Global Employer of Record (EOR) in Germany

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  1. Overview: Germany
  2. Global PEO and Payroll
  3. Global HR Compliance
  4. Work permit for hiring expats via PEO
  5. Expand without a company set up
  6. Contractor vs. employee: which is better?
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Global HR Compliance in Germany

Engage Acumen International Employer of Record to Hire Anywhere Faster

Acumen International Employer of Record in Germany works 24/7 and can assist you whenever you need it, regardless of time zones. Our team of English-speaking professionals frees you from working through language nuances. Our goal is to create tailored labor solutions for you that are managed legally and in full compliance with local employment laws.

With our knowledge and deep understanding of local nuances, you easily satisfy your need for skilled professionals in your global industry. With our qualified local partners, you can trust that your global workforce meets Hungary’s local tax, social security, and immigration requirements.

If you hire an international workforce or plan to hire, then the Hiring and Firing Workforce in Germany Guide below will help you understand the nuances of labor legislation in the country.

Hiring and Firing Workforce in Germany Guide

Germany is one of the largest economies, a leader in the IT market with a remarkable competitive edge among European countries, and the global market at large is certainly worth attention, especially when it concerns the extension of business activities. Notwithstanding these good points, Germany is still considered one of the uneasy places to start business owing to the long and complicated protocols involved. To lessen this burden, Acumen International has set up a solution that will help any organization -small, medium, large, that wishes to expand to Germany succeed without having to set up their infrastructure in the country. This paper is written to guide you through the fundamental things you must know about operating a business in Germany.

Employment Agreements in Germany

The employer must give you a written employment contract no later than one month after starting the employment relationship. The employee and the employer both sign the employment contract.  Even if a contract has been concluded orally, the employer must give an employee a written document setting out the main terms of the contract no later than one month after the start of the employment relationship. The employer must sign the document setting out the terms of the contract.

Open-ended Contracts (Contracts for an indefinite period) in Germany

The standard employment contract in Germany is for an indefinite period. An employer’s offer and an employee’s acceptance conclude an employment contract. An employee often (although considerable social change can be seen here) stays with her or his employer until she or he reaches retirement age unless the employment is terminated before or unless otherwise agreed by the parties.

Most employment agreements in Germany are entered into for an indefinite period. Thus, the contractual relationship continues until the contract ends by mutual agreement or is terminated by one party observing the contractual or statutory notice period. Most employment agreements provide that the employment shall automatically end once the employee attains retirement age.

Fixed-term contracts (terms of agreement and time limitations)  in Germany

The limitation agreement must only state the end date in writing if an employment relationship is limited to a certain period. If an employment relationship is limited to one based on a certain purpose and an end date cannot be determined (e.g., standing in for a sick employee), the agreement on limitation needs to state the purpose of the limitation in writing.

Part-time Contracts  in Germany

An employee employed for longer than six months has a claim to part-time work if the employer generally employs more than 15 employees. The employee can request that his/her contractual working hours be reduced. The employee must give at least three months’ notice of the reduction in hours and its extent, indicating the requested work hours allocation. The employer must consent to the requested part-time hours and their allocation unless opposed to “operational reasons.”

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Labor Lease (“Arbeitnehmerüberlassung”) 

Labor Lease means the lease of employees to third parties for a limited period to be used as if the lessee had these persons as its employees. It is quite common in Germany, allows the lessee to be more flexible with its headcount (e.g., during peak production), and can be used to lower employment costs. Employers who want to lease their employees to third parties must obtain a governmental license to do so validly.

Employment Termination and Severance Pay (Dismissal) in Germany

There are two types of dismissal in Germany: dismissal by notice (ordentliche Kündigung) and summary dismissal (außerordentliche Kündigung). No notice is given in the case of summary dismissal. This means that the employment relationship ends immediately when the employee is informed that they are being dismissed. It is rare for employment to be terminated without notice, as special conditions must be met for this type of dismissal to be valid.  In general, an employer must give four weeks’ notice by the 15th or the end of a calendar month (dismissal by notice). The longer an organization has employed you, the longer the notice period you are entitled to. For example, if you have worked for an organization for 15 years, you are entitled to six months’ notice to the end of a calendar month.

It Is Prohibited to Dismiss in Germany

Reasons Based on the Employee’s Person 

Personal qualities of the employee, e.g., his/her physical or mental inability, can “socially justify” the termination of an employee with ordinary notice. The most common cause for termination under this category is a termination due to a lengthy or frequent illness. Termination for a lengthy illness is justified if the employee has been ill for a significant period, his/her recovery cannot be expected shortly, and the constant absence of the employee considerably disrupts the work process. A termination for frequent illness is justified if the employee has frequently been ill in the past, similar illness periods are to be expected in the future, and thereby the work process is considerably disrupted. It is difficult to specify general rules as to how long and how frequent an illness has to be to justify a termination. The German Labor Courts always consider an equitable balance between the interests of the parties in the individual case. However, the courts generally do not allow termination for frequent illness if the illness periods do not substantially exceed the employer’s six weeks of continued sick leave pay obligation.

Reasons Based on the Employee’s Conduct 

Severe misconduct on the employee’s part will often justify a termination for cause without notice. Less serious cases of misconduct will allow only a termination with ordinary notice. “Misconduct” is a violation of any obligation the employee has vis-à–vis his/her employer. One of the main reasons for a termination based on misconduct is unsatisfactory work performance. A single misconduct case will often not be sufficient to allow termination. The Labour Courts typically require that the employee has been formally warned not to repeat his/her misconduct. Therefore, the employer must warn the employee if it considers a  behavior to be blameworthy. For reasons of evidence, this warning should be in writing.

Disabled Employees

An employer may, with few exceptions, terminate the employment of a disabled person only upon the prior approval by the competent authority for the integration of disabled employees. However, this rule applies only if the disabled person has been employed for more than six months without interruption as at the time of receipt of the notice.

Notice Period in Germany

Statutory notice periods for both white-collar employees and blue-collar workers are as follows:

  • The standard notice period is four weeks to the 15th or the end of a calendar month.
  • For employment relationships of a certain duration, the following extended notice periods apply to terminations by the employer: – After two years of service, the notice period is one month to the end of a calendar month; – after five years of service, the notice period is two months to the end of a calendar month; – after eight years of service, the notice period is three months to the end of a calendar month; – after ten years of service, the notice period is four months to the end of a calendar month; – after twelve years of service, the notice period is five months to the end of a calendar month; – after fifteen years of service, the notice period is six months to the end of a calendar month; – after twenty years of service, the notice period is seven months to the end of a calendar month. The extended notice periods listed above do not oblige the employee. If they are intended to apply to both parties, this has to be contractually agreed upon.
  • For short-term temporary employment of up to three months, the parties may fix a shorter notice period.
  • In companies with no more than 20 employees, parties may agree upon a notice period of four weeks.
  • The notice period is two weeks during an agreed probationary period, which may not exceed the first six months of employment.
  • Collective bargaining agreements may contain deviating rules, i.e., they may provide for shorter or longer notice periods and for different periods to be observed by employer and employee.

Severance Payments in Germany

If the employment is intended to be terminated for compelling business reasons, the employer has the option to serve written notice of termination together with a severance offer, payment of which is based on the condition that the employee does not file a lawsuit for unlawful dismissal within the statutory period of three weeks following the notice. This condition must explicitly be stated in the written notice letter. As to the severance amount, statutory termination protection law provides an amount that equals half of the monthly gross salary per year of service. However, if the employer does not choose to invoke this alternative, it will not be obliged by statute law to offer any severance payment to the employee. If a termination is declared invalid by a Labour Court, the circumstances may nevertheless be such that the employee cannot reasonably be expected to return to his/her job. This may occur, for example, when the employer has expressed unfounded defamatory allegations against the employee. Under these circumstances, the Labour Court may, upon application by the employee, dissolve the employment relationship and simultaneously order compensation to be paid by the employer.

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Employee Benefits and Contributions in Germany

Mandatory Benefits 

Sick Pay

An employee unable to work due to sickness will receive sick pay.

Maternity Protection Leave and Parental Leave

According to the Maternity Protection Act (“Mutterschutzgesetz”) pregnant employees enjoy special termination protection. Furthermore, they are prohibited from working within the last six weeks of pregnancy and eight weeks after birth (“Maternity Leave”). During these protection periods of maternity leave, the mother is entitled to maternity pay equivalent to her average monthly remuneration during the last three months before the commencement of her maternity leave and which is partly paid by the health insurer.

Paid Vacations

Vacation Period Any employee is entitled to an annual vacation of at least 20 working days based on a five-day week of work or 24 working days in a six-day work week (i.e., the minimum vacation of four weeks) regardless of daily working hours.

Statutory Holidays

Work is normally not permitted on Sundays and legal (public) holidays, although certain statutory exceptions exist. However, if an employee works unlawfully on Sundays or legal holidays, the manager who is responsible may be subject to fines.

Voluntary Benefits 

Commission

Many employees receive a substantial part of their remuneration as a commission. This is the typical remuneration for sales representatives, but it is also used for employed sales agents. It is usually calculated as a certain percentage of the turnover generated by the employee.

Car  Allowance

Managerial employees employed by sales agents and service technicians will frequently be provided with a company car. If the employee is entitled to private use of the company car under the employment contract, the monetary benefit is deemed part of the employee’s remuneration. He/she will have to pay income tax and social security contributions (the latter only if lump-sum taxation is not chosen) on the share of the private use while the employer must make the necessary deductions. If the company car is claimed back by the company during a release period, the employee will be entitled to compensation in terms of the value of the private use unless such compensation is explicitly excluded in the employment agreement.

Bonus

A bonus is a payment for a special occasion (Christmas, vacation, certain anniversaries of service, etc.). The Christmas bonus is frequently paid instead of a 13th monthly salary. Normally, the Christmas bonus – in contrast to the 13th monthly salary – will not have to be prorated if an employee leaves the firm during the year.

Minimum Statutory Salary in Germany

In Germany, the minimum wage is regulated by law. Employers are required to pay the applicable minimum wage in all cases. This is true regardless of whether you work for a German or a foreign employer. In Germany, the Customs Administration (Zollverwaltung) monitors whether employers pay the minimum wage. Employers who fail to pay the minimum wage must pay arrears. They can also face a fine.

Probation Period in Germany

There are two types of probationary periods:

  • The employee receives a permanent employment contract which contains a probationary period clause. The employment relationship continues after the probationary period unless it is terminated during the probationary period.
  • The employee receives a fixed-term employment contract only for the length of the probationary period. In this case, the employment relationship ends automatically when the probationary period expires. If the employer wants to continue, the employee has to be given a new employment contract.

Overtime in Germany

Essentially there is no statutory obligation for an employee to perform overtime. An exception is simply in emergencies or extraordinary situations to avert damage to the business. An obligation to perform overtime work must arise from an employment contract, a works-council agreement, or an applicable tariff agreement. It is, therefore, strongly recommended to provide in the employment contract that the employee is obliged to perform overtime work in the direction of the employer due to operational requirements.  The law makes no express provision for the remuneration of overtime. Moreover, there is no general legal principle that every hour of overtime or every attendance at the place of work over and above the agreed working hours is to be remunerated.   The overtime compensation will normally be paid together with the salary for the month following the overtime work.

Working  Hours in Germany

In Germany, working time is regulated by law. The employee is allowed to work a maximum of 8 hours per day. Working time can be extended to a maximum of ten hours if, over six months, the average daily working time does not exceed eight hours. There is also a ban on working on Sundays and public holidays.

Annual Leave in Germany

Workers are entitled to at least 24 working days of paid annual leave per calendar year. That is four weeks’ holiday per year, as Saturdays also count as working days. The employee only gains this entitlement after being employed for six months.

Sick Leave in Germany

After four weeks of employment, the employee is entitled to continued payment by the employer in case of sickness for six weeks. The regular payment, which the employee would have earned without sick leave, needs to be paid by the employer. Employees who are sick during a calendar year may be entitled to continued payment several times, even beyond six weeks. Only if the employee is sick for the same reason for longer than six weeks is this entitlement limited.

Parental Leave in Germany

Pregnant employees enjoy special termination protection. Furthermore, they are prohibited from working within the last six weeks of pregnancy and eight weeks after birth (“Maternity Leave”). During these protection periods of maternity leave, the mother is entitled to maternity pay equivalent to her average monthly remuneration during the last three months before the commencement of her maternity leave and which is partly paid by the health insurer.

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