Hiring employees in Germany is a great way to grow your global team. As the largest economy in Europe and one of the largest in the world, you're bound to find potential employees that have the experience and skills you need to help you expand your business.

Like in most countries, employment law in Germany is contained under multiple laws. To avoid fines or other legal complications, you must stay compliant with all the local rules and regulations— and in Germany, there are a lot of those! To help you navigate the German labor market and set up your remote employees for success, we've outlined the most important things you need to know about hiring remote employees in Germany.

How do foreign businesses pay remote workers in Germany?

Before you set out to recruit your next remote employee in Germany, you need to figure out how you're going to pay them as a foreign business. 

Like in many other jurisdictions, you need a local entity to hire employees in Germany and put them on the payroll. If you do not have a local entity in Germany, you can work with an employer of record, or EOR, to act as a local entity on your behalf. As a member of the Eurozone, Germany requires companies to pay employees in Euros.

If you're looking to expand your business into Germany for the long term, opening a legal entity in Germany can be a great strategy. To open a legal entity in Germany, you need to prepare for substantial paperwork and associated costs. That includes hiring legal help and registering at a German chamber of commerce. There are 79 chambers of commerce in Germany, not counting the chambers abroad. Before you join a particular chamber of commerce, you will need to research which one is right for your business.

The objectives behind the company, minimum capital, founding members or shareholders, and liability are crucial for deciding on a legal structure in Germany. Choosing the correct legal entity for your business means a substantial investment on your part in legal advice.

Working with an employer of record in Germany allows you to hire German employees quickly without opening your own legal entity in the country. You may want to work with a German employer of record for a number of reasons:

You do not want to spend the time and money to open a German entity.

You only want to hire a few workers in the country.

You do not plan a major business expansion into Germany with your products and services.

You need an option to employ workers on your behalf before your own entity is ready.

On the last point, many companies choose to work with employers of record to employ workers even when they plan to open an entity in the future. A company may employ workers through an EOR, then transfer those workers to the company’s own entity once the entity is fully launched.

Which parts of salary in Germany are taxable

Taxes make up an important part of the enormously complex equation of working and hiring in Germany. Understanding where remote workers pay taxes can be tricky, but usually employees pay taxes where they live. This is also the case in Germany.

Salaries paid under German payroll are subject to wage taxes. Wage taxes are withheld by the employer and credited against the final annual income tax charge. If you don't have a legal entity in Germany, the tax is withheld by your employer of record.

What are the tax rates for tax brackets in Germany?

As is the case in many European countries, Germany uses progressive tax brackets. Germany has four such tax brackets. Below are the tax rates and brackets for the 2021 tax year.

The first tax bracket has a 0% tax rate. It applies to single taxpayers who earn under €9,744 or €19,488 for a married couple.

The second tax bracket has a progressive rate that starts at 14% and rises to 42%. It applies to a single taxpayer who earns between €9,744 and €57,918, and between €19,488 and €115,863 for a married couple.

The third tax bracket is for a single taxpayer who makes between €57,918 and €274,612 in taxable income or a married couple who make between €115,863 and €549,224. They pay a tax rate of 42%.

Anyone earning over € 274,612 as a single taxpayer, or € 549,224 as a married couple, pays a tax rate of 45%.

Common tax deductions for remote workers in Germany

Certain expenses are tax-deductible for German taxpayers. Most deductions count for all employees, while others are specifically available for remote employees.

Individual taxpayers may deduct up to €13,805 from their taxable income for alimony.

Contributions to German and specific international charities are deductible up to 20%. Church tax is fully deductible.

If an employee fulfills several requirements, they can deduct a portion of child care expenses. The deductible amount is up to a maximum of €4,000 per year for children younger than 14 years and for disabled children.

In Germany, 30% of tuition fees for qualifying dependent children are deductible if the child attends a recognized private school in an EU/EEA country and if the government approves graduation. Deductible education expenses are limited to €5,000 per year per child and exclude costs for housing, care, and food. 

Remote employees can deduct €5 per calendar day for working from home in 2020 and 2021. The total sum deductible for remote workers is €600 per calendar year for a total of 120 days.

German employees who travel for work get a set per diem. Per diem is the only tax-free way to reimburse an employee for personal meals.

In 2020, the rates per diem for German employees were adjusted. Employees get €14 per diem

for a trip that lasts between eight and 24 hours. Employees get €28 per diem for a trip over 24 hours.

When meals are offered at no cost in the form of breakfast at the hotel or lunch at a conference, a percentage needs to be deducted from the per diem on that specific day. For breakfast this is 20%, and for lunch and dinner it is 40%.

The tax-free per diem only covers costs for meals. Flights, transport on location, accommodation, and costs incurred while meeting clients are not covered by the per diem. These expenses should be reimbursed by the company through a separate expense claim. 

What payroll deductions are employers required to make in Germany?

As an employer in Germany, you need to withhold payroll deductions and pay statutory fees each month to the tax authority. Some of these deductions come out of the employee’s wages, and others are paid by the employer. 

Here are the costs you can expect from the employer side and what you need to withhold from your employee's salary.

Employer’s statutory monthly fees in Germany

Germany has a strong welfare program. Most of the statutory monthly fees are split equally between the employer and employee, with the exception of accident insurance. Accident insurance premiums are the full responsibility of the employer.

Germany has a Public Retirement Insurance System that covers a basic pension. The current contribution is 18.6% of the net wages per year. The contribution is split between the employer and employee equally. Both pay 9.3% of the net wage per month.

You can choose to offer an additional employer-financed workplace pension scheme to help attract and retain staff.

Most Germans are covered by government health insurance. The total contribution to public health insurance is 14.6% of monthly wages. This is again split down the middle between employer and employee, making the contribution 7.3% of the net monthly wages each.

Your employees and your company need to contribute to the government's long-term nursing care scheme. This scheme covers a part of the cost of personal nursing needs if an employee becomes substantially disabled. The total contribution is 3.5%, or 1.525% each.  

German Statutory Accident Insurance or workers' compensation is among the oldest branches of German social insurance. This insures workers for injuries or illness incurred through their employment or the commute to or from their employment. The contribution is the full responsibility of the employer and amounts to 1.18% of net wages per month. 

What is the minimum wage in Germany and how does overtime work?

The minimum hourly wage for 2020 in Germany is €9.35 per hour. If you work in a sector with a collective bargaining agreement, it’s possible that there is a higher minimum wage.

Most employees in Germany work five days or 40 hours per week. Working hours for German employees are limited by the German Act on Working Time (Arbeitszeitgesetz) to a maximum of eight hours per working day and 48 hours per week. 

If an employee works overtime, those hours are capped at two hours per day according to law on an incidental basis. An employee may not exceed an eight-hour average workday over a period of six months. To ensure employees stay on that average, overtime is often reimbursed in paid leave. 

What are the local labor laws in Germany?

German employment law provides strong labor conditions and protections for employees. In Germany, workers’ rights are governed by statutory regulations codified in (among other laws) the German Civil Code and various federal acts such as the Part-time and Fixed-term Work Act, Employee Leasing Act, Holidays Act, Act on Maternity Protection, and the Dismissal Protection Act.

It might be tempting to avoid administrative hassle by hiring your German employees as contractors. However, doing so when a contractor is actually an employee means running substantial risks to the future of your business in Germany. Not only do you risk high fines, you could also face criminal liability.

The main difference between a contractor and an employee in Germany has to do with the level of freedom. A contractor has the freedom to determine the content of their work and how they carry out their services. Employees, on the other hand, work according to the employer's instructions. 

German labor laws favor substance over form when it comes to determining a contractor or employee relationship. This means that if your contractor works like an employee, they are legally an employee and can claim protection against unfair dismissal, paid leave, and other employee benefits. 

You can avoid running the risk of misclassifying employees as contractors in Germany by consulting with local experts. If necessary, you can use an EOR to convert your German contractors to employees to avoid potential misclassification penalties.

How to convert a contractor to an employee in Germany

At some point, a contractor in Germany may become a key part of your business. If that's the case, it might be time to convert them to an employee.

An employee often costs substantially less than a contractor. Even with the benefits you owe an employee, the savings compared to high contractor invoices (plus the intangible benefits of a closer working relationship) are too great to ignore.

Remote has a lot of experience in transitioning contractors to employees in Germany. If not having a German legal entity is an obstacle, you can turn your contractor into a valued employee without establishing a legal entity by working with our local EOR. 

How to pay remote employees in Germany with an EOR

To pay employees in Germany using an EOR, you simply pay the employee’s salary as you normally would, while your EOR manages things like payroll deductions and local compliance.

Without an EOR, your only options to work with Germany employees are to open your own legal entity or to pay workers as contractors. Opening your own entity requires you to find your own German providers for legal, payroll, benefits management, and other services. Opening an entity can also take lots of time and money to complete. It may still make sense to open an entity if your company has plans to employ dozens of employees in Germany, but if you only have a handful, an EOR is the better option.

Pay and hire remote workers in Germany with Remote

You do not have to own a business in Germany to work with great German talent. If you’re looking to tap into the German labor market quickly and easily, it pays to work with a trusted partner with a local legal entity.

At Remote, we have a local legal entity in every country we offer our services, including Germany. Thanks to our in-house knowledge of the German labor market, we can help you hire and onboard employees in Germany quickly and efficiently. Visit our Germany Country Explorer to learn more about employing workers in Germany or to get started today!

Hiring employees in Germany is a great way to grow your global team. To help you navigate the German labor market and set up your remote employees for success, we've outlined the most important things you need to know about hiring remote employees in Germany.

How to hire and pay remote workers in Germany

In an increasingly global world, more and more companies are looking for qualified workers abroad. The German market offers opportunities for employers to find talent to add value to their teams. Mastering employee benefits in Germany can make it easier to attract and retain top talent.

However, because each country has unique legislation, you must make sure to offer benefits that are both compliant with German law and appealing to the German worker. It’s easy to make mistakes understanding the nuances of mandatory and expected benefits in each country where you operate. The risks and penalties involved with non-compliance in Germany can be crippling for your business. 

In this article, we’ll cover German statutory benefits to which every employee is entitled. We’ll also cover additional perks and benefits you can offer to help attract German talent.

Understanding statutory and supplementary German benefits will help you maximize your chances of attracting the best Germany has to offer without risking penalties for non-compliance.

Who is entitled to employee benefits in Germany?

How to set up and manage German employee benefits

All full-time German employees are entitled to benefits. Employees working four days per week, 30 hours per week, or more are considered full-time. Most benefits kick in after four weeks of continuous employment.

German employment laws guarantee an array of benefits to employees. If you want to attract top talent in Germany, you need to build an employee-centric company culture with a benefits package that supports the wellbeing of your employees.

Independent contractors and self-employed workers are not considered employees under German law. However, the distinction between an employee and an independent contractor can be complicated. Consult Remote’s Guide to Hiring in Germany for more detailed information.

See also: When should you convert a contractor to an employee?

Germany grants generous benefits to its workers in comparison to many other countries. Here’s a list of table stakes: the benefits that you are mandated by law to offer.

German employees are entitled to at least 20 paid days off per year, based on a five-day work week, or 24 days off based on a six-day work week. On top of that, full-time workers get additional paid public holidays each year. 

There are also some additional regional holidays. See Remote’s Germany Country Explorer page for more details on exact dates and additional regional holidays.

Time off for illness is always an important benefit, but Covid-19 placed increased importance on sick leave in Germany.

Employees in Germany are entitled to six weeks of sick time at 100% of their salary. The employee must submit a doctor’s note to the employer for any absence longer than three days. If they return to work before the six week period ends but then get sick again because of the same ailment, the six-week clock continues.

Employees may be entitled to more than one six-week period per year if the leave covers separate illnesses or other specific circumstances. This is dealt with on a case-by-case basis.

The minimum wage in Germany is €1614 per month, or €19,368 annually.

Shifts are typically eight hours but should not be longer than 10 hours. The maximum workweek is 48 hours. The workweek is Monday through Saturday. Germany law typically makes it difficult for employers to ask employees to work Sundays. However, companies may usually ask workers to work Sundays provided the workers get at least 15 Sundays off per year.

There is no statutory mandate on overtime compensation. If employees work occasional overtime or on Sundays, many companies compensate them with subsequent time off.

Parental benefits in Germany are broad. 

Employees who give birth are entitled to six weeks’ paid leave before their due date and eight weeks after the birth of the child or children. With premature or multiple births, the paid leave after the birth is extended to 12 weeks.

Additionally, employees who give birth cannot be fired during the six weeks prior to their due date and up to four months after the birth.

All parents are also entitled to up to 24 months of leave within three years of the birth. The government covers the expenses for parental leave. Employees cannot be terminated during parental leave.

Benefits and protections also apply to surrogacy, adoption, and miscarriage. Germany law does offer parental benefits for LGBT families.

German worker benefits include unpaid time off to care for close relatives. “Close relatives” are broadly defined under German law. Statutory provisions include both short-term emergency care and long-term situations. Employees cannot be terminated while using caregiver benefits.

Employees can take up to 10 days for emergency short-term care. The employee must provide notice without unreasonable delay.

Employees can also take full or partial leave for up to six months under certain circumstances to care for a close relative.

All employees must participate in Germany’s public pension plan. Employers must contribute half of the pension rate. The pension rate is currently 18.7% of the salary. However, this rate is expected to increase to around 20% in 2025.

All employees must carry health insurance. The cost is 14.6% of the employees salary up to €58,050 annually. Employers must contribute half of the premium, or 7.3%. Employees earning less than €64,350 annually must be on the public health plan.

All employees must have unemployment insurance. Employers must contribute half of the premium, which is 3% of the salary.

Employers must also provide accident insurance (0.55% of salary), nursing care Insurance (1.53% of salary), and contributions to the Severely Handicapped Fund (€12.50 per month).

Common benefits in Germany to attract top candidates

The mandatory benefits listed in the previous section are non-negotiable minimums. But if you want to attract top German candidates, you can’t afford to settle for minimum statutory benefits. 

The German market is competitive, and offering attractive benefits to top-level candidates will help differentiate you from other potential employers.

Top candidates don’t want minimum pay. The average gross pay in German is €70,754. As in most countries, there is wide variation across job titles and industries. Factors such as experience and education figure heavily into salary determination.

Research your field to determine competitive salaries. There is an expectation in Germany that salaries will increase for employees as they become more experienced and spend more years with your company.

See also: How to calculate compensation for remote employees

Although German statutory requirements give employees generous paid time off, most companies go above and beyond the basics. It’s very common for companies to provide more than the minimum. Many companies offer up to six weeks of paid time off per year to entice and retain employees.

You might also want to consider offering an unlimited PTO policy. 

Yes, you can offer stock options or equity grants to your global team as part of your total compensation package. This is a great low-cost benefit that can help you attract and retain top talent and foster a sense of belonging and shared vision among your employees. 

Remote's tax and legal experts can help you navigate international stock options so you do it the right way from the start. 

Private pensions and supplemental retirement insurance

The pension system in Germany is a pay-as-you-go system. This means the funds workers deposit pay for people drawing on pensions right now. That also means that workers may see decreases in benefits in the future.

This model can cause stress and uncertainty for the people currently contributing. So, private and supplemental pensions are a very attractive benefit for German workers. They offer security the public pension does not.

Consider setting up a company pension or a retirement savings program for your workers to help them successfully plan for retirement.

Private and supplemental health insurance

You may offer private or supplemental insurance to employees earning more than €64,350 per year. The German public plan does offer a high level of care, but private insurance gives people access to more providers and other perks.

Basic dental care is included in the public health plan. However, you can offer supplemental dental insurance for your workers on the public plan. Supplemental insurance will give broader coverage across the board.

For workers who have private insurance, you can offer dental care as part of that coverage instead of a supplemental policy.

What if you don’t have unlimited money to throw at candidates? Can you still compete for top talent in a global environment? The answer is yes. There are many soft benefits that appeal to remote workers and don’t have sizable up-front costs to your company.

See also: What soft benefits do remote workers expect from remote-first companies?

A traditional 9-to-5 schedule isn’t right for everybody. Where possible, allow your remote team to structure their workweek on their own terms. This gives employees the flexibility to manage family schedules and meals in the ways that work best for them. If your worker is a night owl, for instance, they can work late into the evening if they prefer.

Good health is top of mind for many these days. As an employer, you can offer benefits to attract talent and keep your team healthy.

Gym memberships have been a traditional wellness benefit. However, lockdowns across the globe have seen an increase in at-home benefits like fitness equipment and virtual group classes. An at-home spin bike combined with a virtual class membership could give your remote workers a great way to stay in shape and stay connected.

In a traditional office, many companies supply food and beverages for their employees. Remote workers may see a rise in their grocery bill once they start working from home. Consider replacing the employee lunch room with at-home equivalents for your remote German workers.

For food, you could support healthy eating habits with subscription meal boxes. Alternatively, “take” your team out to lunch with reimbursements for local takeaway meals.

Your remote workforce is already saving you a lot of overhead on office space. Make sure they have what they need. Not only does this contribute to employee satisfaction and high productivity, but it can also help you attract top talent.

You could start with the basics like office supplies, or you could go bigger. Some attractive remote-first benefits include the phones, tablets, laptops, monitors, and ergonomic office furniture.

To avoid government taxation on these benefits, it’s best to provide equipment to German employees directly or to fund through an expense reimbursement system.

When you’re working with a geographically diverse workforce, you have a lot of details to manage. But no smart business owner wants to waste time sweating the details. You need an efficient but reliable way to manage your German benefits.

A global employment solution like Remote can help. With Remote, you can offer a host of great benefits for your German employees legally and easily.

The easy way to minimize risk and stay compliant

Germany’s employment law is not codified in a single law. Instead, statutory requirements are scattered throughout many different laws and ordinances. This can make it difficult to remain in compliance as a foreign employer. The difficulties are compounded if you employ team members from more than one other country.

The German market offers opportunities for employers to find talent to add value to their teams. Mastering employee benefits in Germany can make it easier to attract and retain top talent.

Germany

How to hire and pay remote workers in Germany

Everything you need to know about employee benefits in Germany