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How to Hire in Germany

how to hire in Germany

As one of the top economic powers in Europe, companies often need to hire workers in Germany. Its central location in Europe and workforce of 44 million people make the country an attractive hiring destination for international business.

Employers who want to hire in Germany from another country must first have a firm understanding of local labor laws. Businesses have three options for hiring workers overseas:

Hire directly through your own German entity
Hire through a global PEO
Hire and pay independent contractors

Each method of hiring depends on the overall strategy and goals of your organization. This guide will help you better understand how to hire in Germany for your unique needs.

Hiring workers in Germany

Hiring foreign workers can be as simple or complex as the needs of your short and long-term goals, time and budget. The better you understand your market and hiring requirements, the more success you’ll have with international expansion.

1. Hire directly through your own German entity

Setting up your own legal entity in Germany will grant your business full autonomy to hire talent directly. The process of establishing an entity can take anywhere from 10-20 weeks and costs over €10,000, depending on the subsidiary type. Although it takes more time and money upfront, it gives your business more stability and control in the long run.

Hiring through your own entity means you are responsible and liable for all employment regulations. Ignorance is not a valid excuse for noncompliance. Make sure you have a firm understanding of all HR and payroll requirements to avoid government fines and penalties. If you don’t have the bandwidth to support your foreign employees, you can always work with an in-country partner for support.

This has always been a more traditional route for global expansion in the past. Although more costly and time-consuming, it provides a strong foundation for consistent growth.

2. Hire through a global PEO

A global PEO is a common solution for companies seeking a more streamlined approach to hiring German employees. A professional employer organization (PEO), also called an employer of record (EOR), does all the administrative tasks for you. They use their own legal entity to hire employees on your behalf and complies with all employment regulations.

Using a global PEO means you don’t have to worry about onboarding, payroll, benefits, or risk mitigation. All you have to worry about is the day-to-day tasks of the employee. This is why this option has become a popular alternative to establishing a legal entity of their own. It’s a faster, more flexible strategy for rapid growth and testing new markets.

Partnering with a global PEO to hire in Germany empowers businesses to establish a remote workforce quickly before committing to a long-term expansion strategy.

3. Hire and pay independent contractors in Germany

The third option for employers is to engage with independent contractors in Germany instead of hiring full- or part-time employees. Germany boasts a large freelancer workforce of over 3.1 million contractors. Contractors are self-employed, and therefore do not receive employer benefits, and they pay their own taxes. These workers can be hired for short-term or project-based jobs, and is often a fast and flexible hiring solution.

However, businesses still need to have an understanding of German employment classifications before hiring a contractor. For instance, there is an important distinction between being self-employed (Gewerbetreibender) and being a freelancer (Freiberufler). Freelancing generally applies to intellectual roles, while the other applies to trades or business ownership.

Hiring a contingent workforce in Germany is cost-effective as long as you avoid worker misclassification risks. Violating these employment laws will result in back pay, back taxes, civil lawsuits, and other legal penalties.

The costs of hiring in Germany

Businesses need to consider far more than just the salary or benefits offered to an employee. In addition to their base compensation, Germany requires employers to contribute to various social programs.

Pension insurance: The total requirement is 18.6% of salaries up to €84,600. Half is paid by the employer (9.3%) and the other half is paid by the employee.
Unemployment insurance: The total requirement is 2.4% of salaries up to €84,600, with both parties contributing half (1.2%).
Health insurance: The total requirement is 14.6% of salaries up to €58,050, with both parties contributing half (7.3%).
Long-term care insurance: The total requirement is 3.05% of salaries up to €58,050, with both parties contributing half (1.525%).
Workers compensation: This accident insurance depends on the industrial sector and accident risk, but the employers are responsible for the costs.
Insolvency contribution: Only payable by the employer to 0.09% of salaries up to €84,600.

Related: Global hiring playbook

Assuming you’ve hired an employee in Germany for more than the gross salary listed, you can expect to pay a little more than €14,000 for these tax contributions for each employee. It’s important to keep this in mind as you put together your recruiting and hiring strategy in these foreign countries.

FAQs about how to hire in Germany

Hiring in a foreign country is a complicated process. For those hoping to DIY their global expansion, we’ve compiled some common questions to help you get started. Understanding and complying with German employment laws is critical for long-term success.

What are some common employment laws and practices?

Most of these questions only apply if you plan to hire directly or hire independent contractors. A global PEO will manage all of these compliance regulations on your behalf.

Employment contracts: Germany offers both fixed- and indefinite-term contracts, but fixed contracts can’t surpass two years.

Minimum wage: Germany’s minimum wage stands at €12.41 per hour as of 2024.

Working hours: The standard workday in Germany comprises eight hours with a customary 30-minute break, although some workplaces opt for an hour-long break.

Overtime: Overtime compensation is determined within the employment contract and lacks statutory regulation.

Probationary period: Typically, a probation period of six months applies to most permanent employees in Germany, extending up to 12 months for senior, executive, and managerial roles, albeit without statutory obligation.

Termination: Notice periods for termination vary based on termination grounds, tenure, and provisions outlined in the employment agreement or collective bargaining agreements.

Severance: No statutory severance is mandated in Germany; instead, employees negotiate severance terms with the German works council, if applicable.

Annual leave: Employees in Germany are entitled to a minimum of 20 days of paid leave annually.

Maternity leave: Maternity leave benefits extend six weeks before childbirth and eight weeks after, with the allowance contingent on the earnings from the preceding calendar months.

Parental leave: German parents have the privilege of taking up to 12 months of unpaid parental leave, with the option to split it between both parents or have one parent take the entire duration.

Sick leave: Upon completing four weeks of service, employees are entitled to sick pay, entitling them to their regular wage for up to six weeks of illness.

Holidays: Germany observes nine national public holidays annually, with individual states recognizing additional holidays specific to their regions.

What is 13th-month pay in Germany?

Although not required, 13th-month pay is offered by many companies hiring in Germany. This grants an employee an additional month’s salary as an incentive to enhance their talent acquisition and retention strategy. Usually companies will pay this supplemental benefit in November before the holidays.

What are some common German payroll regulations?

Payroll is another area that requires a fair bit of compliance. German workers must be paid in their local currency of Euros and fall within required pay frequency and contribution amounts. Germany operates on a monthly payroll cycle in most cases. Employers need to pay 19.6% of employee salaries to social security programs, which were listed above.

What is an AUG license?

The AUG (Arbeitsnehmerüberlassung) license, also referred to as the labor leasing act, is a required employment permit in Germany. This license is the most common way businesses hire temporary or fixed-term workers without their own business entity in the country.

Similar to an eor, this license allows a third-party leasing firm like Safeguard Global to hire employees through its own entity on the client’s behalf. However, unlike an eor, employment liability is shared between the employees, the leasing firm, and the client. The other downside is that these AUG engagements are limited to an 18-month timeframe, after which a company must either end the contract or hire them via their own legal entity.

Hiring employees in Germany is easy with Global PEO Services

The German market is bursting with new talent and opportunities for growth. We have the experience and expertise to help you navigate complex international employment laws to expand your workforce. Global PEO Services, a Safeguard Global company, simplifies your expansion strategy and empowers you to focus on hitting your growth objectives.

We handle all the onboarding, payroll, HR, benefits administration, taxes and compliance. No matter what your hiring needs are, we can help you quickly and cost-effectively acquire the best workers in Germany. Speak with one of our global business advisors today to learn more.

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