Global PEO Services (GPS) helps companies hire employees in Germany without establishing a legal entity. All human resources, benefits, payroll, and tax needs for the employees are managed by the Global PEO, while the new hires and headquarter teams focus on your business goals.
When hiring employees in Germany, establishing a subsidiary or branch office is not always the best route, as it’s often a lengthy and expensive process. Hiring via a Professional Employer Organization (PEO), or Employer of Record (EOR), is a faster and often more effective option – especially when starting up in a new country.
Global PEO Services hires the employees on your behalf, legally contracting them through our subsidiary in accordance with German labor laws. As a result, the burden of compliance is on us and the employees can begin work for your company in a matter of days. PEOs/EORs provide you with a streamlined option for hiring employees, testing markets, and responding to growing business needs in Germany. With Global PEO Services, you get control without taking on legal entity liabilities, contractor risks, or sacrificing on talent or speed to market.
Expected to touch $4.37 trillion in 2020, Germany has the 4th largest GDP in the world. The total value of exports and imports is equal to 86.9% of GDP. Germany is a European nation with the biggest drivers of its economy being its service industries, including telecommunication, healthcare, and tourism. The nation employs a social market economy that emphasizes the value of open-market capitalism and also ensures a number of social services guarantees. The country is ranked #1 in the world for entrepreneurship due to its skilled labor force, highly developed infrastructure, and their technological expertise.
Currency: Euro (€)
Principal language: German language or German Deutsch
Government: Representative Democracy
Capital City: Berlin
Major Cities: Hamburg, Munich, Cologne
A verbal employment contract in Germany is valid and binding on both parties. However, in most cases, employers prefer a written one as a proof of the agreement.
An employment contract needs to be in the German language and must include at least:
- The employer's and the employee's names and addresses
- The work commencement date
- A job description
- The place of work
- The hours of work per week
- The amount of compensation and method of payment
- Leave entitlement
- The notice period
- Reference to relevant collective agreements, and
- Duration of service in case the employment contract is finalized for a fixed term.
In addition to these mandatory provisions, the employment contract must also include the following to secure the employer's interests:
- a probationary period
- a provision that allows the employer to allocate other tasks to employees within the company according to their skill and knowledge, and
- an outline on ways to manage overtime working hours.
Contracts must be written in German, although foreign employees can ask for the document to be translated into their language. In case of conflict, the German version will be implemented.
The Part-Time and Limited-Term Employment Act limit the duration of an employment contract and is accepted by the courts in these cases:
- The contract does not last more than 24 months, and the employee has not worked for the same employer during the previous 3 years.
- The fixed term is acceptable by a reasonable cause and does not result in bypassing of the rights that the Act on Protection Against Unfair Dismissal enforces.
Extension of work hours up to a maximum of 10 hours a day is allowed if an employee does not exceed an average of 8 hours per working day over 6 calendar months or within 24 weeks. After completing their daily work, employees must get a minimum 11 hours of continuous rest. If there is an interruption during this period, it must be allowed in full after such an interruption.
Employees must not work longer than 6 consecutive hours without taking a break. If they work at a stretch from 6 to 9 hours, providing a 30-minute break or two 15-minute breaks is compulsory, and in case they work more than 9 hours, employers need to provide a 45-minute break that may be split into periods of at least 15 minutes each or otherwise.
Employers are also responsible for registering with the local employment agency, and this agency will give a business number to their organization.
The German Federal Leave Act stipulates that every employee working 6 days a week is qualified to receive at least 24 working days of leave (i.e., 4 weeks), and employees working 5 day weeks are to receive at least 20 working days of leave. Individuals with disabilities and minors can claim more. Sundays, public holidays (including 9 national public holidays and some more holidays in Catholic areas), and usually Saturdays do not count as vacation.
In practice, almost all the employees in Germany get longer annual leave. The long leaves are generally regulated in work agreements or collective bargaining agreements and often modified according to age or number of service years. Currently, 5 to 6 weeks of annual leaves are typical. When there is no collective bargaining agreement, the employment contract governs the number of leaves.
Regardless of their working time, employees are eligible for their full vacation entitlement if they have completed at least 6 months at work. All employees are authorized to paid leave in Germany – a minimum of 24 working days and official holidays. Employees need to complete 6 months of work to qualify fully. The compensation amount for paid leave is on the basis of on the average salary received during the preceding 13 weeks of employment.
All Sundays are holidays, in addition to several officially recognized holidays. Germany observes the following 9 national holidays, the dates of some of which differ year to year:
- Jan. 1: New Year's Day
- Good Friday
- Easter Monday
- May 1: Labor Day
- Ascension of Christ (Easter Sunday, plus 39 days)
- Whit Monday (Easter Sunday, plus 50 days)
- Oct. 3: Day of German Unity
- Dec. 25: Christmas Day
- Dec. 26: Boxing Day (Day after Christmas Day)
There are also holidays in different regions. Observance of holidays is always on the day on which they fall, even if it is on the weekend. Holidays do not shift to the nearest Monday, nor do workers get a free day in compensation for a holiday falling on a non-work day.
If employees work on a holiday which falls on a working day, they must get a day’s rest as compensatory off. Employers need to provide this compensatory off within a period of 8 weeks including the day on which they worked. Employees do not qualify for extra pay if they work on a public holiday.
Employers must provide pregnant employees 6 weeks of maternity leave before the birth of her child and 8 weeks post-delivery of the child. During this period, employees exercise their right to full pay from health insurance. The Maternity Protection Act ensures that there are no financial disadvantages to female employees as a result of maternity.
The terms of the Maternity Protection Act makes it unlawful to employ an expectant mother during the 6 weeks before the birth of her child, even if she does not submit a doctor's certificate. However, if she has made a declaration in writing, which she can withdraw at any time, that she agrees to continue working, she may work.
A woman is not allowed to work for 8 weeks after childbirth. The law extends this period to 12 weeks for multiple or premature births. The leave entitlement commences on the day of birth and lasts till 8 or 12 weeks later on the same day of the week as the day of childbirth.
Employers need to give parents up to 3 years of unpaid childcare leave. One of the parents needs to take the first 2 years immediately after the childbirth and the 3rd year at any time up to the child's eighth birthday. Both parents can claim parental benefits if they are on leave during the first 12 months after the child's birth. The benefit entitlement is 65% of the parent's previous monthly salary.
There is no leave benefit specifically for fathers, though either parents may take benefit of parental leave. A child-raising benefit is paid by the government from the child's birth to the age of 12 to 14 months. The Act on the Payment of Child-Raising Benefit and Child-Raising Leave allows a monthly child-raising benefit to parents and the right to child-raising leave for either one of the parents or for both at the same time.
For employees who were born before 1965, the legal retirement age currently is 65 after making at least 5 years’ of contributions and will gradually increase to 67 by 2020. For those who were born after 1964, the pensionable age is 67 after 5 years' contributions. Employees who have contributed to the pension fund for at least 45 years can retire at 63 with no decrease in benefits.
Employers and employees need to make equal contributions of approximately 20% of gross monthly salary to the statutory pension insurance funds. The employer transfers the entire amount of both contributions to the insurer. The pension benefit depends on many factors, such as the frequency and amount of contributions made, the period during which the payment of contributions occurred, the employee's income and social factors.
In Germany, the national social security system includes all the employees as beneficiaries by law. The employer needs to report within 14 days a new hire to the competent health insurer, and all contributions to the social security system go to this insurer.
Foreign nationals are exempt from essential coverage as long as they have shown the necessary residence and work permits. The social security system includes:
- Health insurance
- Unemployment insurance
- Pension or old-age benefits
- Nursing care insurance
- Accident insurance
How GPS can Help
With our Global PEO/Employer of Record services, companies can expand into Germany and hire their employees without having to establish a branch office or subsidiary in Germany.
- Your candidate is hired via our Germany PEO. If needed, we can also help you find the right talent in any country with our comprehensive global staffing services.
- Your new employee begins work quickly as we take care of employment contracts, statutory and non-statutory benefits, and running their payroll - all in full compliance with Germany laws.
- Global PEO Services experts manage all day-to-day operational issues such as employee expenses, and severance/termination if required.
- With no contractor risks, pass on the compliance burden to Global PEO Services.
Spin Off/M&A Support
- Ensure continuity of payroll, benefits and HR support when acquiring or spinning off a business with employees overseas.
24/7 Support in 150+ Countries
- Empower your teams with 24/7 support and a single point-of-contact model in which experienced client services directors are in continuous communication with information and advice.
- We are backed by a mix of 300+ multidisciplinary experts from HR, Payroll, Finance, Tax, and Legal domains who are ready to respond to the expected and unexpected needs of your business on the shortest notice.
Easy Visibility into Your Employee Time & Attendance and Benefits Data
With our Global PEO, you get access to Mihi, our proprietary SaaS solution for time and attendance, vacation, leave management and benefits enrollment and management. Mihi enables clients to have easy access to employee data in real time. It is designed specifically for companies with a global workforce, especially when working in multiple countries with low headcount.
Ready for Growth When You Are
When ready, we can seamlessly transition you from the PEO/EOR model to your own legal entity and provide ongoing international HR, finance, legal, compliance and staffing support. Learn more about our end-to-end international expansion services.