Before hiring employees in Germany, there are a few important things you’ll need to know. If you’re looking at establishing a business entity in Germany, you should know that it can take up to six months to get started. Because of the volume of financial filings, it’s typically recommended to work with a tax advisor.
It’s mandatory for health insurance to be provided to German employees and this can be done through either a public or private outlet.
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Get an overview of what you need to know when hiring in Germany below.
Not mandatory, but a 13th salary is paid as an end of year bonus in some agreements
Employees work a maximum of 40 hours a week—typically eight hours a day. Employees in Germany must be given at least 11 hours of resting time between two working days.
In Germany, overtime has to be specifically stated in an employee's contract, and higher wage earners are not eligible for overtime payments. The salary cap for overtime payments ends at ~€80K p.a. in Western Germany or ~€70K p.a. in Eastern Germany.
Employment contracts should be written in German.
A common probation period in Germany is three months, though it can be up to six months.
In Germany, pensions are common and employers often contribute to private pension funds on behalf of their employees.
In Germany, an employee must be informed (in writing) four weeks in advance of separation during the first two years of employment. After that, the notice period increases depending on the employment duration.
Non-compete agreements in Germany must be limited in scope and duration, and must include compensation for the entire non-compete period. They must amount to at least 50% of the latest salary of the employee (including any bonus payments and gratuities).
The employer may waive the non-compete before termination, but the obligation to pay the necessary compensation continues for a period of 12 months following the declaration of the waiver.
Full-time employees in Germany are entitled to a minimum of 20 days of paid holidays per year, based on a five-day working week, or 25, based on a six-day working week.
It’s common for companies in Germany to grant their employees additional vacation of up to a further two weeks.
An employee in Germany is entitled to receive sick pay of up to 100% of their salary for up to six weeks. German national health insurance compensates employers for 80% of sick pay, as long as the employer does not employ more than 30 employees.
For a sick leave longer than six weeks, an employee will receive a sickness allowance from the national health insurer amounting to 70% of the employee’s salary for a period of up to 78 weeks.
In Germany, mothers get six weeks of fully paid leave prior to a child's birth, and eight weeks of fully paid leave after the childbirth. In addition to maternity leave, parents are offered a combined leave of up to 36 months, which can be divided between the father and mother, and is paid for up to 12 months by the government. Parents can choose to work part-time during this leave period.
An employer can expect to contribute about 20.7% on top of an employee’s salary to social security. This includes pension contributions, health insurance, unemployment insurance, nursing care insurance, and accident insurance.
Employees in Germany are taxed federally from 0% to 45% depending on their income bracket. Social security contributions total 14.7% and include contributions for pension, health insurance, unemployment insurance, and nursing care insurance.
In Germany, employees who have worked at a company with more than 10 employees for more than six months can only be terminated for certain causes. An employer must provide written notice of termination, and the decision of the employer can be legally challenged by the employee in court.
Even though there is no statutory severance in Germany, in practice, many employers and employees will agree on severance pay provisions to avoid court proceedings. This severance will often amount to 50% of the monthly salary per year of service. This can vary depending on the strength of the case for dismissal and the previous practice of the employers. In Germany, it’s typical for companies to pay severance packages of up to six months of an employee’s salary to settle termination of employment.
Setting up a business entity everywhere you want to hire a new employee isn’t scalable—it takes too long and the legal fees are high. At the same time, understanding and adhering to the local labor laws and employee expectations can be complex and time consuming. And it’s hard to find reliable information on up-to-date employment information for all the countries where you’re considering hiring. Not to mention tracking down invoices and managing employee contracts over email and spreadsheets—that gets messy fast.
We can’t afford to take risks when it comes to compliance—we need to make sure we follow the local guidelines, especially when it comes to taxes and legalities.
With Oyster, you can manage HR and payroll, and automate compliance across 180+ countries—all in one, easy-to-use platform.