Employ Candidates Compliantly in Germany

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  1. Overview: Germany
  2. Global HR Compliance
  3. Global PEO and payroll
  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

Do you have Ukrainian workers who are planning to flee to Germany to escape the Russian conflict? Or have your employees already left Ukraine and arrived in Germany?

Acumen International can help companies like yours, including IT, to compliantly employ your Ukrainian talent in Germany within days. Acumen’s global PEO and Payroll solution helps you to legally relocate your Ukrainian personnel to Germany so you can enjoy uninterrupted workflow with employees you know and trust. Our solution enables us to arrange for global payroll, and to open bank accounts for your employees. We can also provide your talent with laptops, mobile phones, and other tools they need to perform their jobs.

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

Companies hire international employees for various reasons but in most cases they are:

  • entering the foreign markets to sell company products. To do so, the company hires sales representatives who would represent their product and sell it to their local client base.
  • hiring a global talent with unique skills that is unavailable in the local market or costs the company less than the talent with similar skills hired in the home country.

Before entering a certain foreign market or engaging a global talent, it is crucial for the company to understand how it can make local hires and reward its workers on a monthly basis. Growing companies often face a challenge of paying benefits and bonuses to the commission-based independent sales representatives they are working with.

If you intend to hire employees and pay your foreign workforce in full compliance with labor laws and regulations of Germany, then the Global Employer of Record service from Acumen International may be the best way for you to go. We are an International PEO company and we specialize in global employment, meaning we can employ your employees in Germany and act as their legal employer on your behalf. We will payroll your foreign workforce monthly and provide benefits to them through our global network so you don’t have to set up your own legal entities there.

We are experts in global workforce employment in , and our goal is to become your single provider. Instead of working with numerous local staffing agencies and legal advisors, Acumen International can solve your global business challenges and save you time, costs, and resources.

Our team of English-speaking professionals frees you from working through language nuances. Acumen International works 24/7 and can assist you whenever you need, regardless of time zones. Our goal is to create tailored labor solutions for you that are managed legally and in full compliance with the 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 satisfies all local tax, social security, and immigration requirements in Germany.

See the guide below for a general overview of labor rules and regulations in Germany or contact us if you need to employ workers in Germany or would like to get more details.

Hiring and Firing Workforce in Germany Guide

Germany being one of the largest economy, a leader in IT market with a remarkable competitive edge among European countries and global market at large is certainly worth attention, especially when it concerns extension of business activities. Notwithstanding these good points, Germany is still considered one of the uneasy places to start off 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 business in Germany.

# Employment Agreements

The employer is required to give you a written employment contract no later than 1 month after the start of the employment relationship. 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 1 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 of time)

The standard employment contract in Germany is for an indefinite period of time. An employment contract is concluded by an offer from the employer and an acceptance by the employee. 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 of time. Thus, the contractual relationship continues until the contract either 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) 

If an employment relationship is limited to a certain time period, the agreement on limitation only needs to state the end date in writing. 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 

An employee who has been 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, also indicating the requested allocation of working hours. The employer must consent to the requested part-time hours and their allocation unless opposed to “operational reasons.”

Labor Lease (“Arbeitnehmerüberlassung”) 

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

# Employment Termination and Severance Pay (Dismissal)

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 have to be met for this type of dismissal to be valid.  In general, an employer is required to give four weeks’ notice to the 15th or the end of a calendar month (dismissal by notice). The longer you have been employed by an organization, the longer the notice period to which you are entitled. 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

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 case for termination under this category is a termination due to lengthy or frequent illness. A termination for lengthy illness is justified if the employee has been ill for a significant period of time, his/her recovery cannot be expected in the near future, and the process of work is considerably disrupted by the constant absence of the employee. 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 process of work is considerably disrupted. It is difficult to specify general rules as to how long and how frequent an illness has to be in order 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 six weeks period of continued sick leave pay obligation of the employer.

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 which 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 case of misconduct will often not be sufficient to allow the termination. The Labour Courts normally require that the employee has been formally warned not to repeat his/her misconduct again. Therefore, it is necessary for the employer to express a warning to the employee if it considers a certain type of 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 notice.

# Notice period

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

  • The basic notice period is four weeks to the 15th or to 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 employments 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.
  • During an agreed probationary period, which may not exceed the first six months of the employment, the notice period is two weeks.
  • 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

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 had expressed unfounded defamatory allegations against the employee. Under these circumstances, the Labour Court may, upon application by the employee, dissolve the employment relationship and, at the same time, order a compensation to be paid by the employer.

# Employee Benefits and Contributions

Mandatory benefits required by law to be provided by an employer

Sick Pay

An employee who is 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 6 weeks of pregnancy and within 8 weeks after the 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., minimum vacation of four weeks) regardless of daily working hours.

Legal Holidays  

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

Non-mandatory benefits that are offered by an employer

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.

Company Car 

Managerial employees, employed sales agents and service technicians will frequently be provided with a company car. If, under the employment contract, the employee is also entitled to private use of the company car, the monetary benefit is deemed to be 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 will have to 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, 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 are paying the minimum wage. Employers who fail to pay the minimum wage must pay arrears. They can also face a fine.

# Probationary period

There are two types of probationary period:

  • 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

Essentially there is no statutory obligation for an employee to perform overtime. An exception is simply in emergencies or extraordinary situations in order 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.

# Work hours

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 a period of six months, average daily working time does not exceed eight hours. There is also a ban on working on Sundays and public holidays.

# Annual Leave

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

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

# Parental Leave

Pregnant employees enjoy special termination protection. Furthermore, they are prohibited from working within the last 6 weeks of pregnancy and within 8 weeks after the 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.

Acumen International can help you fast-track your possibilities of entering and expanding your business in Germany by providing you with our Employer of Record services. Our unique mix of PEO/EOR solutions will enable you to jumpstart your global operations almost immediately, cost-effectively and compliantly without any need to set up a legal entity first or afterwards.

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