In the era of global employment, expanding your business into a new country can be an endeavour ripe with opportunities for growth and success. However, it also presents a unique set of challenges, particularly when it comes to hiring and managing a workforce in a foreign land. 

If you want to hire employees in Germany, a country known for its robust economy and skilled workforce, you're in the right place. 

In this comprehensive guide, we will navigate the complexities of hiring in Germany and provide you with valuable insights into your options. 

Why Hire From Germany?

Global organizations should consider hiring talent from Germany for several compelling reasons:

  • Highly Skilled Workforce: Germany boasts a highly skilled and educated workforce. According to data from the World Economic Forum's Global Competitiveness Report 2021, Germany is ranked third globally for the quality of its education system, indicating a strong talent pool.
  • Innovation and Technology Hub: Germany is known for its innovation and technological advancements. The World Intellectual Property Organization's Global Innovation Index 2021 ranks Germany sixth in the world for innovation performance, showcasing its potential to drive innovation for global companies.
  • Access to the European Market: Germany's central location in Europe provides easy access to the broader European market, making it an ideal location for companies looking to expand their European presence. As the largest economy in the European Union, Germany is a gateway to a vast consumer base.
  • Strong Manufacturing and Export Capabilities: Germany is known for its strong manufacturing sector and export capabilities. In 2020, Germany was the world's third-largest exporter, with exports accounting for approximately 30% of its GDP, as per data from the World Trade Organization.
  • Global Business Hub: Many international organizations, including multinational corporations, have established a presence in Germany. This creates a supportive ecosystem and networking opportunities for businesses to thrive and grow. 
  • Cultural Diversity: Germany's multicultural society and open attitude towards immigration make it an attractive destination for global talent. Companies can benefit from a diverse workforce with varied perspectives and skills.

Things To Know Before Hiring In Germany 

Globally expanding your business can be a lengthy and complex process if you don’t have an EOR to help streamline the procedure. Once you’ve established or expanded your business, it’s time to hire new employees. Here are a few factors you should consider before hiring in Germany. 

Compensation Laws

  • The minimum wage set by the Minimum Wages Act (Mindestlohngesetz) in Germany is €12 (gross) per hour as of October 2022.
  • While German employment laws limit weekly working hours, they do not include provisions for overtime pay. Employers should determine and include overtime pay in employment contracts when required.
  • Employers in Germany often offer 13th-month pay (Holiday Pay), performance bonuses, and incentives, although these are not mandatory.

Working Hours and Leave Entitlements

  • A typical work week in Germany cannot exceed 48 hours (with employees working six days a week for eight hours per day). Employers can request a maximum of 12 hours of overtime per week, but employees commonly work 40 hours or less.
  • The company must provide leaves in accordance with German employment laws, including nine public holidays listed below and annual leave entitlements of 20 days for employees on a five-day work week and 25 days for those on a six-day work week. Additional annual leave may be offered to those who have been employed for specific periods. 
  • January 1: New Year’s Day (Neujahrstag)
  • April 7: Good Friday (Karfreitag)
  • April 10: Easter Monday (Ostermontag)
  • May 1: Labor Day (Maifeiertag)
  • May 18: Ascension Day (Christi Himmelfahrt)
  • May 29: Whit Monday (Pfingstmontag)
  • October 3: Day of German Unity (Tag der Deutschen Einheit)
  • December 25: Christmas (1. Weihnachtstag)
  • December 26: 2nd Christmas Day (2. Weihnachtstag)
  • Sick leave entitlement in Germany is six weeks, requiring a medical certificate from a registered medical practitioner.

German Social Security

  • Employers must calculate and withhold social security deductions accurately. German Social Security operates on a Pay-As-You-Earn (PAYE) model.
  • Health insurance and pension insurance contributions are significant areas where employers redirect employee contributions, with specific contribution caps. Both employers and employees share these contributions.

AUG Licensing Requirements

  • The Temporary Agency Act (Arbeitnehmerüberlassungsgesetz or AUG) outlines licensing requirements for Employers of Record.
  • Under the AUG, seconded employees are considered full-time employees if they have worked for 18 months. To avoid this, EORs must possess an AUG license and ensure compliance.

How To Hire From Germany? 

Hiring a German citizen for a remote position in a foreign company can be done through various methods. However, depending on your preferences and circumstances, you can decide on whether or not you need to set up a physical office location or hire a remote staff.  

While we recommend partnering with an Employer of Record (EOR) to navigate global employment challenges, it's also important to understand other approaches to hiring in Germany so that you can make the right call for your business. 

Here are some common ways to hire foreign remote employees:

1. Direct Employment

You can hire a German resident as a direct employee of your foreign company. For instance, if you’re hiring as a Canadian employer, this would involve going through the standard Canadian employment processes, including compliance with Canadian labor laws, tax regulations, and payroll requirements.

The German employee would typically work remotely from Germany. In this case, you do not need to set up a legal entity or branch in Germany. However, you will need to be compliant with local German employment laws. 

2. Setting Up a Branch or Entity in Germany

If you plan to hire multiple employees in Germany or establish a significant presence in the country, you may consider setting up a branch, subsidiary, or representative office in Germany. This would require legal and administrative work, such as registering with local authorities, adhering to German labor laws, and handling tax and payroll matters locally.

Setting up an entity in Germany can be complex and expensive, so it's typically reserved for companies with substantial operations in the country.

3. Employer of Record (EOR)

An Employer of Record (EOR) is a third-party company that can help you with the legal and administrative aspects of hiring employees in another country. They act as the employer of the remote worker and take care of payroll, taxes, benefits, and compliance with local labor laws.

Using an EOR can simplify the process, as they are experts in international employment and can ensure compliance with both local and German regulations. You would pay the EOR for their services.

Selecting the Right Employment Approach

While there are multiple approaches you can take when deciding what route to take, it’s important to consider both the pros and cons of each approach. 

Hiring Directly

Pros:

  • Control: You have direct control over the hiring process, work arrangements, and employee management.
  • Cost Control: You can potentially save on the fees associated with third-party services like EORs.
  • Flexibility: You can tailor the employment agreement to your specific needs and company culture.

Cons:

  • Complexity: Managing international employment, tax compliance, and labor laws can be complex and time-consuming.
  • Risk: You are responsible for ensuring compliance with Canadian and German employment laws, which can be challenging without local expertise.
  • Administrative Burden: Handling payroll, benefits, and tax withholding for a foreign employee can be administratively burdensome.

Setting Up a Branch/Entity in Germany

Pros:

  • Established Presence: You can establish a physical presence in Germany, which may be beneficial for expanding your business in the country.
  • Compliance: You have more control over ensuring compliance with German labor laws and regulations.
  • Long-Term Strategy: Setting up an entity is suitable for companies with long-term plans for significant operations in Germany.

Cons:

  • Complexity and Cost: Setting up and maintaining a branch or entity can be complex, time-consuming, and expensive.
  • Administrative Overhead: You'll have additional administrative and reporting obligations in both Canada and Germany.
  • Market Risk: If your business plans change or the German market doesn't perform as expected, you may face financial losses.

Hiring via an EOR:

Pros:

  • Simplicity: EORs specialize in international employment and handle administrative tasks, reducing your administrative burden.
  • Compliance: EORs ensure compliance with both Canadian and German labor laws, reducing the risk of legal issues.
  • Speed: The EOR route typically allows for a quicker onboarding process, as they have established processes and expertise.

Cons:

  • Independence: While you maintain control over the employee's work, you have less direct control over certain administrative aspects.
  • Not Suitable for Long-Term Expansion: EORs are typically a solution for hiring a few remote employees in a foreign country, not for establishing a physical presence.

Overall, prioritizing hiring via an EOR in Germany can be a prudent choice for many companies, especially if you're looking for a streamlined and compliant solution for hiring a remote worker. EORs offer a balance between control and simplicity, making them suitable for businesses seeking efficient international hiring without the complexity of setting up an entity.

An EOR like Borderless can help you navigate the complexities of hiring, payroll services, compliance, etc., in Germany so that you can focus on what you do best. 

How To Select The Right EOR?

Selecting the right Employer of Record for Germany involves careful consideration of various factors, including compliance with local labor laws and Arbeitnehmerüberlassung, which governs temporary staffing regulations in the country. 

Here's a guide on how to choose the right EOR for your needs:

Assess Your Needs

Identify your specific hiring requirements in Germany, including the number of employees, the duration of employment, and the nature of their work. Consider whether you need a long-term or short-term solution.

EOR Expertise

Look for EOR providers with expertise in Germany's labor and employment laws. Verify their experience in handling Arbeitnehmerüberlassung (temporary staffing) and compliance with the 18-month rule.

Local Presence

Choose an EOR with an established local background in Germany. A team of local experts can facilitate smoother operations and compliance. Discuss with the EOR how they handle the 18-month rule, which limits the duration of temporary assignments in Germany. Ensure they have mechanisms in place to comply with this rule to avoid legal issues.

Compliance Track Record

Investigate the EOR's track record in ensuring compliance with local laws, including employment contracts, payroll, and tax obligations. Ask for client references if possible. 

Determine the range of services the EOR offers. Ensure they cover essential aspects such as payroll processing, tax withholding, benefits administration, and HR support.

Cost Structure

Request a detailed breakdown of their fees and any additional charges. Compare these costs against the services offered to ensure a reasonable and transparent pricing structure. Assess the level of client support the EOR offers. Prompt and effective communication is crucial, especially when dealing with complex international employment issues.

Data Security and Privacy

Review the contract and legal agreements carefully. Ensure the EOR provides clear terms and conditions, including exit clauses, data protection, and liability provisions. 

Verify that the EOR has robust data security and privacy policies in place to protect your employees' sensitive information.

By carefully considering these factors and discussing them with potential EOR providers, you can make an informed decision.

Hiring Via Employer of Record Germany

Employers of Record play a pivotal role in the realm of international employment by shouldering the legal responsibilities and obligations associated with hiring and managing employees in foreign countries like Germany. 

Dive deeper into the comprehensive services offered by EORs and how they ensure compliance with local laws and regulations.

Comprehensive Knowledge and Expertise

EORs are well-versed in the legal intricacies of employment in their respective countries, including Germany. 

Ideally, an EOR offers the following services: 

  • Legal Entity Establishment: EORs often have their own legal entities in the country, which means they can legally hire and employ workers on your behalf. This eliminates the need for your business to establish a local legal entity, a process that can be costly and time-consuming.
  • Employment Contracts: EORs assist in creating and managing employment contracts that adhere to local labor laws. These contracts define the terms and conditions of employment, ensuring clarity for both employers and employees.
  • Statutory Benefits: They ensure that employees receive their statutory benefits, including health insurance and social security contributions, in compliance with local regulations.
  • Payroll Management: EORs handle payroll management, including the calculation of salaries, tax withholdings, and contributions to social security and other mandatory deductions.
  • Tax Regulations: EORs are well-versed in the tax regulations of their respective countries. They ensure that income tax is correctly withheld and remitted to the relevant authorities, taking into account tax treaties and exemptions where applicable.

Mitigating Legal Risks and Ensuring Compliance

Navigating the legal landscape in a foreign country can be fraught with risks and challenges. 

EORs mitigate these risks by:

  • Monitoring Legal Changes: EORs keep a vigilant eye on changes in local employment laws and regulations. This ensures that your employment practices remain compliant with the latest legal requirements.
  • Legal Documentation: They manage the documentation required for hiring and employing workers in Germany. This includes work permits, visas, and residence permits, ensuring that your employees are legally authorized to work in the country.
  • Regular Audits: EORs often conduct regular audits to ensure that all aspects of employment, from payroll to benefits administration, are in strict compliance with local laws.
  • Legal Obligations: They take on the legal obligations associated with employment, including handling employment disputes, addressing labor grievances, and managing issues related to termination or severance pay.

Industry Expertise and Support

EORs typically have a deep understanding of various industries, allowing them to tailor their services to your specific needs. 

EORs offer:

  • Local Expertise: EORs possess local knowledge of the job market, which enables them to assist in making strategic hiring decisions and complying with local talent acquisition practices.
  • Probationary Periods: They help navigate the intricacies of probationary periods, which vary by country. This includes adhering to legal requirements for employee evaluations and terminations during this period.
  • Legal Regulations: EORs ensure that your employment practices align with the legal regulations of your industry, including any industry-specific certifications or licenses required for certain roles.

Other Frequently Asked Questions About Employers of Record

How does the EOR handle benefits and HR support for employees in Germany?

EORs typically provide benefits administration and HR support to employees in Germany, ensuring they receive necessary services.

Are there any restrictions on the types of employees or positions that can be hired through an EOR in Germany?

EORs can generally handle a wide range of positions, but it's essential to check specific industry regulations and licensing requirements.

What are the typical costs associated with using an EOR in Germany?

Costs include EOR fees, payroll expenses, and benefits. Costs vary based on services and the number of employees.

How long does it take to set up and start using EOR services in Germany?

Setting up EOR services can be quicker than establishing a local entity. However, it still often takes a few weeks.

What is the difference between an EOR and establishing a local entity in Germany?

An EOR allows foreign companies to hire in Germany without forming a local entity while setting up a local entity involves creating a separate legal entity in Germany.

Can an EOR provider help with employment termination and severance matters?

Yes, EORs can assist with employment terminations, severance calculations, and compliance with German labor laws.

How does data protection and privacy compliance work when using an EOR in Germany?

EORs should have data protection policies in place to ensure compliance with German data privacy regulations.

Are there specific industries or sectors where EOR services are more commonly used in Germany?

EOR services are used across various industries, particularly in sectors with a need for remote work, like information technology, or temporary workers, such as craft trades and unskilled work.

What happens if there are changes in employment laws or regulations in Germany while using an EOR?

EORs stay updated on legal changes and adapt their services to ensure ongoing compliance.

Can an EOR assist with hiring employees in multiple countries, not just Germany?

Yes, many EOR providers offer services for hiring employees in multiple countries, making them suitable for global expansion.

What should a company consider when transitioning from an EOR arrangement to a local entity in Germany?

Companies should plan the transition carefully, including legal, tax, and administrative aspects, to ensure a smooth shift to a local entity if needed.

Choose Borderless

When it comes to EOR partners who operate at the highest standards of compliance, administrative due diligence, and efficiency, there is no better option than Borderless. 

Borderless can help your organization manage the needs of your dynamic workforce, while also assisting with HR requirements, payroll, onboarding, and complex compliance needs. 

With Borderless, there are certain advantages provided that will help your business excel in the international market. There are no upfront costs, which can help you focus on your business needs. Additionally, our rapid payroll solutions ensure that any new members of your team, whether full-time or contracted, get paid in a matter of minutes. 

If you are still uncertain about whether an EOR service is the right step for you and your business, contact us today. We’ll give you a detailed breakdown of the services we offer and how they can work parallel to your growing enterprise. 

Global Employers of Record provides a streamlined, structured, and speedy solution to help you and your business focus on the bigger picture, while we look after the needs of the people who make that bigger picture happen. 

Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.