How to hire and pay remote workers in Germany

If you’re looking to grow your global team, hiring employees in Germany is a great place to start. Germany has the largest economy in Europe and one of the largest in the world, so you're bound to find potential employees who have the experience and skills you need to help you expand your business.

Like in most countries, employment law in Germany is defined through both legislation and case law. 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 both! 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 to pay them as a foreign business.

If you want to do it yourself, you need to own a local entity to hire employees in Germany and put them on your payroll. If you do not have a local entity in Germany, you can work with an employer of record, or EOR, to employ workers on your behalf in the country. As a member of the Eurozone, Germany requires companies to pay employees in Euros.

Open a legal entity in Germany

If you're looking to expand your business into Germany for the long term and hire lots of local employees, opening a legal entity can be a great strategy. To open a legal entity in Germany, though, you must 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 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 category for your business and following through with your registration will likely require substantial legal help.

Work with an employer of record

Working with an employer of record in Germany allows you to hire German employees quickly without opening your own 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.

• Your immediate hiring plans in Germany include fewer than 25 employees.

• You need 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 right away, even when they plan to open an entity in the future. A company may employ workers through an EOR to start, 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 do not 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.

Contributions to charity

Germany taxpayers may deduct up to 20% of payments made to German charities. Some international charity contributions are also eligible for deduction. Church taxes in Germany are fully deductible.

Childcare costs

Workers in Germany can deduct a portion of child care expenses, provided they meet certain criteria. The deductible amount is up to a maximum of €4,000 per year for children younger than 14 years. Parents of children with disabilities may continue to deduct the full amount after the child turns 14.

Education expenses for dependent children

Parents who provide financial assistance to their children to pay for higher education may deduct 30% of tuition fees if the child attends a recognized private school in an EU/EEA country. This deduction is limited to €5,000 per year per child.

Alimony

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

Is per diem taxable in Germany?

German employees who travel for work often receive per diem payments for meals. Per diem is the only tax-free way to reimburse an employee for personal meals in Germany.

In 2020, the rates per diem for German employees were adjusted. Employees get €14 per diem for a trip that lasts between 8-24 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% per meal.

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 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 must 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.

Below are the costs you can expect from the employer side, as well as what you need to withhold from your employee's salary.

Want to see a full breakdown of employment costs for new hires in Germany? Check out our free Employee Cost Calculator tool.

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.

Pension fees in Germany

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

Government health insurance

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, with a contribution rate of 7.3% per party.

Nursing care insurance

Your employees and your company both 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.

Accident insurance

German Statutory Accident Insurance, or workers' compensation, is among the oldest branches of German social insurance. This program insures workers against injuries or illness incurred through the course of their employment as well as injuries sustained in the commute to or from their place of employment. This contribution is the full responsibility of the employer and amounts to 1.18% of net wages per month.

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

The minimum hourly wage for 2022 in Germany is €12 per hour, up from €10.45 per hour from July to October 2022. For employees who work in a sector with a collective bargaining agreement, a higher minimum wage may apply.

Most employees in Germany work five days a week for 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, hours are capped at two hours per day according to Germany law. 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 the form of paid leave.

What are the local labor laws in Germany?

German employment law provides strong protections for employees. In Germany, workers’ rights are governed by statutory regulations codified in (among other laws) the German Civil Code; 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.

Germany —

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Everything you need to know about employee benefits in Germany 

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.

Pay German workers as contractors

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.

That said, working with contractors who are correctly classified can be a great way to leverage German talent for your business. It’s important to consider the pros and cons of international contractors versus employees before making your decision.

What's a contractor in Germany?

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 own the process 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 does, 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 may cost less than a contractor, as contractors tend to charge higher hourly rates for their services. 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 extensive experience in transitioning contractors to employees in Germany. Even if you do not own a legal entity in Germany, you can turn your contractor into a valued employee without establishing a legal entity using Remote’s Germany EOR services.

How to pay remote employees in Germany with an EOR

A German employer of record, or EOR, allows you to onboard and manage German employees without opening your own legal entity in Germany. When you work with a German EOR, you can grow your team in the country quickly, easily, and affordably, without the expense of opening an entity or the risk of working with misclassified contractors. Because there are many different types of EORs, it’s important to understand how to choose the right EOR for your company.

To pay employees in Germany using an EOR, you simply pay the employee’s salary as you normally would, plus any relevant employer contributions to social programs, in addition to the EOR’s management fee. Be sure you only work with an EOR that provides flat pricing, as percentage-based pricing schemes force you to pay more to your EOR if you increase your employee’s salary.

Remote’s Fair Price Guarantee promises a flat-rate EOR fee in Germany with no deposits, hidden fees, or unpleasant surprises. With Remote, you can onboard employees in Germany quickly and easily through our local, Remote-owned entity for a low flat rate that never changes based on your employees’ salaries. Whether you want to onboard one employee in Germany or an entire team in the country, Remote makes it easy and affordable.

Even if you do plan to open an entity in Germany eventually, working with an EOR is a great way to get started. Hire employees through an EOR to start working with you right away, then once you finish establishing your entity, you can transfer workers from your EOR to your own entity. Because German registration laws can be difficult to navigate, this is a great way to accelerate your German hiring on a budget.

Pay and hire remote workers in Germany with Remote

You do not have to own an entity 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 like Remote

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!

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