Germany — 15 min

Employment laws in Germany: How to hire and stay compliant

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Germany is well-known for its highly educated and skilled workforce, as well as a strong culture of excellence in many industries. In addition, the country boasts a stable, open economy with supportive laws and regulations to promote business success and development in the European Union. This makes it an attractive destination for businesses looking to hire German employees or expand into the region.

Furthermore, Germany's multicultural and diverse population makes it an especially appealing destination for businesses wanting to leverage different talents and skills. However, handling hiring, payroll, and employee management while complying with German labor laws can be challenging.

This guide provides a comprehensive overview of German employment law. It also provides insights into statutory employment rights, managing employee offboarding, and employee misclassification risks in Germany. Following these insights will enable you to attract and retain top talent in Germany while remaining compliant.

Jump straight to a key chapter

Understanding key labor laws in Germany
What do you need to know before hiring a German employee?
Statutory employment rights in Germany
What are the unique considerations for employers hiring in Germany?
Managing employee offboarding in Germany
Differences between an employee and contractor in Germany
The fast, simple, compliant way to hire in Germany

Understanding key labor laws in Germany

To ensure the protection of employee rights and guarantee fair treatment in the workplace, it is critical to understand and adhere to Germany's stringent labor laws. This will help your business remain compliant and avoid legal complications.

Do employment laws in Germany vary by state?

Employment laws in Germany are largely uniform across the country, as the federal government sets them. The states still have an impact on the creation and changes to laws as they participate in the law-making process.

Overall, federal statutes, court decisions, work councils, collective bargaining agreements, and different industrial practices govern the employment laws in Germany.

What do you need to know before hiring a German employee?

Before hiring a German employee:

Register your company in Germany.
Apply for an employer identification number.
Set up a German bank account.
Comply with employment and labor law in Germany.
Obtain liability insurance coverage.
Make arrangements for social security and pension contributions.
Determine the terms of employment, including the salary, working hours, vacation entitlements, and any benefits.
Set up systems to handle employees' visa and residency requirements.

Alternatively, you can use the support of a global employment partner like Remote, who will provide assistance with hiring, payroll services, compliance management, and HR-related tasks and help you mitigate permanent establishment risks.

Employ in Germany with ease

Remote simplifies the process of employing in Germany. Remote's service includes localized contracts, streamlined invoice management, and unparalleled compliance support, enabling you to expand your global workforce with peace of mind.

Remote has its own legal entity in Germany which handles onboarding, benefits, payroll, taxes, and compliance for your team members in the country. Read Remote's guide about employing in Germany to further explore your options for hiring employees in the country.

The Germany salary calculator: How to calculate the total cost of a German employee

Remote's free employee cost calculator is a valuable tool for understanding the costs of hiring employees in Germany and globally.

The calculator breaks down each line item, including statutory benefits, according to German labor laws. This tool makes it easier for organizations to budget and plan for global hires.

Want to see how much your next hire will cost you?

Our free Employee Cost Calculator gives you a full breakdown of employment costs in every country.

Try it now

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Statutory employment rights in Germany

Statutory employment rights in Germany refer to the legal rights and protections that are established by German laws to safeguard the rights and interests of employees in Germany. These rights include the minimum wage, working hours, paid annual leave, protections against discrimination, and the right against unjust termination.

You must abide by these laws, and any violation of these rights can result in legal action. The German labor courts play a significant role in interpreting and enforcing these rights, ensuring that employees have access to fair and just treatment in the workplace.

Overall, the statutory employment rights in Germany aim to balance the interests of both employees and employers, promoting a stable and fair work environment.

What is the minimum wage in Germany?

As of October 1, 2022, the minimum wage in Germany stands at €12 per hour.

In Germany, the government sets a minimum wage that must be paid to all workers. Failure to pay the minimum wage can result in penalties assessed by the German government.

It is important to remember that the minimum wage should be viewed as the baseline. It is not necessarily indicative of the total compensation an employee deserves for their skills and experience.

If your business is positioned to do so, it's always worthwhile to consider paying beyond the minimum wage, as it can help you attract and retain talented employees in the long run.

What are the standard working hours in Germany?

The standard working hours in Germany are generally limited to a maximum of eight hours per day or 40 hours per week. This may differ slightly with collective agreements. The majority of full-time jobs in Germany are five days a week, from Monday to Saturday. Companies also need to ensure that employees receive a minimum of 11 hours of uninterrupted rest every 24 hours.

What is the overtime rate in Germany?

Germany has no statutory mandate on overtime compensation. However, regulations require employers to document all employee overtime hours as well as hours worked on public holidays and Sundays. Work councils and collective bargaining agreements mainly influence overtime policies in Germany.

Here are examples of overtime pay rates in Germany:

For weekday overtime, 125% = 100% of the regular hourly rate + 25% overtime supplement for overtime hours.
For Sunday overtime, 175% = 100% of the regular hourly rate + 25% overtime supplement + 50% Sunday supplement for overtime hours.

How do probation periods work in Germany?

In Germany, the maximum probationary period for employees is six months. During this time, the employer can usually terminate the employment with two weeks' notice or notice period agreed in the employment agreement. This probationary period is known as a Probezeit, allowing both parties to assess if they are a good fit for each other.

When it comes to vocational training in Germany, the probationary period is limited by law to a minimum of one month and a maximum of three months.

Employers and employees must agree in writing about the length of the probation period before beginning employment. Both parties, in writing, must also approve any extension of the probation period.

What discrimination protections does Germany provide for workers?

Germany provides extensive discrimination protections for workers. You must adhere to the General Act on Equal Treatment (Allgemeines Gleichbehandlungsgesetz) to remain compliant with employment law in Germany.

The following forms of discrimination are prohibited in the workplace:

Discrimination based on race, ethnicity, national origin, or religion.
Discrimination based on gender, sexual orientation, age, or disability.
Discrimination in recruitment, hiring, promotions, and termination of employment.
Harassment or bullying in the workplace based on any of the above grounds.

The Federal Anti-Discrimination Agency (Antidiskriminierungsstelle) provides support for good practices in organizations to ensure that anti-discrimination laws are followed.

Can employees in Germany join unions?

According to the International Labour Organization (ILO), there is no trade union law in Germany, but trade unions are still allowed and recognized by the government.

In Germany, employees have the right to join a union of their choice and participate in collective bargaining agreements.

Unions play an important role in German politics and help workers with issues such as wages, working hours, and other rights. Unions also provide legal advice for workers who need assistance with employment-related issues or disputes.

It is important to note that while union membership is not mandatory, the influence of trade unions in Germany is significant. Employers should respect and account for the views and rights of union-member employees.

Are there collective bargaining agreements in Germany?

Collective bargaining agreements are a common practice in Germany and covers around 52% of employment relations in the country.

The collective bargaining system in Germany is more centralized than it appears at first glance. Industries and regions act as bargaining leaders, meaning that they have a large influence on the terms of collective agreements.

Can companies drug test employees in Germany?

Drug testing of employees is permissible in Germany under certain circumstances. However, the legality of drug testing depends on various factors, including the type of job, the reason for the test, and the method used for testing.

Random drug testing of employees is generally not allowed in Germany, but an employer can ask an employee for a drug test before employment. The employer will only get to know if the employee is “fit to work” and will not be informed of the actual test results (whether positive or negative).

In all cases, you must conduct drug testing in accordance with privacy and data protection laws and treat the results confidentially.

What is the relevant workers' compensation in Germany?

The German social security system has five components:

Pension insurance
Health insurance
Unemployment insurance
Long-term care insurance
Accident insurance

Generally, the employer's share of social security contributions amounts to approximately 21% of the employee's gross salary.

It is also compulsory to insure employees in Germany, which is done through statutory German accident insurance institutions. These institutions are incorporated under public law.

The funding for Germany's accident insurance comes solely from employers. Upon contacting the responsible organization, you will receive a notification specifying the amount of your contribution.

What are the unique considerations for employers hiring in Germany?

In Germany, written employment contracts are mandatory by law. Furthermore, on June 23, 2022, the German legislature passed legislation incorporating the EU directive on transparent and predictable working conditions into existing German law. You must ensure that your employment contracts comply with the new regulations.

These changes are part of the German Nachweisgesetz (Evidence Act). It requires employers to provide employees with additional information regarding the terms and conditions of employment and a wet signature for the employment agreement in some cases.

Compulsory employee time tracking in Germany

A new decision by the German Federal Labor Court in March 2024 now requires employees to track their daily working hours. This means that the employer has to implement a system to help employees record their working hours. Employers are also responsible for ensuring compliance with working time regulations, which include limitations on overtime.

Partnering with Remote means that you also get access to the Time and Attendance tracking feature within our system. This feature can help employers manage this requirement for a global team by providing:

Full visibility into your team's working hours
The ability to review and approve leave requests
A platform to monitor compliance with working time regulations.

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How to use an Employer of Record in Germany

Learn how to use an EOR in Germany and find out how an employer of record platform like Remote can make it easy to hire globally with full compliance.

Managing employee offboarding in Germany

Effectively managing the offboarding of employees is essential for any organization. Offboarding can promote a smooth transition for both the employee and the company and, when carried out properly, can be a rewarding experience for all parties involved.

By understanding the employee offboarding requirements in Germany, you can also ensure that you comply with German labor laws.

Does at-will employment exist in Germany?

At-will employment does not exist in Germany. Under German laws, either the employer or employee can terminate an employment relationship, but through the termination options provided by the German labor code. It’s common to end the employment relationship by agreement. The consequences of dismissals must be declared clearly and unambiguously, as they can have severe implications for both the employer and the employee.

How do you terminate an employee in Germany?

Terminating an employee in Germany is a complex process that requires careful consideration of the relevant laws and regulations. You are usually required to provide written notice to the employee within two weeks of the termination date. An authorized person must sign the notice.

Employees on probationary periods are usually entitled to two weeks' notice of termination. You must provide those beyond the probation period with at least four weeks prior warning.

You must also consider any applicable collective bargaining agreements or other contracts that may affect the termination process. However, if there is a serious breach of duty, dismissal without notice may be possible.

Are terminated employees in Germany entitled to severance pay?

Terminated employees in Germany are not entitled to severance pay. However, this is common practice in a mutual termination. As per the German Kündigungsschutzgesetz (KSchG), there is no legal requirement for employers to provide severance payments upon termination of employment.

However, depending on the situation and termination type, employees may coordinate with the German work council and negotiate a severance payment.

Differences between an employee and contractor in Germany

When hiring employees and contractors in Germany, it is important to understand the regulations that differentiate the two.

What regulations separate employees and contractors in Germany?

In Germany, the difference between an employee and an independent contractor is not defined by a single law. It is determined based on various factors, which include both legal regulations and court rulings from German labor and administrative courts.

Employees work under the direction and control of their employer, whilst contractors operate as self-employed individuals, and are often hired to provide specific services. Independent contractors have more independence and control over their work. The key difference between employees and contractors in Germany is that employees are subject to the provisions of an employment agreement, while contractors may not be.

Contractors also do not have these same protections as employees under German law. Contractors may be subject to different terms and conditions than those for employees, including different pay rates and fewer benefits. It is important to note that contractors may still be entitled to certain rights under German law, depending on their circumstances.

Can employers hire employees on fixed-term contracts in Germany?

You can hire employees on fixed-term contracts as long as the limitation in time is justified by reasonable cause. Reasonable cause exists, particularly when there is a need for temporary staff due to a specific project or task.

A fixed-term contract offers a multitude of advantages to both employers and employees. It allows you to evaluate an employee's performance during a project before committing to a permanent arrangement.

What are the misclassification laws and penalties in Germany?

In Germany, you must adhere to strict labor regulations that protect employees' rights. This includes ensuring that all employees are properly classified and paid according to their job duties and responsibilities.

Misclassification of workers in Germany can have serious consequences. If found guilty, you are responsible for retroactive liability for taxes and social security contributions. You can even be liable for fines and face criminal penalties. The threshold for intent is relatively low, so you must be vigilant in your avoidance of employee misclassification risk in Germany.

The best way to avoid employee and contractor misclassification in Germany is to work with a global employment services provider like Remote, who can classify your workers correctly and help you stay compliant with local employment laws.

The fast, simple, compliant way to hire in Germany

Germany is renowned for its exceptional workforce but requires employers to comply with various regulations as part of the hiring process. Figuring out the complexities of German employment laws and hiring requirements can be a daunting task. Yet, you still need to comply with these regulations to avoid legal repercussions while hiring in Germany.

Partnering with a company like Remote can significantly simplify the process of expanding hiring efforts into new countries, including Germany. Remote offers various services that can handle hiring, payroll, benefits management, employee onboarding, taxes, and more. This allows businesses to focus on other important aspects of operations.

In its 2023 Spring Report, G2 has crowned Remote as a threefold winner. Remote is ranked no. 1 in G2's categories of multi-country payroll, contractor management, and contractor payments software solutions.

Remote’s reliable global employment services allow you to hire, pay, and manage your German employees while reducing the risk of compliance issues. With expertise in setting up a global compensation plan, international payroll, and global benefits, Remote can assist with every step of your hiring process in Germany.

Do not let compliance in Germany be a burden. Let Remote make it easier for you to build and expand your German workforce. With Remote's expert team by your side, you can confidently take the first step toward expanding your business into the country.

To get a sense of how much it would cost you to hire a German employee on a full-time contract, use our free Employee Cost Calculator. For detailed information on hiring in Germany, check out our Germany Country Explorer page.

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How to hire and pay remote workers in Germany

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.

References

Working Time Act (Arbeitszeitgesetz)

Minimum Wage Act (Mindestlohngesetz)

Dismissal Protection Act (Kündigungsschutzgesetz)

Occupational Health and Safety Act (Arbeitsschutzgesetz)

General Act on Equal Treatment (Allgemeines Gleichbehandlungsgesetz)

Regulations on parental allowance and parental leave (Gesetz zum Elterngeld und zur Elternzeit)

Co-determination Act (Mitbestimmungsgesetz)

Act on Temporary Agency Work (Arbeitnehmerüberlassungsgesetz)

National Labour Law Profile: Federal Republic of Germany

Company register in Germany

Business insurance in Germany