Hire and pay employees in Germany

Employer of Record (EOR) vs. entity

Deciding to hire German employees through an EOR or setting up your own entity is an essential first step. 

• Legal entity in Germany. Setting up a local entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws. In Germany, you also need to make a notary appointment, apply for a Chamber of Commerce (IHK) check, and wait for your company to be registered in the official commercial register (Handelsregister) before you can start paying employees.
• German EOR. An EOR is a third-party service that operates as an employer on a company’s behalf. In addition to letting you hire full-time German employees, EORs handle all the legal requirements for complying with German laws for payroll, contracts, and benefits. Their services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.

Ultimately, your decision will depend on your company’s resources and plans to scale. Here are the pros and cons of EORs vs. setting up your own entity:

Let’s say you choose an EOR. To begin the onboarding process for your new employees, you’ll need to collect their information (including name, start date, date of birth, which Tax Class they belong to, and whether or not they’re part of an official religious organization).

Learn how Rippling can help you hire and onboard German employees—and understand the steps to hire through an EOR—in our guide.

Classifying German workers: employees vs. contractors

Learning how to classify German workers correctly can be the difference between a smooth onboarding process and hefty penalties, so don’t rush through this step.

While there is no single definition of what constitutes an “employee” in Germany, the general consensus is that an employee performs regular or dependent work for an employer, which differentiates them from an independent contractor.

Here’s an overview of how German law classifies employees vs. independent contractors:

Looking for more details on worker classification? Check out our guide to classifying contractors and employees in Germany.

Work permits for German employees

Before you continue with the onboarding process, you need to be certain your potential hire is legally authorized to work in Germany. Since Germany is part of the European Union (EU), citizens of the following don’t need to apply for a work permit (or visa): 

• EU member states
• Norway
• Switzerland
• Iceland
• Liechtenstein

For foreign nationals who do need a work permit, here are the types of permits available in Germany: 

• Temporary Residence Permit for Employment Purposes. This visa is for employees who are ineligible for the EU Blue Card, or if the job they’ve been working at is approved for less than five years by the Federal Employment Agency of Germany. 
• EU Blue Card. The EU Blue Card is for highly skilled employees (including foreign nationals from non-EU countries). These workers must have a higher education degree and a minimum salary of between €44,304 and €56,800. Note: this visa is only valid for four years.
• Permanent Residence Permit. Also known as the “settlement permit,” this permit allows foreign nationals to work in Germany indefinitely if they’ve been at their job for five years or more, and have an advanced command of the German language. 

See our work permit guide for a primer on applying for German work visas.

New hire onboarding checklist

Onboarding can seem just as daunting as the hiring process. You need to make sure your new employees are set up to do their best work—before their first day even starts.

It’s easier to think of onboarding in stages, so you can prepare accordingly. Here’s a basic checklist of tasks to keep in mind during each stage: 

Before their first day

• Complete an employment background check. 
• Send an offer letter (more on that in the next section).
• Submit the necessary paperwork (registration document, visa, passport, etc.).
• Enroll them in benefits.
• Add them to payroll and deduct taxes. 
• Order and configure their devices. 
• Assign them an onboarding mentor.

On Day 1

• Make sure their workspace is ready. 
• Send a welcome email. 
• Give them an agenda to get started. 
• Give them an office tour. 
• Provide them with a list of contacts. 

During their first 90 days

• Schedule training. 
• Assign work and help them set goals. 
• Schedule regular check-ins with their manager.
• Encourage their feedback on how to improve the onboarding experience.

Check out our new hire onboarding guide for the full list.

What to include in an offer letter in Germany

An offer letter (or employment contract) outlines the details of a new hire's position, salary, and benefits. But every country's requirements are slightly different. Here are some crucial ingredients when ensuring your German offer letter is legally compliant. 

• Position, job description, and start date
• Probation period 
• Definition of workplace 
• Compensation and benefits 
• Working hours 
• Sick leave 
• Non-compete and non-solicit agreements 
• Termination policy 

Looking for more details on sending legally compliant offer letters in Germany? See our beginner’s guide.

NDAs and confidentiality agreements in Germany

Non-disclosure agreements (NDAs) are a crucial part of your employment contract. Despite Germany’s well-known complexity around employment laws, their system for NDAs is surprisingly straightforward. For an NDA to be legally enforceable in Germany, it must include the names and roles of the parties involved, a clear definition of the protected information, how long the NDA is valid for, and an exclusion clause (for any information not covered in the confidentiality agreement). 

In Germany, an NDA can be used to protect the following: 

• Financial information 
• Trade secrets and proprietary information 
• Customer information 
• Employee information 
• Intellectual property 

Note: NDAs cannot be used to prevent whistleblowers from disclosing misconduct or criminal activity by a company. 

Learn more about the different types of NDAs and when to use them in our guide to NDAs in Germany.

Running background checks on German employees

If you’re looking to vet your new German employees (which you should), be aware that background checks in Germany are trickier than, say, in the United States. 

While German laws are vague around exactly what information can be collected, they emphasize two things: employee consent and data security. Germany has very strict standards set by the German Federal Data Protection Act (Bundesdatenschutzgesetz) to protect sensitive employee information. 

Here are the types of screenings you can run:

Check out our comprehensive guide for background checks in Germany.

Paying employees in Germany

Before you can start paying your German employees, you’ll need to pick an international payroll solution. Once you’ve done that, take the following steps: 

• Determine your workers’ employment status. 
• Collect their information, including name, date of birth, start date with your company, which Tax Class they belong to, and whether or not they’re a part of an official religious organization. 
• Set payment amount in EUR—Germany is part of the EU, so employees must be paid in Euros (regardless of where you’re headquartered). 
• Run payroll.
• File your monthly and annual taxes. 

Employers are responsible for paying the correct amount of payroll tax each month. This includes income tax, corporate tax, social taxes, workers’ compensation, insolvency benefit contribution, and benefits tax. 

Need the rundown on payroll in Germany? See our step-by-step guide.

Mandatory employee benefits in Germany

Putting together a comprehensive benefits package in your employment contract is an important part of the onboarding process. Before you finalize your offer letter, it’s essential to know which benefits are mandatory—from insurance to time off.

Under German employment laws, mandatory benefits include: 

• Retirement pensions. Company-provided pension schemes are not required in Germany, since the state provides a statutory social security plan. However, employers and employees are required to split social security contributions evenly (providing 9.3% each). 
• Unemployment insurance. All employees in Germany who work more than 18 hours a week qualify for unemployment insurance. Employers and employees each contribute 1.25%. 
• Vacation entitlements. Generally, employees receive anywhere between 20-30 days of vacation per year. The exact number depends on how many days they work per week. For instance, an employee working a five-day week is entitled to a minimum of 20 paid vacation days each year. 
• Paid sick leave. Employers are required to pay 100% of their employees’ salary for the first six weeks of their illness. After that period, the responsibility for sick pay becomes that of the private health insurance provider. 
• Maternity and parental leave. New mothers are entitled to 14 weeks of maternity leave. While there aren’t any specific laws related to new fathers, German law does provide all new parents with the right to take 24 weeks of leave anytime during the child’s first three years. 

For a complete walkthrough on statutory minimum requirements in Germany, public holiday observance, care insurance, and optional benefits—read our guide.

Managing remote employees’ computers and apps

Managing your employees’ devices and apps can be a logistical nightmare when you’re hiring globally (and remotely). How do you ensure an efficient process across your international team? 

With Rippling, you can: 

• Quickly set up and secure accounts for employees, ensuring everyone has the access and permissions they need from day one. 
• Set up, manage, and disable any employee apps (like Slack and Google Workspace)—all in one place.

Check out our guide to learn more about managing employee devices remotely.

Protecting company IP in Germany

Throughout the onboarding process (and beyond) you’re likely sharing sensitive company information that has the potential to put your brand at risk. It’s your responsibility to protect your intellectual property (IP) in Germany—and that means understanding the various categories of IP rights, who has ownership (employer or employee), and more. 

In Germany, IP rights are administered by the German Patent and Trademark Office (DPMA). The DPMA has five categories of IP protection including: 

• Patents: used to protect an invention or process. This can last for 20 years. 
• Utility models: used to protect new technical inventions (not processes). This is valid for 10 years. 
• Trademarks: used to protect words and logos that represent your brand. Trademarks are valid for 10 years as well. 
• Registered designs: used to protect the visual hallmarks of your company and its products. This protection can last for 25 years. 
• Topographies: specifically used to protect 3D renderings of microelectronic semiconductor products. You can register for this kind of protection for 10 years. 

Learn more about German IP protections and ownership rights in our primer.

Complying with German labor laws

Hiring in Germany is far from straightforward. Without a unified set of employment laws, Germany relies on loosely assembled Acts, Codes, and Agreements—making compliance work inherently challenging. 

Regardless, it’s still your responsibility as an employer to stay on top of employment laws. Here are some regulations to keep in mind when hiring in Germany: 

• There is no at-will employment in Germany. You can only terminate an employee with a proper notice period—determined by years of employment. There are some exceptions to this rule (more on that in the termination section below). 
• German workers prefer co-determination over joining unions. Co-determination—a group of elected officials that negotiates and deals with management—is much more powerful in Germany than traditional unions. Fewer than one-sixth of German workers join unions at all, instead opting for protections provided to them by collective bargaining agreements. 
• You’re responsible for safeguarding employee information. As a part of the EU, Germany is protected by one of the strongest privacy acts in the world: the General Data Protection Regulation (GDPR). So, be cautious about how to attain, use, and store workers’ information.

Looking for the complete list? Read our beginner’s guide to employment laws in Germany.

Terminating employees in Germany

Because there is no at-will employment in Germany, full-time employees can only be terminated with a notice period (dependent upon their years of employment). 

Note: even German employees on a probation period are entitled to a proper notice period. 

According to the Dismissal Protection Act (DPA), employees can only be dismissed on “socially justified” grounds such as harassment, misconduct, absenteeism, or reorganization of the team. There are also groups that qualify for “special protection,” meaning you need government authorization to dismiss them. This includes pregnant employees, those on parental leave, employees with disabilities, and more.

Failure to comply with termination requirements can result in serious penalties for employers. To help avoid any costly mistakes, check out our guide to German termination requirements.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.