German labor law has no single code. The rules are spread across federal statutes, court decisions, collective agreements, works-council agreements, and the individual contract, and the protections that result are among the strongest in the EU. This guide covers what each rule changes for you as the employer, and why most foreign companies use an Employer of Record (EOR) rather than handling German employment themselves.
That covers three readers: the company onboarding its first German hire, the one already employing someone there, and the one reconsidering an EOR provider it has outgrown. If any of these describe you, you’re in the right place. For the operational view alongside the legal one, you may want to start with our guide to hiring employees in Germany.
What German Labor Law Covers
German employment law is drawn from federal statutes, Federal Labor Court decisions, collective agreements, works-council agreements, and individual contracts. There is no consolidated labor code, and that fragmentation makes it hard to handle employment issues alone.
The structure is dual. Individual employment law covers you and one employee: the contract, notice, dismissal protection, written particulars, working time, leave, sick pay, and discrimination. Collective employment law covers everything above that: works councils, and the sector agreements that can set pay and conditions for a whole industry. Those two decide whether other people have a say in how you manage your German team.
Three German terms are worth knowing because they come up in every conversation with a lawyer or a payroll provider. The Kündigungsschutzgesetz is the dismissal protection act. The Betriebsverfassungsgesetz is the works constitution act, which governs works councils. A Tarifvertrag is a collective bargaining agreement (CBA). Don’t worry - there won’t be a pronunciation quiz at the end of this article.
One principle carries through all of it: statutory minimums override contract terms. A clause that sits below the legal floor is void, not merely unenforceable, so you cannot contract your way down.
Where this trips up foreign employers. Assuming a US-style at-will baseline. German labor laws start from strong protection, and an EOR that knows the statutory floor keeps you from drafting below it.
What a German Employment Contract Must Include
German employers must document the essential terms of employment in writing (a pdf or doc is fine, as long as there is proof the employee received it).
Probation runs to a maximum of six months, with two weeks' notice during it. In a fixed-term contract, probation has to be proportionate to the length of the contract and the nature of the work, and the Federal Labor Court confirmed in late 2025 that there is no simple percentage rule for what counts as proportionate. A boilerplate six-month probation inside a nine-month contract is exposed.
Fixed-term contracts without a specific business reason run to two years, with up to three extensions, and they are barred entirely if the person has worked for you before. The Federal Labor Court has held that even an eight-year gap is not long enough to lift that bar. The fixed term itself must be agreed in writing before work starts, and if the paperwork is defective the contract becomes permanent by operation of law.
One more line item. German job ads have to be neutral as to age, gender, and other protected characteristics, which is why they carry "(m/w/d)" after the job title. A non-neutral ad shifts the burden of proof onto you if a rejected candidate claims discrimination.
Where this trips up foreign employers. At Oyster, some of the common traps that we’ve seen foreign employers fall into include reusing a US offer letter. Half its clauses may be void in Germany, and the fixed-term paperwork rules can convert the whole contract to permanent. An EOR issues a compliant German contract from the start.
Minimum Wage and Working Hours in Germany
As of August 2026, the statutory minimum wage in Germany is 13.90 euros gross per hour, in force since 1 January 2026 and rising to 14.60 euros on 1 January 2027. Working time is capped at eight hours a day, extendable to 10 with averaging, with mandatory rest, and employers must record working time systematically.
Both wage figures are already law, set by ordinance in November 2025 and published by the Federal Ministry of Labour and Social Affairs. Sector minimum wages set by collective agreement can sit well above the statutory floor, and several do: roofing, scaffolding, care work, and agency work all carry higher 2026 rates.
The working day is capped at eight hours. You can run 10 as long as the average stays within eight across six months. Saturday counts as a working day for this purpose, so the absolute weekly ceiling is 60 hours against a 48-hour average. Breaks are 30 minutes for shifts over six hours and 45 minutes for shifts over nine, with no more than six consecutive hours without one, and employees are entitled to 11 uninterrupted hours of rest between shifts.
Recording working time is a live obligation, not a proposal. The Federal Labor Court ruled in 2022 that German employers must record the start and end of each employee's working day, following a Court of Justice decision that applied across the EU. No format is prescribed and paper records are lawful. A law requiring electronic recording has been debated since but was not in force as of August 2026, so do not plan around a deadline that does not exist.
What this means for your German hire. Most tech salaries sit well above the minimum, so the binding constraint is usually the recording obligation rather than the wage. If your team runs on "salaried, no timesheets," Germany changes that, and an EOR's payroll and time processes handle it. See our guides to payroll in Germany and average salary in Germany.
Leave Entitlements for German Employees
Statutory minimum paid annual leave is 24 working days on a six-day week, which comes to 20 days on a five-day week, but market practice in German tech sits well above the floor. Employers also owe up to six weeks of continued full pay during illness, plus maternity, parental, and caregiver leave.
Full leave entitlement accrues after six months of employment. The rule most guides get wrong is expiry. Untaken statutory leave does not lapse automatically at year end or on 31 March. Since a 2019 Federal Labor Court decision, it expires only if you asked the employee to take it and warned them it would otherwise be lost, and the burden of proving you did that sits with you.
Public holidays are set by each federal state, not nationally, and only 3 October applies everywhere. The count runs from 10 to 13 depending on where your employee sits, so the same salary buys different numbers of working days in different cities.
For sickness, you continue full pay for up to six weeks per illness once the employee has four weeks' service. After that the employee's health insurer pays sick pay at 70% of gross, capped at 90% of net, for a maximum of 78 weeks over three years for the same condition, including those first six weeks.
Maternity protection runs six weeks before the birth and eight after, extended to 12 in defined cases, and the post-natal period is an absolute ban on working. You top up the health insurer's allowance to the employee's average net pay, and a statutory levy scheme reimburses that top-up in full whatever your size. Parental leave runs up to three years per child, unpaid and with dismissal protection throughout. Caregiver leave adds 10 short-term days with no company-size threshold, plus longer entitlements once you pass 15 and 25 employees.
What this means for your German hire. Statutory is the floor, not the market. Under-offering leave loses candidates in Berlin and Munich, and getting entitlements wrong carries legal exposure as well as recruiting cost. An EOR benchmarks the offer to local expectations rather than to the legal minimum. See our overview of the employer of record in Germany model.
Notice, Termination, and Why an EOR Mitigates the Exposure From Most of It
Statutory notice escalates with tenure, from four weeks in the first two years up to seven months at 20 or more years of service. Employers with more than 10 employees also need a legally valid reason to dismiss, under Germany's dismissal protection act.
Two thresholds decide how much protection attaches. Full dismissal protection applies only where you have more than 10 employees, counting part-timers as a half or three-quarters of a head depending on their hours, and only after the employee has six months' service. Below either threshold you still owe notice, but you do not need a reason.
Where dismissal protection does apply, you need one of three grounds: something about the person, such as long-term incapacity; something about their conduct, usually after a formal warning; or an operational reason, such as a role being cut. Redundancies bring in social selection, which weighs length of service, age, dependants, and disability, so you cannot pick the role you want to cut. And where a works council exists, it must be consulted before every dismissal. Skip that step and the dismissal is void.
Severance is not a general statutory entitlement in Germany, which surprises most foreign employers. It is still paid in most contested cases, because settlement is the normal outcome. One structured route exists: you can offer half a month's pay per year of service in the dismissal letter for an operational redundancy, and if the employee lets the three-week challenge window pass, that is the deal.
One formality outranks all of the above. A termination has to be on paper with a wet signature. Electronic form is expressly excluded, so a dismissal sent by email or signed through an e-signature platform is void rather than merely defective.
Talk to a specialist about hiring or exiting an employee in Germany.
What this means for your German hire. Two facts change the plan. Under 11 employees, full dismissal protection does not attach. And the notice clock, not severance, is the real commitment you are signing up for. This is where an EOR's in-country expertise ensures compliance:the process is run correctly, and the exposure that sinks do-it-yourself exits is contained. Oyster's in-country specialists review termination procedure and provide compliance guidance at no extra cost
What Happens if a German Employee Contests a Dismissal?
A dismissed employee has three weeks from receiving the written termination to file a claim at the local labor court. Miss the window and the dismissal is treated as valid from the outset. Most cases settle.
The structure pushes toward settlement. The first hearing is a conciliation hearing in front of a single judge, listed within a few weeks of the claim, and it exists to broker a deal rather than decide the case. Each side pays its own lawyer at first instance regardless of who wins, which removes the usual deterrent to filing and makes a negotiated exit the rational outcome for both parties.
What this means for your German hire. The exposure is not the legal fee. It is back pay accruing while the dispute runs, plus a negotiated severance at the end of it. That is the 12 months most guides never describe, and the point where a company either has a specialist who has handled German exits or a ticket in a queue.
Works Councils and Collective Agreements
A works council can form at any German site with five or more eligible employees, but only employees can start the process. Most German tech and SaaS roles are not covered by a binding sector collective agreement, unlike manufacturing, chemicals, and construction.
On works councils, the threshold is five eligible employees, three of whom must be eligible to stand for election. Formation is entirely a matter for your staff: you cannot create one, and you cannot prevent one.
Where a council exists, it gets a genuine say over how you distribute daily and weekly working hours, temporary changes to those hours, any technology capable of monitoring performance, and how mobile work is arranged. Past 20 employees, restructuring brings in a negotiated redundancy plan on top.
On collective agreements, three routes can bind you: joining an employers' association that has signed one, signing a company-level agreement yourself, or a government declaration that extends an agreement across a whole sector. According to the Federal Statistical Office, 49% of employees in Germany worked in a collectively bound business in 2025. Coverage concentrates in traditional industry, which is why a Berlin software hire is usually outside it and a Stuttgart manufacturing hire usually is not.
What this means for your German hire. Between five and 10 employees you can be inside works-council territory but outside full dismissal protection, an unusual window. Monitoring tools and shift patterns that are routine in the US become co-determination matters here, and an EOR flags that before it becomes a dispute.
Contractor or EOR, the Two Ways to Engage German Talent
You can engage a German contractor who is independent in substance, or you can employ through an EOR. Germany applies one of Europe's stricter tests for false self-employment (Scheinselbständigkeit), so where the relationship is employment in substance, the EOR route removes the retroactive social-contribution and personal-liability exposure a contractor arrangement carries.
German authorities look at the facts, not the label on the contract. The German pension authority, which decides these cases, weighs whether the person takes instructions on when, where, and how they work, whether they are embedded in your team like an employee, and whether they carry real business risk with their own premises and other clients. Where the paperwork and the working reality diverge, the reality wins. If you want certainty in advance, either party can ask for a formal status ruling before the work starts.
An adverse finding is retroactive and expensive. Unpaid social contributions can be clawed back for four years, extended to 30 where the withholding was deliberate, with late-payment surcharges of 1% a month. You owe both the employer and the employee shares, and you can normally recover the employee's portion from only the last three payrolls, so in practice you pay all of it. Deliberately withholding social security contributions is also a criminal offence, which is where personal liability for directors enters the picture.
Two clean routes exist. Oyster Global Contractors is built for people who are independent in substance, with misclassification protection and compliant cross-border payments. Where the relationship is employment, an EOR is the answer.
What Does It Cost to Employ Someone in Germany?
The employer's cost sits meaningfully above gross salary once statutory social contributions are added: pension, health, long-term care, and unemployment insurance, plus accident insurance and levies. On a salary below the contribution ceilings, the quantifiable employer share comes to roughly 21% of gross in 2026.
Every branch is capped. Health and long-term care contributions stop at 5,812.50 euros of monthly gross, pension and unemployment at 8,450 euros, so the percentage falls as salary rises. At the ceilings the quantifiable employer cost tops out at roughly 18,300 euros per employee per year, about 12% of gross on a 150,000 euro salary.
One trap deserves naming. The long-term care surcharge for childless employees aged 23 and over, and the reductions for employees with two or more children, change the employee's share only. You pay a flat 1.80% in every case, or 1.30% in Saxony.
Rates and ceilings come from the Federal Ministry of Health and the labour ministry's 2026 social insurance parameters. Germany publishes each component rate separately rather than a single official employer multiplier, so the 21% figure is a build-up from those components and excludes accident insurance and the levy schemes, which vary.
An EOR gives you the all-in figure before you make the offer. Model your role with our cost of hiring in Germany calculator, and sense-check the salary against average salary in Germany.
Do You Need a German Entity, or Is an EOR the Better Call?
You can employ in Germany by setting up a GmbH or by using an EOR that already holds an entity, and for most foreign companies the EOR route is faster, lower-cost to start, and removes the compliance burden that makes Germany risky to run alone. A GmbH requires 25,000 euros of minimum share capital, notarised articles, and commercial-register registration, a process measured in months once you count everything after the filing.
The filing is the short part. After it comes business registration, a tax number, an employer reference number from the federal employment agency, German payroll with monthly social-insurance reporting and wage-tax returns, accident-insurer registration within a week of your first hire, and statutory accounting. Worth knowing: a foreign company with no German establishment can get an employer reference number and report to German social insurance directly, so an entity is not strictly required.
For a foreign company hiring a handful of people, an EOR is usually the right answer: no entity, no months of setup, employees onboarded in as fast as 48 hours, and compliance carried by an in-country partner. Oyster's employment agreements are legal-reviewed across 120+ countries, and you get a dedicated specialist rather than a ticketing queue.
The entity case is real where the German headcount is large and sustained, and thin below that. If you are weighing an entity because your current provider is not working, switching EORs is a defined process for an existing German employee, not a fresh setup.
See what hiring in Germany costs without a GmbH.
Hiring Your First German Employee
German employment law rewards expertise and punishes guesswork, and for most foreign companies the sensible move is to let a trusted EOR carry the compliance while you focus on the hire.
The sequence is short. Decide the model, entity or EOR, before you make the offer. Get a compliant German contract with the required written particulars, the right probation, and the correct notice terms. Set up payroll and working-time recording from day one rather than retrofitting them, then plan for the notice commitment, because that clock starts at signature.
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