, payroll taxes, and employee benefits.
This guide will outline exactly how companies can successfully hire in Germany. It also outlines how partnering with an Employer of Record (German EOR) to help manage legalities and associated hiring costs can benefit UK employers. Let's get into it!
Can UK Companies Hire in Germany?
Absolutely! No specific rules are preventing UK companies from hiring in Germany. However, it is crucial to consider the legalities and local regulations to ensure compliance with Germany's labour laws. Here are some key factors to consider when hiring in Germany and a few methods that UK employers can use to hire in Germany.
Three Ways for UK Companies to Hire in Germany
Determining the kind of employment relationship that is suitable for your company is key to successful operation. Let's take a look at some of the most common ways for overseas companies to engage workers in Germany.
Engage German Workers as Contractors
While engaging workers as contractors in Germany might appear to be the easiest option, some details must not be overlooked by UK companies to remain compliant with local labour laws and regulations.
Independent contractors in Germany are self-employed individuals who provide their services to the company while choosing their own working hours and schedules. A German contractor is treated independently from a company’s employees. Independently hired contractors are not paid a fixed salary or provided with work equipment by the company of hire.
This method of hiring allows companies more flexibility and is more cost-effective. Employers considering hiring employees as 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 if employees are categorized incorrectly.
Establish a Foreign Entity in Germany
Another option for UK companies to hire in Germany 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 affords UK companies complete control when hiring local workers, facilitating payroll, and managing employees.
Depending on the type of 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 to establish a long-term presence or hire more than ten employees. It is, however, a costly and time-consuming process that requires knowledge of Germany's laws and regulations. Consider consulting with local legal professionals or an Employer of Record in Germany (German EOR) if this is the path your company is considering.
Partner With an Employer of Record (German EOR)
The third – and arguably easiest option – to hire in Germany is to partner with an Employer of Record (German EOR) to onboard, 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 labour laws and requirements.
A German EOR 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.
Ultimately, a German EOR 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 explore other long-term expansion options.
Things To Consider When Hiring in Germany
While it’s not overly complicated for UK employers to hire in Germany, there are still many significant differences between UK and German labour laws, government requirements, and employment regulations that both the employer and employee will need to be aware of.
German Minimum Wage and Local Employment Laws
Familiarity with Germany's labour laws is fundamental to successfully hiring employees in Germany. This includes knowledge of the country’s minimum wage, standard working hours, and provisions for overtime pay.
Germany’s minimum wage is €12 per hour, and full-time working hours are eight hours per day, 40 hours per week.
Overtime pay in Germany is not legally mandated. Overtime can be compensated either as additional paid time off or through extra compensation. Employees can work up to two hours of overtime per day (a total of 12 hours per week) and are paid their regular hourly rate. Employees are required to notify their employers four days or any anticipated overtime.
It’s important to note that wages and working conditions can be agreed upon individually between the company and individual employees, or can be determined by collective bargaining agreements that negotiate collectively on behalf of the entire sector.
Cultural and Linguistic Differences
Acknowledging the cultural differences between the UK and Germany is the first step to hiring in Germany. Differences in communication styles, business etiquette, employee and employer expectations, and basic cultural practices can affect the success of working relationships and the company.
As a result of immigration, cultural and religious diversity can be found throughout Germany. Similar to the UK, Germany is a diverse country with a multicultural workforce. People from across Europe, Asia and the Middle East can be found living and working in Germany.
Language-wise, English is widely spoken as a second language, especially in business settings. However, having a basic understanding of German can help facilitate more efficient employee integration.
Compliant Employment Agreement
Both the employer and the employee must mutually agree upon the working conditions and terms outlined in the employment contract. The employer must provide a written employment agreement within one month of the employee’s start date that sufficiently outlines their job responsibilities, compensation, and any other important terms of employment.
Probationary periods for newly hired employees can last up to six months. However, the standard probation period is two weeks. During the probationary period, the employer can fire the employee without just cause.
Notice Period in Germany
All employers must provide notice when terminating an employee. The notice period in Germany is determined by the employee's length of employment, with some employees requiring a shorter notice period than others. The minimum notice period is four weeks for employment of fewer than nine months and can reach up to seven months for employees of more than 20 years who require a longer notice period.
There are a variety of acceptable reasons for an employer to let an employee go, so long as the reason for termination is justifiable. Valid reasons for termination in Germany may include long-term illness (with the employee's consent via a signed agreement), violations of the employment terms, and company closure or other economy-related issues.
Employers are not permitted to provide an employee with severance pay instead of a termination notice. However, the employer can immediately terminate employment if a serious breach of the agreed-upon terms of employment occurs.
Social Security Contributions and Deductions
In Germany, social security contribution responsibilities are divided equally between the employer and the employee. Employer tax-related contributions are about 20% and include national pensions, health insurance, nursing care, and unemployment insurance. The one exception to the shared contributions is accident insurance, which is paid solely by the employer.
The employer is also responsible for deducting a certain amount from the employee’s pay for social security, income tax, and other payroll withholdings.
Employers are required to withhold the following amounts per employee:
- 9.3% for the Pension Fund
- 7.3% for Health Insurance
- 1.525% for Nursing Care Insurance
- 1.25% for Unemployment Insurance
- 1.18% for Accident Insurance
Employee Benefits in Germany
Ensuring that all Germany-based employees receive federally-mandated benefits, including paid time off, maternity leave, and sick leave is essential for compliance with German employment law. All employers must provide the following benefits to all eligible employees.
Paid Time Off
Paid time off includes nine official paid public holidays that are observed across all 16 states. Although nine holidays are standardly observed, control over public holidays is ultimately given to each state.
- 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
Some federal states in Germany observe holidays not recognized elsewhere in the country. The state with the most recognized public holidays (13 per year) is Bavaria, while other states usually offer between 10 and 12 paid days off per year.
Personal Leave Entitlements
Germany offers some of the most progressive and generous leave entitlements in the world. Familiarizing yourself with the German healthcare system and knowing your responsibilities as an employer is key to complying with local regulations.
Standard employee benefits include annual paid vacation, paid public holidays, sick leave and maternity leave. Ensuring your employees receive entitled benefits will pave the way for a smoother employer-employee relationship.
Annual Statutory Leave
European countries are notorious for their generous vacation allowances. According to the Federal Holidays Act, full-time German employees are entitled to a minimum annual leave of 20 days. However, many employer agreements allow for at least 28 paid vacation days each year.
Maternity Leave
Germany maternity leave allows employees 14 weeks of leave. This period begins six weeks before the expected due date of the child and ends eight weeks after birth. Companies must also allow employees time off for pregnancy-related medical examinations and other appointments. Both female and male employees are entitled to take additional parental leave until the child's third birthday.
Medical and Sick Leave
German employees are given up to six weeks of paid sick leave with documentation (Arbeitsunfähigkeitsbescheinigung) from their doctor. If the period of absence goes beyond six weeks, it becomes the employer's responsibility to accommodate for any additional time off or benefits.
Health Insurance and Nursing Care
By law, all German citizens, residents and employees are required to have health insurance. Regardless of their income, all legal residents of Germany must receive adequate healthcare coverage and access to affordable medical care. The amount an individual contributes varies depending on their income level.
Both the employer and employee are responsible for contributing to Germany’s national health insurance (gesetzliche Krankenversicherung).
Both parties must also contribute to the national statutory nursing care insurance. This insurance benefits those in need of nursing care who are not self-sufficient.
Employee Pensions
All German employees, including contract employees, are required to enroll in and contribute to one of Germany’s old-age insurance systems. Under state pension programs, insured employees are entitled to receive one of two old-age pensions once they retire. These include the Basic Old-Age Pension and Early Pension. Both the employer and employee must contribute equal amounts to one of the two national pension plans.
Common Compliance Risks for UK Companies in Germany
While employing workers in Germany offers many benefits, there are many compliance risks to be aware of. It’s essential to understand local employment regulations, German tax laws, and potential penalties if local German laws are not observed. In this section, we will briefly discuss some of the most common risks for international companies to consider.
Lack of Employee Representation
Employers should be aware of the expectation to establish a worker's council (Betriebsrat) in German companies. A Betriebsrat is a group of employees who are elected to represent their fellow employees within a business. The representatives of the Betriebsrat are involved in all decisions that may affect or involve employees individually and collectively. Understanding the importance of establishing a Betriebsrat within your company and integrating employees in decision-making processes is an important part of successful operations in Germany.
Inaccurate Contributions and Deductions
As mentioned before, Germany offers some of the most generous employee benefits in the world. This also means that Germany’s payroll contributions vary from other countries. If miscalculated, you could face serious fines. Social security contributions are shared between both the employer and employee and include:
- 18.6% for pension
- 14.6% for health insurance
- 2.5% for unemployment
- 3.05% for old-age nursing care
- 1.18% for accident insurance (paid by employers)
Employee Misclassification
It is crucial for employers to classify employees correctly when hiring in Germany. If employees are misclassified, whether unintentionally or not, you may face costly fines, reputational damage, and potential criminal charges.
German authorities are known to actively seek out misclassified employees more aggressively than those in other countries. To avoid legal complications, consider working with a legal expert, such as a trusted Employer of Record (German EOR), who can help you avoid misclassification through drafting legal contracts, accurate reporting, and compliant payroll deductions.
Maintaining Compliance in Germany
Expanding your workforce to Germany comes with many benefits, but it requires a thorough understanding of Germany’s professional and legal landscape. Ensuring that your company complies with every local regulation can be tricky, but partnering with Borderless can help alleviate some of the confusion.
Why Choose Borderless?
As an established EOR, we can help you hire employees in 170+ countries, including Germany. Borderless is highly knowledgeable and can help international companies hire, manage and pay employees in Germany while ensuring you remain compliant with all legal responsibilities. See for yourself how Borderless can help simplify hiring abroad. Contact us to book a demo today!
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.
