Overview

Germany has a diverse population of over 84 million people, with a highly skilled talent pool that includes individuals from various educational backgrounds and experience levels. The country places a high emphasis on education, with a literacy rate of 99% and an extensive system of universities and vocational schools that offer degrees and certifications in a wide range of subjects.
Germany has some of the most comprehensive employment laws in the world, designed to protect workers' rights and ensure fair treatment. Those planning to work in Germany can expect a minimum wage, regulations regarding working days hours, vacation days, parental leave, and a robust social security system that provides healthcare, unemployment benefits, and pensions.
The business climate is favourable, with a strong focus on innovation and a well-established infrastructure that supports businesses of all sizes. Germany's business-friendly regulatory environment, low corruption levels, and government incentives for business growth and innovation make it an excellent place to set up a business.
Germany's top industries include automotive manufacturing, chemical production, engineering, and healthcare. The country is the world's leading exporter of cars, with major companies such as Volkswagen, BMW, and Mercedes-Benz headquartered in Germany.

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Capital                                               Berlin

Languages spoken                           German

Population size                                  84.5 million as of April 2023

Payroll frequency                               Monthly

Currency                                            Euro

VAT                                                    Standard rate: 19%

                                                          Reduced rates: 0% - 7%

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More economical and fiscal information on Germany can be found at the dedicated section.

 

Payroll and taxes in Germany

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Social security contributions

Employers in Germany are required to make social security contributions on behalf of their employees. These contributions fund the country's social security system, providing benefits such as healthcare (including long-term care insurance and nursing care insurance), unemployment insurance, and pensions.

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Unemployment insurance

Unemployment insurance is a mandatory scheme in Germany that financially supports employees who lose their jobs. Employers are required to pay unemployment insurance contributions on behalf of their employees.

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Pension contributions

Employers in Germany are also required to make pension contributions on behalf of their employees. These contributions go towards funding the country's public pension system, which provides financial support to retirees.

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Minimum wage in Germany

Germany's minimum wage is €12 per hour as of October 1, 2022. This means employers must legally pay their employees at least €12 per hour worked.
The minimum wage was introduced in Germany in 2015 and has since been adjusted annually to reflect the cost-of-living changes. The minimum wage aims to ensure that all employees in Germany are paid a fair wage for their work and to prevent employers from exploiting their workers by paying them below a certain threshold.
It's worth noting that there are some exceptions to the minimum wage, such as for trainees, apprentices, and certain types of workers in the agricultural and forestry sectors. Additionally, some collective bargaining agreements between employers and trade unions may set different minimum wage rates for specific industries or job roles.

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Labour laws and employee rights in Germany

In addition to the above legal requirements related to tax and payroll, there are also a range of other labour laws to be aware of when expanding your business to Germany. These are:

Occupational health and safety

German labour law dictates detailed regulations around workplace health and safety standards. These are outlined in the German Occupational Health and Safety Act.

The regulations state that all employers have a duty to ensure appropriate measures to protect their staff from dangerous employment conditions, with continuous supervision and analysis of potential hazards within the work setting. 

Employers are also required to provide occupational health insurance as part of their mandatory social insurance scheme. This covers workplace accidents, occupational illness and accidents during the commute to and from work. Contributions to occupational accident insurance should come solely from the employer and depend on a number of criteria, including previous expenses for damages or risk level for their particular industry. 

Non-compete restrictions 

Generally, employees are subject to a statutory duty not to compete during their employment. This means that, during their time working for your company, they cannot work for a competitor of your company until the end of their notice period.

Any post-contractual non-compete restrictions should be agreed upon in writing and must provide for certain minimum payments to be made. 

Short-time work

If your company experiences a temporary loss of workload and you want to reduce your staff's working time, German labour law allows for short-time work. Based on collective bargaining agreements, individual employment contracts or works agreements, this means you can reduce the contractual working time of your employees. 

You may also apply to the Federal Labour Agency to receive help with paying for short-time work allowance. This is to cover the employee's loss of remuneration due to reduced working hours.

The loss of workload must be due to economic reasons, and the situation must be unavoidable and only for a temporary period. Short-term work allowances are regularly paid for a maximum of one year. 

Trade unions and industrial action

Trade unions are usually established for different business branches, such as manufacturing, public transport or construction. Workers in Germany are constitutionally guaranteed the right to form or become a member of a trade union, or to refrain from doing so.

Employee benefits in Germany

In Germany, there are mandatory benefits that employers are required to provide their employees and supplementary/optional benefits that employers may choose to offer. Here are some examples of each:

Mandatory benefits in Germany

Health insurance: Employers must provide health insurance to their employees, with the employer and employee contributing to the insurance cost.

Pension insurance: Employers must also provide pension insurance to their employees, with employer and employee contributions to the insurance cost. The amount of the contributions is based on the employee's salary.

Unemployment insurance: Employers must provide unemployment insurance to their employees, with employer and employee contributions to the insurance cost. The insurance provides income replacement for employees who lose their jobs.

Accident insurance: Employers must provide accident insurance to their employees, with the employer paying the total cost of the insurance. The insurance provides compensation to employees who are injured on the job.

Maternity/paternity leave: Employers must provide maternity leave to female employees, with the length of the leave varying depending on the circumstances. In addition, fathers are entitled to paternity leave.

Supplementary/optional benefits

Retirement savings: Employers may offer retirement savings plans to their employees, such as 401(k) plans or pension plans that provide additional retirement benefits beyond what is required by law.

Health and wellness benefits: Employers may offer additional health and wellness benefits, such as gym memberships or wellness programs, to promote employee health and wellbeing.

Education and training: Employers may offer educational and training opportunities to their employees, such as tuition reimbursement or professional development programs, to help them acquire new skills and advance their careers.

Flexible working arrangements: As remote workers are increasingly common, employers may offer flexible working arrangements, such as telecommuting or flexible schedules, to help employees balance their work and personal lives.

Childcare support: Employers may offer childcare support to their employees, such as on-site daycare or subsidies for childcare expenses, to help working parents manage their childcare responsibilities.

 

Working hours in Germany

In Germany, the maximum working hours are regulated by law to protect workers' health and safety. According to the German Working Time Act, the maximum weekly working hours are 48 hours. However, in most cases, full-time employees' average weekly working hours are typically around 40 hours per work week.

In addition to the maximum weekly working hours, the law also requires employers to provide a minimum of 11 hours of rest between working days, which means that employees must have at least 11 hours of uninterrupted rest between finishing one workday and starting the next. This ensures employees have enough time to recover and rest between work shifts.

It's important to note that there are some exceptions to these regulations for specific industries or job roles, such as shift workers, medical staff, or employees in the transportation sector. In these cases, different regulations may apply to ensure the safety and well-being of workers.

Starting in 2023, employers in Germany will be required to record the start and end times of their employees' daily working hours. This is no longer optional; employers must ensure that their employees record their working hours. The method of recording is not specified and will depend on the circumstances of the individual case, such as the industry, size of the company, and specific employee group.

It's also worth mentioning that Germany has a strong culture of work-life balance, and many employers offer flexible working hours or part-time employment options to their employees. This allows workers to balance their work commitments with their personal lives and is often seen to boost employee satisfaction and productivity.

Overtime pay

The compensation for overtime in Germany does not necessarily require employers to pay their employees an additional amount for working beyond regular working hours unless specified in the employment contract. If the contract allows it, a certain amount of overtime may be compensated with the regular monthly salary, up to 15% of the regular working time. Employers must pay for any overtime above this amount. If the overtime compensation exceeds the pension insurance contribution ceiling, the regular monthly salary may compensate for the overtime.

Working on weekends

Unless specific exceptions exist, working on Sundays and public holidays is generally prohibited in Germany. If an employee does work on these days, the employer must compensate them with time off within two weeks for Sunday work or eight weeks for public holiday work.

Night shifts

Night work in Germany is allowed for a maximum of 8 hours per working day but can be increased to 10 hours if the employee's average shift duration in the following month does not exceed 8 hours. Employers must provide appropriate compensation such as paid days off or a suitable supplement to the worker's salary for working during night hours.

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Types of leave available in Germany

In Germany, there are several types of leave available to employees, including:

Annual leave

Employees are entitled to a minimum of 20 days of paid vacation per year, which increases with seniority and may be specified in employment contracts. Some collective bargaining agreements provide for even more vacation time.

Public holidays

There are nine public holidays in Germany, which vary by region. Employees are generally entitled to paid time off on these holidays, although some industries (such as healthcare and hospitality) may require employees to work these days.

Holiday                                        Date

New Year’s Day                           January 1st 

Good Friday                                Varies by year

Easter Monday                            Varies by year

Labour Day                                 May 1st

Ascension Day                            Varies by year

Whit Monday                               Varies by year

Day of German Unity                  October 3rd

Reformation Day                         October 31st

Christmas Day                            December 25th

Boxing Day                                 December 26th 

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Note that some of these holidays may be observed on different days depending on the state or region in Germany.

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Sick leave

Employees who cannot work due to illness or injury are entitled to paid sick leave, which typically begins on the third day of illness. The length of sick leave varies depending on the employee's illness and length of service.

Maternity/paternity leave

In Germany, maternity benefits are available to pregnant and working women. These benefits are designed to support women during their pregnancy and after the birth of their child. The statutory maternity leave in Germany is 14 weeks, which can be taken up to 6 weeks before the expected due date. During this period, the employee receives a maternity allowance, which is calculated based on her average earnings in the last 12 months before the start of the maternity leave. The health insurance provider pays the allowance and is up to 100% of the net income.

Male employees are entitled to a minimum of two months of paternity leave, which may be taken immediately after the birth of the child or later.

Parental leave

In addition to maternity and paternity leave, employees are entitled to parental leave of up to three years for each child, during which time their job is protected. Either parent can take parental leave and may be taken full-time or part-time.

Other leave

In addition to the above, employees may be entitled to other types of leave, such as bereavement or jury duty, depending on their circumstances and employer's policies.

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Termination of employment in Germany

Termination of employment in Germany is subject to strict legal regulations and must be handled with care. Employers must comply with the relevant rules and requirements when terminating an employee’s employment.

Severance pay

Under German law, there is no statutory requirement for severance pay, except in cases where the employee is entitled to it under a collective agreement or an individual employment contract. However, employers may offer severance pay as a settlement agreement to avoid legal employee disputes.

Probationary period

Probation periods are standard in Germany and typically last up to six months. During the probationary period, the employer or employee can terminate the employment relationship without notice or severance pay.

Notice period

Notice periods for terminating employment are governed by law and may be extended by collective bargaining agreements or individual employment contracts. The minimum notice period depends on the length of the employee’s service with the company and ranges from four weeks to seven months.

In cases where the employer initiates the termination of employment, they must provide the employee with a written notice that includes the reason for the termination. The employee can challenge the termination in court if they believe it was unlawful.

If the employee has been employed for more than six months, the employer must also provide them with a certificate of employment. This document confirms the duration of the employment and the tasks and activities the employee performs during their time with the company.

Companies must follow legal requirements and regulations when terminating an employee’s employment in Germany. Failure to do so may result in legal disputes, compensation claims, or fines. It is recommended that companies seek legal advice and guidance to ensure compliance with the relevant laws and regulations.

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Do you need to hire employees in Germany?

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Talk to us

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Contact

Mrs. Emanuela Ferina

Head of Global Payroll

emanuela.ferina@studio-bcs.com

Phone 0039 0 363 360254

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