Tax and Compliance — 5 min
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Thinking about hiring workers in Europe? With a solid economy, highly skilled workforce, and world-leading innovations in design and technology — Germany is an excellent location to find top candidates. But hiring in Germany can seem daunting.
Remote work has made it easier to hire employees abroad, but you’ll still have to deal with the practicalities of employing workers in a foreign country. To begin with, you’ll have to open a legal entity in the country. Along with that comes the tasks of understanding local labor laws and tax legislation, and making sure you’re hiring and paying workers in Germany compliantly.
Jump straight to a key chapter
You can easily bypass all the hassle, and expand globally without opening a new entity by partnering with an employer of record (EOR). Using an EOR can help you hire in Germany legally while meeting all applicable labor laws, making global employment a quick and easy process.
Keep reading to learn more about how to use an EOR in Germany, how much it costs to hire an EOR, and the potential ramifications of not meeting German labor laws.
5 steps to hiring employees in Germany using an employer of record:
Step 1: Research potential employers of record. Make a list of the benefits you will receive from potential companies, and what services are not included in their fees. The company should be transparent about details such as how they hire workers, how they protect your information, and the steps taken to provide an exceptional customer experience.
Step 2: Find out whether a company owns an entity in Germany, as this is vital information. If the company doesn’t, then they may be using outsourced third parties to conduct their work. Partner-dependent providers are the riskier option because they could fall short on crucial aspects such as pricing, strong intellectual property (IP) and data security protections, and employee experience.
Step 3: Check online reviews, social media posts, and the company’s website to discover how other clients feel about the company. Learning about a company’s interactions with other clients can give you insight into how your experience might be.
Step 4: The EOR will be the key contact with your workers regarding payroll, human resources issues, and benefits, so you’ll want to ensure that the company provides a top-class employee experience. You want to partner with a company that will provide an exceptional employee experience, so make sure you ask questions about:
The onboarding process
Paying salaries on time
Availability to answer questions from employees.
Step 5: Select the EOR which best suits your company’s unique business needs, and work with them to get your company set up in their system. You should regularly communicate and collaborate with the EOR to ensure that they maintain compliance, protect your IP, and deliver an exceptional employee experience.
Hire and pay your global team with speed and security
Start using Remote’s employer of record services and local entities to avoid the time, cost, and risk of building your own.
What are the benefits of using an employer of record in Germany?
One of the key benefits of partnering with an EOR is that it eliminates the need for you to set up a legal entity in Germany. Through the EOR’s local entity, you can hire contractors and full-time employees without registering a new business, opening an office space, or spending money to hire and manage workers.
Since the EOR acts as the employer on your behalf, it takes on the legal responsibility and risks associated with international hiring. From employing workers and setting up onboarding procedures to processing payroll and offering benefits — your EOR has an expert team in place with the knowledge of German labor and tax laws to ensure compliance. Using a reliable EOR will take care of:
Country-specific wages and benefits packages
Protections for your data security and IP rights
Payroll deductions and taxes
Termination processes
Labor and employment law compliance
Holidays and holidays pay
Employee classification
Partnering with an EOR is the best way to help your business grow and scale cost-effectively. Hiring international employees can be a simple process if you choose the right global employment provider for your needs. Remote can easily help you hire your team in Germany while handling compliance, taxes, benefits, and payroll.
Learn more about how you can use an EOR to hire safely and compliantly.
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How much does it cost to use an employer of record in Germany?
The cost of using an EOR service varies depending on where you’re hiring workers and the number of workers you want to hire. Costs can be as low as $599 or exceed $2,000 per employee, per month for employer of record services. Some EORs offer special rates for startups, NGOs, and for hiring refugees.
The important thing is to understand the EOR’s pricing model and what services are offered (and excluded) in the quoted price. Make sure you find an EOR that offers a complete range of services to suit your business needs — taxes, compliance, onboarding, benefits, payroll, and IP protections — at a flat rate, with no hidden fees.
Hiring in Germany
Hiring in Germany is complicated with many laws to follow. The German Civil Code outlines key labor laws, but there are several acts that also offer additional protections for German workers. Many sectors also have collective bargaining agreements in place that must be followed.
German workers are accustomed to base salaries and generous employee benefits. The minimum wage in Germany for 2023 is €12, although a higher minimum wage may be set by collective bargaining agreements.
Germany also has complex employment laws around:
Employee leaves
Paid time off
Termination
Probation periods
Tax structure
Before hiring in Germany, your company must do its due diligence and research each of these topics to understand German guidelines. There are harsh consequences for employers who do not follow labor laws in Germany, such as financial penalties and legal issues.
Employment contracts and agreements in Germany
It’s not required to have a written employment contract in place. However, employers are required to provide a document to the employee outlining the key aspects of the employment relationship within one month of employment, per the Documentation Act.
For fixed-term workers, the relationship is not valid unless there is a contract in place. The term of the contract must be justified on objective grounds to be legalized and enforced. If a worker enters into a fixed-term agreement without a written agreement, the relationship is treated as indefinite. And this means all relevant protections, benefits, and leave are applicable to the worker.
A probationary period for new workers is capped at six months. The minimum probationary period is two weeks. Termination is only ineffective during the probationary period if it is immoral or contrary to faith.
Labor law compliance in Germany
The German Civil Code covers many employment regulations, but labor laws are also contained within several acts such as the:
Part-Time and Full-Time Work Act
Employee Leasing Act
Holidays Act
Act on Maternity Protection
Dismissal Protection Act
Hours of Work Act
Federal Data Protection Act
German Health and Safety Act
Each of these acts outlines different protections for employees. Additionally, there are trade unions and collective bargaining agreements that can revise labor laws.
Payroll and payroll taxes in Germany
German workers are generally paid monthly. Germany has progressive tax brackets and the rates are based on annual income. The 2023 tax rates are as follows:
0 to 10347 Euro = 0%
10,632 Euros to 61,971 Euros = 14% to 42% (geometrically progressive rates)
61,971 Euros to 277,825 Euros = 42%
277, 824 Euros and above = 45%
Payroll taxes also include:
9.3% pension tax paid by the employee and employer
7.95% health insurance tax paid by the employer
7.3% health insurance tax paid by the employee
1.525% nursing care tax paid by the employee and employer
1.25% unemployment insurance tax paid by the employee and employer
1.18% accident insurance tax paid by the employer
2.75% sickness and maternity leave tax paid by the employer
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Germany is very generous when it comes to employee benefits. It is common for employers to offer competitive salaries. The average annual gross salary in Germany is €49,200
Maternity and paternity leave allows workers to take 24 months of leave during the first three years following birth. Maternity leave offers additional benefits, with six weeks of paid leave before delivery and eight weeks of paid leave after childbirth. The leave is extended to 12 weeks if the employee gives birth to multiple children or a premature child. There are several laws around leave for surrogacy, adoption, and miscarriage.
German employees get 10 public holidays each year. Full-time employees are entitled to 20 to 24 days of paid time off, though it is common to offer more time as a competitive benefit.
Germany allows workers unpaid time off for “caregiver leave” to care for family members. All employees are entitled to the public pension plan, health insurance, and unemployment insurance.
Employees are expected to work between 8 and 10 hours shifts. The maximum workweek is capped at 48 working hours. German laws make it difficult to legally ask employees to work on a Sunday. If it does happen, employers are expected to provide additional time off to make up for it.
To attract top talent, many employers provide competitive benefits. These can include:
Competitive salaries
Additional paid time off
Company stock options or equity grants
Private pension plans
Supplemental retirement plans
Private health insurance plans
Wellness benefits
Flexible schedules/remote working options
If you want to obtain the best German workers, you must offer employee benefits and a competitive salary package.
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German law makes a distinct difference between contractors and employees, so you’ll have to ensure that you’re assigning the right employment status to your worker.
How a worker is treated, the scope of the work they do, and the guidelines around how they are managed all help determine employee vs. contractor designation.
An employee generally works under the authority of the employer, who supervises their performance, decides on their work schedule and location, and provides them with the equipment to do their job. Contractors are self-employed individuals who are usually hired for a fixed-term or specific project. They have the freedom to choose their own hours and location and use their own tools to do the job. Unlike employees, contractors do not receive statutory benefits and are not protected under German labor laws.
Each country classifies contractors in its own way, so it is important to understand Germany’s laws surrounding classification.
Whether you’ve intentionally or accidentally misclassified your workers, the consequences can be detrimental to businesses. You can face significant fees, penalties, and possible legal ramifications for misclassifying workers. For instance, if you had misclassified a contractor who should have been entitled to benefits and employee protection, you will be legally required to pay back salary, provide back benefits, and pay associated penalties and fines.
When you work with an employer of record, you don’t have to worry about classifying workers because the provider does it for you. Discover more about how Remote can help you avoid misclassification errors and stay compliant with German labor laws.
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Get started with an EOR in Germany
Tapping into the German market can add great value to your team and kick-start your global expansion journey. However, German laws and regulations can be challenging to understand. You’ll also have to classify your workers correctly, offer benefits, pay them on time, and manage non-compliance risks.
Using an employer of record is the safest and most reliable way to grow your team while staying on top of all relevant labor laws and regulations. An EOR can effectively onboard workers, process payroll, manage taxation, offer benefits, and much more, leaving you free to focus on business growth.
If your company is ready to scale cost-effectively and simply, it’s time to get in touch with Remote. Our simple and quick process will have your new German employees a part of your team in no time. Remote makes it easy for you to:
Onboard your workers in minutes via our customizable employment contractors
View and manage all your global workers in a single platform
Be compliant with labor laws, tax regulations, and compliance practices
Pay your employees or contractors in their local currency via automated processes
Protect your company’s intellectual property and invention rights
Hiring employees in Germany has never been easier. Get started with Remote’s global employment services and start onboarding workers in Germany today!
Your guide to switching EOR providers
Use this guide to learn how easy it is to switch from a different EOR provider and start employing your global team with Remote. We walk you through the key steps so you understand what’s involved.
Read Remote's expert guide to hiring in Germany
Use our expert hiring guide for information on local benefits, taxation, and compliance requirements to help you employ in Germany with ease.
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