The EU has given countries in the Union an unprecedented ability to diversify their talent pool with workers from all over. However, with remote work becoming the norm, employees may be reluctant to relocate for a job.
To date, the EU hasn’t passed a regulation that allows employers in one country to easily hire employees in another one within the European Union. So, the laws of their home country apply to remote workers in other jurisdictions.
How then can a company in France, for example, hire an employee in Germany? Let’s dive into the legal requirements of hiring in Germany and how an Employer of Record can navigate the complexities of global HR for your organization.
Reasons to Hire in Germany
French companies looking to expand their horizons across Europe are likely to turn to Germany as a hiring destination. Hiring from Germany is a great way for French employers to complement the already highly-skilled French workforce. Here are some of the reasons why.
Skilled Workforce
Germany is one of the best-educated countries in the world, taking the 6th spot in global education rankings. This comes as no surprise. The country is home to some of the world’s best universities and research programs, with the public schools offering education with no or very low tuition fees.
German workers are known for their skills in technical fields like engineering, information technology, pharmaceuticals, and finance. This gives employers access to highly specialized skills when hiring German talent.
Technological Advancement
The Global Innovation Index ranked Germany as the 8th most innovative country in the world. Germany’s tech sector generated 230 billion euro in 2021 and created over a million jobs. The key driver behind this success? Most recently, digitalization technology, which has been playing a crucial role in the post-pandemic world.
With such stats, it’s clear that employers hiring in Germany have the opportunity to access talent that’s not just highly skilled, but also innovative.
Access to the Central European Market
Another strategic advantage of hiring in Germany is the country’s location. Its proximity and ties to the central European market can help French employers access new market opportunities. Also, many Germans are multilingual. It’s the 10th most proficient country in the English language, but about a quarter of the population can also speak a third language besides German and English.
Diverse Economy
Germany’s economy is the fourth largest in the world, after the US, China, and Japan. Despite the recent slowdown which has been felt globally, Germany continues to have a reasonable cost of living and a diversified industrial portfolio.
The country is currently in a shift away from traditional industrial production, which it has relied on for decades. However, its technical prowess is proving helpful in building a robust and forward-looking technology sector. In this transition, Germany is an interesting market for employers looking for workers with diverse and specialized skill sets.
EU Regulations on Hiring Teleworkers from Germany as a French Company
Germany and France are both in the European Union. So, hiring German workers as a French company is a breeze, right? Well, the answer isn’t so straightforward.
The world of work has changed and remote work has become increasingly popular. However, legislative rules haven’t always kept up with these realities. Currently, there is no specific EU legislation on teleworking for an EU employer from one country while being based in another.
What does this mean?
During the pandemic, the EU asked countries to make no changes to social security coverage for workers who chose to perform their duties from a different country than where their employer was based. But this allowance was temporary.
Also, the EU has special regulations for cross-border commuters — meaning workers who live in border towns and cross the border daily to go to their job-based in another country.
However, the EU does not currently have any regulations on teleworking (i.e. digitally crossing a border) from another country. Most EU countries have drafted and implemented telework policies for remote workers within their borders. But a Union-wide policy hasn’t been implemented as of yet.
So, if you are a French company hiring a German employee who will reside in Germany, then German laws apply to that worker. This means that they will pay taxes and receive social security in Germany. You, as the employer, will need to comply with German, not French laws.
This complicates things when hiring abroad, even within the EU. For one, you’ll need to learn to navigate the labor laws in Germany. And, you also become at risk of permanent establishment in Germany if you don’t carefully manage the process of hiring there.
Read on to get a sense of Germany’s hiring laws and ways to compliantly hire a German employee.
Local Employment Laws in Germany
A large, bureaucratic country with many levels of government, hiring in Germany isn’t so simple. Employers need to keep track of German law to stay compliant. Here are just a few things to consider.
Employment Contract and Onboarding
There are several different ways to engage a worker in Germany. Here are the various types of employment agreements you can use.
- Unlimited (Permanent) Employment Contract (Unbefristeter Arbeitsvertrag): This is a long-term employment contract with no specified end date. It provides both the employer and the employee with a high level of job security and can only be terminated under specific circumstances and with proper notice.
- Fixed-Term Employment Contract (Befristeter Arbeitsvertrag): This type of employment agreement is for a specific period or the completion of a certain project. It automatically terminates at the end of the agreed-upon term. Fixed-term contracts are subject to legal restrictions and can only be used under certain conditions to prevent abuse.
- Part-Time Employment Contract (Teilzeitarbeitsvertrag): This type of contract defines a reduced working schedule compared to a full-time position. Part-time employees are entitled to proportional benefits and rights based on their working hours.
- Temporary Agency Work Contract (Arbeitnehmerüberlassungsvertrag): In this case, the workers are sent by a temporary agency, which legally employs the said worker. The agency is the legal employer, but the worker performs duties at the client's site. This is the employment relationship for workers hired through an Employer of Record in Germany.
- Apprenticeship Contract (Ausbildungsvertrag): An apprenticeship contract is used for vocational training and education. It outlines the terms and conditions of the training program and the responsibilities of both the employer and the apprentice.
- Mini-Job Contract (Minijob-Vertrag): Also known as "450-Euro jobs," these contracts are for low-income part-time employment where the employee earns up to 450 euros per month. They offer certain tax and social security benefits for both the employer and the employee.
- Freelance/Contract for Services (Freelancer-Vertrag/Werkvertrag): While not a traditional employment contract, this is an agreement between a self-employed individual (freelancer) and a client for specific services to be provided. Freelancers are not considered employees and have different legal and tax implications. This is the type of contract you would use to engage a digital nomad residing in Germany.
- Probationary Period Contract (Probezeit Vertrag): Many employment contracts in Germany include a probationary period during which the employer and the employee can assess their fit for the role. During this period, either party can terminate the contract with relatively short notice.
- Project-Based Contract (Projektvertrag): This type of contract is often used for specific projects or tasks with a defined scope and duration. It provides flexibility for both parties and is often used in fields such as consulting and IT.
Payroll and Taxes
Assuming you hire a full-time permanent employee, you’ll need to take care of the proper payroll and taxes for your staff. In Germany, employers pay just around 20% in payroll taxes. These include:
- 9.3% - Pension
- 7.3% - Health Insurance
- 1.525% - Nursing Care Insurance
- 1.25% - Unemployment Insurance
- 1.18% - Accident Insurance (on average)
You’ll also need to withhold and remit your employee’s various contributions to social security and taxes:
- 9.3% - Pension
- 7.3% - Health Insurance
- 1.525% - Nursing Care Insurance
- 1.25% - Unemployment Insurance
- 0-45% - Income Tax
Insurance and Benefits
While employers contribute to health insurance through German social security, many choose to offer private health insurance. To compete for top talent, employers may also offer other supplemental benefits. Here are some of the popular ones you may consider:
- Life insurance
- Additional paid time off
- Private pension plan
- Housing and child subsidies
- Company equity
- Health and wellness funds
Vacation and Other Types of Leave
Statutory leave for full-time employees in Germany is 20 days for a five-day workweek and 24 days for a six-day workweek. There are also ten public holidays mandated by the German government. This is the minimum you must provide to full-time employees (or pro rata for part-time ones). That said, most companies offer slightly longer paid leave policies.
In addition to vacation time, employees are also entitled to paid sick leave. Workers who are sick can take up to six weeks.
Then there is maternity, paternity, and parental leave. New mothers receive 14 weeks of fully-paid leave. New fathers will be able to take two weeks of paid leave starting in January 2024. And new parents can take up to three years of parental leave, split between both of them any way they like. The first 14 months of parental leave are paid at 60% of the person’s salary.
Employee Termination
Reasonable terminations are permitted in Germany but must be justified with reasons related to conduct, repeated violations, performance, or the company’s economic downturn, for example.
Employers must provide a notice of termination after the probation period, and the length of the notice depends on the employee’s tenure. The notice period starts at four weeks but can go up to seven months for really senior employees. That said, there are no legal requirements for severance pay.
Costs of Hiring in Germany
The costs of hiring in Germany can be quite different from those you experience in France. So, it’s a good idea to prepare a budget that includes not just the employee’s salary but also payroll taxes, benefits, workplace costs, and possibly other expenses.
Employee Compensation and Taxes
Starting in 2024, the minimum wage in Germany will be 12.41 euro per hour. There will also be another boost to the minimum by 2025, increasing the wage to 12.82 euro per hour to account for the country’s recent inflation.
That’s similar to France, but payroll taxes in Germany are significantly lower. The amount is just around 20% of the employee’s salary compared to a whopping 42% to 48% in France. These cover the statutory benefits for employees.
That said, the average salary in Germany is slightly higher. It comes in at just under 4,000 euros per month, compared to France’s 3300 euros. Of course, the actual salaries you offer your employees will depend on their skill set, industry, and level of expertise.
Overtime Pay
Working hours in Germany are typically eight hours per day, 40 hours per week. Monday through Friday is the standard workweek. Additional overtime pay is not legally mandated.
That said, overtime can be compensated in either additional paid time off or money, at the discretion of the employer. Employees can work up to two hours of overtime per day and 12 hours per week. Employees are paid the same hourly rate for extra hours worked as they are for their regular salary.
Workplace Costs
Finally, if you hire a substantial team in Germany, you’ll need to decide if everyone will work remotely or if you’ll need office space. This will come with another set of expenses. If you do hire a remote team, consider providing an allowance to set up a home office or access co-working spaces.
How Can I Legally Hire Employees in Germany as a French Company?
Now that you have an idea of the local employment regulations in Germany, what about actually starting the hiring process? Well, there are still a couple of steps you need to complete. You’ve got two main options for legally hiring employees in Germany — do it yourself or go through an Employer of Record (EOR).
Set up a local entity
If you are planning to set up shop in Germany, then it’s probably worth it to set up a legal entity here. However, if you just want to hire a couple of employees, the process may not be worth it. Here is a general outline of the steps you’ll need to take to set up a local entity and then hire employees in Germany through it.
Keep in mind that this process may differ for each organization. It is always best to consult with a local legal professional to ensure compliance.
- Choose the right legal structure: Common legal structures for businesses include the GmbH (limited liability company), UG (mini-GmbH), AG (stock corporation), along with several others. Choose the structure that best suits your business needs, considering factors like liability, capital requirements, and administrative obligations.
- Reserve a company name: Check the availability of your desired company name and reserve it with the local trade office (Gewerbeamt).
- Draft articles of association: Prepare the Articles of Association (Gesellschaftsvertrag) outlining the company's purpose, shareholders' rights, and obligations, share capital, management structure, and other key details.
- Appoint management and shareholders: Designate the managing directors (Geschäftsführer) and shareholders (Gesellschafter) if applicable. At least one managing director must have a residence in the European Union (EU) or the European Economic Area (EEA).
- Register the company: Register your company with the local trade office (Gewerbeamt) and the Commercial Register (Handelsregister) at the local court (Amtsgericht).
- Obtain a tax number: Register your company with the local tax office (Finanzamt) to obtain a tax identification number.
- Open a business bank account: Open a business bank account in Germany to handle financial transactions and manage payroll.
- Register for social insurance: Enroll your company and employees in the social insurance system, which includes health, pension, and unemployment insurance.
- Draft employment contracts: Prepare employment contracts for your local employees, adhering to German labor laws and regulations. Contracts must outline terms, compensation, working hours, benefits, and other relevant details.
- Register with the employment agency: Depending on your business activities and the number of employees, you may need to register your company with the local Employment Agency (Agentur für Arbeit).
- Comply with health and safety regulations: Ensure that your workplace meets German health and safety standards and that you provide a safe working environment for your employees.
- Pay taxes and social contributions: Set up systems to handle payroll, income tax withholding, social security contributions, and other tax obligations for your employees.
Engage an EOR
Alternatively, you can choose to engage Employer of Record Services. An EOR acts as the legal employer in the country where you want to hire but don’t have a local entity, in this case, Germany. An employer of record will help you throughout the recruitment process and support your global business expansion.
EORs make it a lot easier for you to navigate international recruitment because you don’t need to worry about compliance challenges. The EOR takes care of these for you while you focus on managing your new global team.
In Germany, working with an EOR is slightly different from other countries. An EOR will still handle all of the legal aspects of employment in Germany, but you’ll need a leasing license (AUG) to work with one. You’ll also be able to recruit workers for up to 18 months at a time (or several shorter contracts of this nature).
Compliantly Hire German Skilled Workers with an EOR
If you are simply looking to tap into German expertise without the hassle of setting up a legal entity in the country, then an EOR is your best choice for compliant hiring.
Expertise in Local Laws
EORs have a team of experts and experience in global employment. They understand local laws and regulations, so you don’t have to. EORs keep abreast of the latest changes in hiring practices worldwide and ensure that their clients’ contracts are compliant across all legislative details.
This helps French employers looking to hire abroad have peace of mind that they are not violating any regulations. It also takes much of the burden off their human resources teams so that they can focus on employee management rather than contractual details.
At least until the EU has a blanket regulation for hiring teleworkers from other countries, an EOR Is your best bet to ensure compliant hiring.
Global Payroll
Paying international employees has never been easier than with an EOR. A global employer of record will manage all the payroll details for you. They take care of things like monthly payments to your German employees and manage tax withholdings and social security remittances.
This means a compliant, easy, and positive experience for you and your staff. EOR payment platforms are designed with the user in mind, so you can manage all payment-related tasks with just a few clicks.
Health Insurance and Benefits Administration
On top of drafting contracts and payments, EORs also help companies manage insurance and benefits. A well-rounded EOR will offer customized benefits packages tailored specifically to the local context of each country you want to hire from. They also enable smaller companies to access larger benefits portfolios that they can offer their staff.
Streamlined Processes
Overall, an EOR streamlines the entire international hiring process for you. They act as the legal employer on your behalf, taking care of all legal proceedings. Meanwhile, you focus on managing your employees' experience and performance, fostering a positive team culture.
And if you have any questions on local work culture or the nuances of working in Germany, an EOR can lend a helping hand here too. After all, they are experts in global hiring.
Partner with Borderless
Convinced that you need an EOR to hire in Germany? Look no further than Borderless. We offer a wide range of EOR services, including global payroll, customized benefits administration, and even support with visas and immigration.
Book a demo today to learn how we can help you quickly and seamlessly hire employees in Germany and 170+ other countries worldwide.
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.
