Guide to becoming an Employer in Germany
Germany is the most populous country in the European Union, and is widely regarded as having its strongest economy. Indeed, with a current projected GDP of around $4.2 trillion, only China, India and the United States can claim to have stronger economies.
There are many reasons why Germany is so attractive for incoming international businesses.
It’s EU membership provides plenty of flexibility in trade and labour, it has a diverse mix of services and industries making up its economy and is also a major exporter – particularly of transport and medical-related goods.
This guide will take a look at the key information to know if you’re considering expanding into the German market.
Establishing your business in Germany
One of the most important tasks a company must complete to get up and running in Germany is to apply for an employer number from the tax and social security authorities. This eight-digit number will be attached to the company’s name, address and type of business, and will enable the company to hire staff and complete their social and health insurance registration. Alongside this, applications should also be made for a tax number and accident insurance. Expect these processes to take around six weeks in total.
Opening a German bank account isn’t compulsory, but it can be useful to have one for receiving any tax reimbursements. It should also be noted that the financial year runs in line with the calendar year.
Employment Law in Germany
Germany has a clearly-defined Employment Law, within which there are many requirements that concern payroll. All employees have the right to belong to a union or work council, and they are also able to negotiate collective bargaining agreements.
The Employment Law also enshrines the maximum working time limit of 48 hours per week; employees can work up to ten hours on individual days as long as their overall average over a six-month period doesn’t exceed eight. There is no legally defined structure around overtime pay in Germany, although any overtime worked must be recorded by employers, and compensation for overtime work may be determined in conjunction with work councils or collective bargaining.
Probation periods are also not legally defined in Germany, although providing a six-month probation with a two-week notice period is commonplace. Statutory notice periods start at one month after two years of employment, rising in stages according to the length of service, if the employer terminates the contract. If the employee terminates their contract, the notice period is four weeks irrespective of length of service.
Minimum wage in Germany
The minimum wage in Germany rose to €9.82 on 1 January 2022 and will rise again to €10.45 on 1 July 2022. Exceptions apply for younger employees, trainees, apprentices, or if a particular collective agreement is in place. Payroll normally occurs monthly, around the 25th of each month, and 13th-month payments added to the December payroll are customary.
Bonus payments in Germany are generally discretionary and can be awarded for a variety of different reasons, such as defined performance, holidays or anniversaries, or profit-sharing. Severance pay is half a month’s pay per year of service, although those aged 50 or over with at least 15 years’ service are entitled to 15 months’ salary, rising to 18 months’ salary for those 55 or over with at least 20 years of service.
What are the Social Taxes in Germany?
Income tax in Germany is waived for the first €9744 earned each year. After that, it’s levied at 14%, rising to 42% for earnings above €57,754. Employers should withhold income tax contributions from monthly payroll and submit the payments by the 10th of the following month.
Social contributions should also be withheld by employers, and are made across several different categories:
*for each party, 1.775% for employees without any children
Corporation tax is levied at 15.825%, while there is also a trade tax with variable rates between 12.25% and 23.8%, depending on the location of the business. VAT is currently levied at 19%.
Maternity leave in Germany
In Germany, The Maternity Protection Act has been deployed to ensure female employees do not suffer any financial disadvantages as a result of maternity. Expectant mothers are entitled to take leave from work six weeks before their due date should they wish; and leave may be continued for a further eight weeks after birth, or 12 weeks in the event of premature or multiple births.
Maternity pay is covered by the public health insurance fund, along with a maternity benefit of a maximum of €13 per day. Parents can also request unpaid parental leave of up to three years up until their child turns seven, or can move to part-time work of up to 30 hours a week with agreement from the employer.
German National Holidays & Annual Leave
Annual leave is set in law at a minimum of 24 working days per year, although this can be increased for employees in high-risk occupations, or through collective bargaining. There are nine days of federal holiday which are observed nationally, plus each state has its own holidays in addition. The national holidays are:
- New Year’s Day
- Good Friday
- Easter Monday
- Labour Day (1 May)
- Ascension Day
- Whit Monday
- Day of German Unity (3 October)
- Christmas Day
- Second Day of Christmas (26 December)
Sick pay entitlement is 100% of income for the first six weeks, after which the health insurance fund pays between 70% and 90% of salary, depending on the level of contribution made by the employee.
Why become an Employer in Germany
With such a strong economy and great links on the global stage, Germany is an excellent place to do business for incoming international companies. But as this guide demonstrates, it isn’t without its own characteristics and compliance requirements from a payroll perspective.
That’s where TopSource Worldwide comes in. We can help you make sure that right from the start of your German operations, you pay every employee accurately and on time, time after time. Our payroll and employer of record services aren’t limited to the German market either, with full coverage across other European countries such as France and Spain.
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