Employing in Germany
Some might think that Germany, being a country with strict rules, would be an unattractive place for foreign companies to want to have employees. However, our experience is that having very clear, unambiguous regulations makes it easier to stay compliant.
In Germany, things tend to be black and white — compliant or not compliant — and business leaders appreciate knowing where they stand. Germany also has Europe’s strongest economy and its highest GDP, as well as a highly skilled workforce and developed transport infrastructure. Clearly, it ticks a lot of boxes, which is why it falls within the TopSource Worldwide top three favourable destinations for employment in Europe.
Labour in Germany is highly regulated and companies wanting to carry out labour leasing (also known as a co-employment relationship) are subject to strict regulations under the German Personnel Leasing Regulations (Arbeitnehmerüberlassung).
Companies wanting to lease labour to their clients must hold an AüG licence, which is issued by the German Labour Ministry (Bundesagentur für Arbeit) and governs what can and cannot be done. Although it’s complex, TopSource Worldwide has extensive experience of labour leasing in Germany, and our experienced staff will be able to steer you through the key points without issue.
A couple of notable points are:
18 Month Maximum TermEmployees can only be leased for a maximum of 18 months. After this, they must be hired permanently by the client (lessee) or let go.
No Chain LeasingIt is a requirement of the company holding the licence to contract directly with the party receiving the labour. This means no agencies, intermediaries or MSPs in the direct contractual chain.
Equal TreatmentAll employees leased to a client should receive the same benefits/comparable terms as the clients’ ‘native’ employees. This forms part of the contract and due diligence must be carried out by both the lessor and lessee.
Overview of Germany Social Security
Dating back to the late 1880s, the German healthcare system is one of the world’s oldest social health insurance systems and is comprised of two separate pillars:
- Gesetzliche Krankenversicherung — GKV (Statutory Health Insurance). It is estimated that around 90% of Germany’s population is covered by statutory health insurance.
- Private Krankenversicherung — PKV (Private Health Insurance). Around 10% of the German population (those on higher incomes and self-employed) enjoy this type of health insurance cover.
In Germany, the social security system consists of five main pillars:
- Long-term nursing care
- Pension insurance
- Unemployment insurance
- Accident insurance — which covers occupational accidents, commuting accidents and occupational diseases as required by German law.
Employees are legally required to register with one of the statutory healthcare providers in Germany. Germany has a universal multi-payer health care system paid for by a combination of statutory health insurance (Gesetzliche Krankenversicherung) — officially called “sickness funds” (Krankenkassen) — and private health insurance (Private Krankenversicherung), also known as “(private) sickness funds”.
Employees who meet certain criteria (such as a minimum salary) can choose to enrol in the private healthcare system.
Costs for healthcare, long-term nursing care, pension and unemployment insurance are split equally between the employee and employer, whereas accident insurance premiums are met in full entirely by the employer and paid annually to the Berufsgenossenschaft in Germany.
In addition, there are nominal employer’s costs to be paid such as:
- U1 Levy (continued payment of income in case of sickness). The rate varies by health insurance.
- U2 Levy (continued payment of income in case of maternity rate). The rate varies by health insurance.
- Insolvency insurance (0.06%).
Employing in Germany
It is a legal requirement in Germany to have a locally compliant labour contract. TopSource Worldwide provides a dual-language contract as standard.
It is really important for fixed-term contracts to be signed by the employee well before the employment start date, otherwise the contract could be deemed to be indefinite.
In Germany, when offering bonus schemes to employees, it is really important to include such provisions in the contract and for the measurables and targets to be really clear.
If this is not clearly defined, the employee-friendly courts in Germany could deem that the bonus is guaranteed, and the employee could be awarded the full amount even if they had not been eligible under the scheme.
If you want to offer a bonus to your German employees, our onboarding team will guide you through this process.
Employees in Germany are entitled to six weeks continuation of remuneration (sick pay) once they have been employed for four weeks. This is met in full by the employer.
Employees who are sick beyond this period will continue to receive sick pay from their health insurance; however, this is usually capped. A doctor’s note has to be provided if their sickness lasts more than three days.
In Germany, employees are entitled to the following annual holiday (excluding public holidays):
- 6-day working week — 24 days per annum
- 5-day working week — 20 days per annum
Note that it is customary to offer more than the standard minimum.
Generally, once a probationary period has been surpassed, termination of employment can only be affected respecting at least the statutory minimum notice of four weeks (to either the 15th or end of a calendar month).
The employer must, therefore, keep the effective date of employment termination in mind when determining when to deliver the notice of termination. The employee must be given a written notice of termination (in its original form), and the document has to be signed by the employer. All other forms of notice of termination (i.e., those given orally or by email or fax) are void and must be redone in the correct way for them to be effective.
The German Termination Protection Act heavily protects the employee from unfair dismissals, and it can be difficult to dismiss an employee once the six-month probationary period has passed. Please speak to a member of TopSource Worldwide’s global support team should you be considering dismissal.
German PEO FAQs
Arbeitnehmerüberlassung is the German Personnel Leasing Regulations. The German employment contract law limits the period an individual can be leased to a company. In most cases, employees are only allowed on lease for 18 months. However, there exist several exemptions if your business operations depend upon certain collective bargaining agreements which allow longer leases e .g., in chemical or automotive industries.
Keen to engage an EOR in Germany?
At TopSource Worldwide, we work with local experts to help you navigate the various admin and cost obstacles you may come across along your expansion journey
To find out how we can help your business with our employment solutions, contact us today.