Germany Country Facts

We provide comprehensive information regarding, Culture, Work life, Taxation, Visa’s & immigration, Labour Law, recruiting in Germany and employment contracts.

Global Expansion Made Easy for You

Expanding into Germany generally comes with challenges, however, partnering with us and using Employer of Record (EOR) eliminates the frustrations you could encounter.

Visas, Work Permits and Migration

Expanding into a country or hiring a workforce abroad can lead your business to great profits, but unfamiliar laws and regulations can counteract your company’s goals and plans. At Bradford Jacobs, we want to eliminate this complicated part. By using our PEO service, we can arrange all needed visas and permits including the entire application process without your physical presence. German visa, residency and permit regulations require expert guidance as they vary according to the country foreign nationals live in – the European Union, the European Economic Area and other foreign nationals are all affected by these complex regulations.

Our team is trained to research the latest information on Germany visas and work permits – therefore, we created a guide to introduce you to the rules and requirements. By reading this guide you will get familiar with all the requirements so you or your employees can start working in Germany in no time.

What Types of Work Permits are there in Germany?

Eligibility to work in Germany requires a work/residence permit and a work visa, excluding EU and EEA (Liechtenstein, Norway, or Iceland plus Switzerland) citizens. However, they are required to register at their residents’ registration office with a passport or valid ID. Citizens of the following countries can apply for residence permits for work purposes after entering Germany without a visa.

  • United States of America
  • Australia
  • Canada
  • Israel
  • Japan
  • New Zealand
  • the Republic of Korea

Residents of Australia, Israel, Japan, Canada, South Korea, New Zealand, or the USA, need neither a work visa nor job offer prior to entering Germany, but must apply for a residence permit at the Foreigners’ Office on arrival. Residents of other countries must apply for a work visa to enter Germany and commence work. They must also apply for a residence permit for work purposes upon arrival.  However, for those who are not exempt from requiring a visa/permit, here are the main types that can be applied for to enter Germany:

Business visa

This is a short-stay Schengen visa, permitting its holder to enter and remain in Germany up to 90 days within a six-month period unless specified differently on the visa. It is issued for business trips, attending meetings etc. This does allow the applicant to take up employment.

Work permits for non-EU nationals

Non-EU and EEA nationals need a residence title to work in Germany and approval from the Federal Employment Agency (BA). Approval can be granted from the German embassy/consulate in their home country or the local immigration authorities in Germany. After approval, they will get a temporary residence permit for employment purposes. The main types of work/residence permits include:

Temporary residence permit for employment purposes – Having work in Germany entitles employees to a temporary residence permit for employment purposes. They will not be allowed to start work without first obtaining this document after receiving employment approval from the Federal Employment Agency (BA). The duration of the residence permit is determined by the employment contract, e.g., a two-year contract has a two-year residence permit. Permits can be extended for as long as the employment status does not change.

The EU Blue Card – The EU Blue Card is like the temporary residence permit but is available only for a specific group of people such as highly skilled foreign nationals from non-EU countries. EU Blue Card requirements include having a higher education qualification such as a bachelor’s or a master’s degree. Individuals must have a minimum yearly income of €55,200, or €43,056 if working in an occupation with labor shortages, such as mathematics, natural sciences, informatics, technology, or medicine. This card is valid for four years and can lead to permanent residence after 33 months if the employees maintain their jobs.

Permanent residence permit – The permanent residence permit, also known as the ‘settlement permit’, allows holders to stay indefinitely. However, applicants must prove they have worked for at least five years in a job approved by the Federal Employment Agency (BA) and speak and understand advanced-level German.

ICT-Card – The ICT Card (Intra-Corporate Transfer) is a temporary residence permit for managers, specialists or trainees employed in companies based outside the EU, so that these employees can be transferred to subsidiaries within the EU. This transfer may only last up to three years, for trainees only one year.

Single permit directive covering work and residence permit: A single permit authorizes non-EU nationals to work and reside in EU countries through a single application procedure to a single authority. Single permit applies for two categories of foreign nationals:

  • Non-EU nationals intending to enter Germany for work and residence
  • Non-EU nationals, already residing in Germany with access to German jobs

Single permit covers:

  • Single application procedure for working and residing in Germany
  • Rights for non-EU workers, equal to German citizens

How to obtain a German Work Visa?

EU/EEA nationals do not require a work visa to enter Germany. With some exceptions, all non-EU/EEA nationals needing a work visa should already have a job offer/contract. They should apply for a German work visa at the relevant German authority in their country of residence.

For the EU Blue Card – highly qualified foreigners, in particular:

  • Researchers with special technical knowledge
  • Teaching or scientific personnel in prominent positions

For the ICT card – intra-corporate transferees, in particular:

  • Managers
  • Specialists

For all other all work visas and permits – Third-world nationals with a university degree or a non-academic vocational qualification when:

  • There is a shortage of skilled workers in the profession applicants are seeking employment
  • There is a concrete job offer
  • Have education equivalent to a German degree

To prove to the German embassy/consulate in their country of residence that they fulfil the conditions, documentation and a visa interview will be required. Necessary documents include:

  • Two fully completed application forms, printed, and signed
  • Two passport photographs, with strict guidelines
  • Valid national passport
  • Proof of residence: A driver’s license and/or utility bill with name as proof of residence in the territory of the embassy or consulate where application to be submitted
  • Health insurance: Compulsory certificate from German employer, valid from date of employment. If not already included in compulsory health insurance, a separate travel insurance must be presented for the time frame from arrival in Germany until beginning of employment
  • Employment contract/binding job offer detailing gross annual salary and description of employment in Germany
  • Approval by the Federal Employment Agency (If applicable)
  • Updated CV, detailing academic qualifications and job experience
  • Proof of qualifications – diplomas, certificates
  • Personal covering letter explaining exact purpose and duration of stay
  • Proof of a clean criminal record
  • Proof of paid visa fee (€75) for a long-stay German visa
  • Declaration of Accuracy of Information

They must also apply for a residence/work permit for work purposes on arrival in Germany.

The procedure to apply for work and residence permit has been simplified through a European Union directive. Becoming a work permit holder depends mainly on the country of origin and its special agreements with the hosting country, i.e., Germany. Check for details here.

Bradford Jacobs will make sure your employees are onboarded with the correct visa and permits to avoid complications and delays that could prove costly and waste time for your global expansion plans.

How to apply for Work Visa / Work Permit in Germany

Eligibility to work in Germany requires a work/residence permit and a work visa, excluding EU/EEA citizens. However, EU/EEA citizens are required to register at their residents’ registration office.

Application process for Non-EU Nationals needing a work visa:

  • Obtain a job offer in Germany
  • Check if a visa is needed for long-stays
  • Locate where application must be made
  • Collect all of the required documents according to the instructions
  • Make appointment for a visa interview
  • Pay the German employment work visa fee
  • Attend interview
  • Await response on application

Applying for a work/residency permit: Non-European Union (EU) or European Economic Area (EEA) residents need a residence title to work in Germany and approval from the Federal Employment Agency (BA). This can be granted from the German embassy/consulate in their home country or local immigration authorities in Germany. After approval, they will obtain a temporary residence permit for employment purposes.

The framework for this process includes:

  • Enter Germany with the correct visa. It is not possible to apply for a residence permit under a tourist, business, medical or cultural visa
  • Register German address
  • Obtain health insurance in Germany for the whole period of the planned stay
  • Open a bank account, which is compulsory for a German residence permit application

Complete the correct application form, depending on type of residence, and schedule appointment at closest immigration center and be prepared to pay fees.

Tax Laws

Global expansion is a great way to grow your business and Germany offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO service we will take care of the complicated legwork so that you can focus on your business goals in Germany. Dealing with tax, payroll, and employment regulations for your staff from overseas is a tricky process. Germany is no exception, with fines, sanctions and other penalties applying for not complying with the complex and many-layered aspects of taxation. We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. To keep you informed and updated too, we created this guide which includes the basic facts regarding tax regulations in Germany.

Overview of Germany Taxes

  • Individual Income Tax – Progressive
  • VAT – 19%
  • Corporate Income Tax – 15% + 5.5% solidarity surcharge tax + trade tax (varies)
  • Employer & Employee Social Security Contributions – 20.3% (Employer), 19.93% (Employee)
  • Capital Gains and/or Withholding Taxes – Dividends (25%), Interest (25%), Royalties (0%)

Individual Tax Germany – Single, Married

In Germany, the individual’s ability to pay income tax depends both on their residency status, as well as the source of their income. All German residents are taxed on their worldwide income, regardless of their nationality. Non-residents, however, are only taxed on German-sourced income. Income Tax in Germany is progressive, based on the amount of income that the individual receives, which applies for both residents and non-residents. For income in 2021, those rates are:

  • EUR 0 – 9,744: 0%
  • EUR 9,744 – 57,918: 14%
  • EUR 57,918 – 274,612: 42%
  • EUR 274,612 & above: 45%

There is no self-assessment, but an income tax return must be filed by the 31st of July of the following year. The tax office will issue a final assessment notice after the review of the income tax return. Married couples in Germany are must file joint tax returns. Employees in the wage tax withholding system, however, are not required to file an annual income tax return unless they have income from more than one source amounting to more than €410. Employees are also subject to the compulsory social security system contributions. The employer withholds the employee’s share from wage and salary payments, which contribute to pension, unemployment, health insurance, and care benefits.

Non-resident taxpayers are only obliged to file tax returns if their German income is not subject to tax withholding. Individuals are also obliged to pay a 5.5% solidarity surcharge tax, which the German government had recently imposed in order to improve the economy and infrastructure for certain regions in need. However, in January 2021, the application of this tax was reduced and does not apply to the following:

  • Individuals filing separately that have an income tax burden of no more than EUR 16, 956/have a taxable income of approximately EUR 62,000.
  • Married couples filing jointly with an income tax burden of no more than EUR 33,912/have an income of approximately EUR 124,000.

Where the thresholds are exceeded, a sliding scale is used on this surcharge tax. The top 5.5% is only applied for individuals with a taxable income of EUR 96,850 and married couples with a joint income of EUR 193,700. The full rate, however, is applied on capital investment income and employment income that are both subject to lump sum tax rates.

German Individual Tax Rules

In Germany, the tax year is the calendar year. An individual’s liability to pay German individual income tax is determined by their residence status:

  • A tax resident – refers to an individual who has domiciled in Germany OR has spent more than six months, consecutively, in Germany. The taxpayer must also have full control of the property. They are assessable on their worldwide income.
  • A tax non-resident – refers to someone who has spent less than six consecutive months in Germany. They are assessable on their German-sourced income.
  • To file taxes, an individual must have a Steuer ID (Tax ID). This is your personal identification number and is used by the tax office to identify you.
  • For tax payments, the employer must withhold the appropriate amount from their employee’s gross wage payments each month and submit them to the appropriate tax office by the 10th of the following month.
  • VAT, Excise Duty, etc.

All individuals are obliged to pay VAT when purchasing goods and services in Germany. The VAT rate in Germany is 19%, which applies to most goods and services. There is also a reduced rate of 7% which applies to foodstuffs, water supplies, certain medical equipment, certain transportation types, newspapers, books, medical care, hotel accommodation, etc.

Employers Social Security and statutory contributions

In Germany, both income tax and social security contributions are settled through the employee’s salary. Social security contributions are withheld from the employee’s salary monthly, which are then remitted to the tax office. Employers are also obliged to make their own contributions.

Both employer and employee social security contributions are as follows:

Employer’s Social Security Contributions

  • Health Insurance:  7.3%
  • Additional Individual TK (health insurance) contribution rate:  0.6%
  • Pension Insurance (RV): 9.3%
  • Unemployment Insurance (AV): 1.2%
  • Long-term Care Insurance (PV): 1.525%
  • Additional Long-Term Care Insurance (for childless individuals): 0.25%
  • Insolvency Charge: 0.12%
  • Accident Insurance: Depends on industrial sector and the accident risk of the job

Employee’s Social Security Contributions

  • Health Insurance (KV) – General Contribution Rate: 7.3%
  • Additional Individual TK (health insurance) contribution rate: 0.6%
  • Pension Insurance (RV): 9.3%
  • Unemployment Insurance (AV): 1.2%
  • Care Insurance: 1.525%

The rate of the individual’s statutory contributions very much depend on the individual’s tax class. There are 6 tax classes in Germany, and each class has an effect on the individual’s tax rates. These include:

  • Those single or separated, and do not fall into classes 2 or 3
  • Single and separated, with a child, entitling them to a child’s allowance
  • Married employees or widowed employees who are within the first year of their spouse’s death
  • Married employees who both receive income
  • Married persons who normally fall into category 4, but whose spouse is in class 3

Employees who receive income from other employment that is on one or more different tax cards/numbers.

Entity Set Up

Global expansion into Germany generally means that you need to set up an in-country entity. However, by partnering with us you create the possibility to bypass this process and utilize our German entity. By using our PEO service we take care of the complicated paperwork. Expanding into a new country is always an adventure, but we believe this adventure should be exciting instead of just frustrating and time-consuming. Therefore, we have been supporting companies in over a hundred countries with their expansion plans.

In this guide, we will share which documents you need to establish an entity in Germany, but also where you will need to register your business address and company’s name. We will also break down the advantages and disadvantages of setting up an entity in Germany.

Set up an entity in Germany

When expanding into another country with little familiarity of how incorporation is done, setting up is met with many requirements and complexities. In Germany, foreign subsidiary entities act as an extension of the parent company, but enjoys the same company standing as domestic businesses, and are subject to all national laws. The registration process in Germany comes with some variation, depending on the company type, and involves a large amount of bureaucracy. However, once that is sorted, registration is generally straightforward. After that, setting up a subsidiary entity in Germany involves a heavy workload.

Tax processing, filing accounts, law compliance, workforce management, payroll, recruitment. all these matters must be managed effectively, which can eat up your time, money, and resources. Instead of the costs, delays and complications met going solo, use our services and be up-and-running with a presence in your new territory within days, rather than months.

How to set up a Germany Subsidiary

Setting up a subsidiary requires these steps:

  • Decide on the company type that suits the nature of your business, your business goals and matches your own capabilities to meet establishment requirements.
  • There are six main types of companies in Germany, which consist of: the Limited Liability Company (GmbH) or the Mini-GmbH, the Stock Corporation (AG), the General Partnership (oHG), the Limited KG Partnership, the Sole Proprietor, a Representative Office and a Branch.
  • Obtain a business address in Germany, or a local virtual office address.
  • Open a local business bank account and deposit the appropriate share capital.
  • Decide on a company name.
  • Decide on the company objective (known as the Unternehmensgegenstand).
  • Apply to the German Chamber of Commerce and Industry (IHK) for a check on the company name and the company objective.
  • Prepare the appropriate registration documents.
  • Notarize registration documents at a notary’s office.
  • Register the documents with the Commercial Register (Handelsregister) and receive an invoice at the local business address for the registration fees. Once that is paid, the company is officially entered into the Register.
  • Hire a tax adviser. The tax adviser will assist with the registration with the tax office (Finanzamt) for VAT and corporate taxes as well as to work on the business’ annual accounts.
  • Submit a trade registration form (Gewerbeanmeldung) with the local trade office to get a trading license.
  • Register the company with the statistical office and the Chamber of Commerce and Industry.
  • Register with the Labor Office and Health Insurance Office and receive an eight-digit operating number to report for social security purposes.
  • Receive the company’s Tax ID from the tax office.
  • Register for insurance for the business and the founders.

Set up a bookkeeping system (via a firm or a DIY system, which must be approved by the tax adviser), as well as a payroll system.

Registration Fees & Time:

  • Open a bank account – Depends on the bank
  • Company Formation Fees – EUR 1,800
  • Accounting Costs – EUR 100
  • Registration Fees – EUR 400
  • Notary Fees – Depends on the notary
  • Share Capital – Mini Limited Liability Company (UG) – EUR 1
  • Share Capital – Limited Liability Company (GmbH) – EUR 25,000
  • Share Capital – Stock Corporation (AG) – EUR 50,000

Overall, the company registration process can take approximately 14 weeks. Company registration can also take up to six weeks to process. Registration for a corporate bank account, both with the branch and online, may take up to a maximum of five weeks (with no delays).

Application Methods:

Applications for company registration are mostly done electronically in Germany. Incorporation documents must be submitted to the German Commercial Register, and the registration of the entity will be recorded by the Register on an electronic platform.

What you need to set up a Germany Subsidiary

For foreign companies wishing to expand into Germany, certain requirements must be met:

  • A local business address or virtual office – leased or purchased with all relevant documentation.
  • A local bank account with the appropriate share capital deposited.
  • Confirmed company name and company objective.

Completed and notarized registration documents:

  • Registration Application Form
  • The Company Objective
  • The resolution of the parent company detailing its decision to form a subsidiary
  • The Memorandum of Association
  • The Articles of Association
  • List of shareholders and directors and their information
  • Business address documentation
  • Evidence of the share capital in the business bank account
  • Certificate of Incorporation.
  • A trade registration form.
  • An eight-digit operational number from the Labor Office.
  • A Tax Identification Number.
  • A VAT Number.
  • A tax adviser, a bookkeeping system, and a payroll system.
  • Registration with the Chamber of Commerce and Industry, the Statistical Office, Health Insurance Office, and Labor Office.
  • Business and Founders Insurance.

Benefits of Setting up a Germany Subsidiary

Germany has one of the strongest economies in Europe for subsidiary establishment and growing a business’ influence. There are also other significant benefits to establishing an entity in Germany:

  • Companies in Germany benefit from 0% VAT for trade between EU member states.
  • Germany is a leading economy in Europe, with significant spending power and an innovative business climate.
  • Germany is located at the heart of a dense transport network in the center of Europe, with approximately 830,000 km of roads, and 38,000 km of railways.
  • The country also benefits from a modern telecommunications infrastructure network.
  • Germany businesses also have a large, diverse pool of workers and qualified professionals to choose from, with approximately 1.2 million people in 2020 emigrating to Germany for new opportunities.
  • Many businesses in Germany can benefit from comprehensive information centers, start-up initiatives and government support programs.

Those living in Germany also benefit from a high quality of life and lows living costs.

The German Market

Foreign companies expanding into Germany will be entering Europe’s strongest economy – its leading exporter and the third largest exporter globally. More than 45,000 foreign companies operate in Germany, employing around three million workers equating to 25% of jobs in the export sector.  However, the success of the German economy creates a challenge for foreign companies moving in, as standards are high and they will have to be matched by newcomers, along with compliance to labor, registration, tax, and payroll regulations.

There are speedier and cost-effective alternatives, with Bradford Jacobs opening the door to a hassle-free route into the French economy for your company. Work alongside our Professional Employer Organization (PEO) recruitment specialists, then our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Germany, its work culture and business practices. Here we have set out some basic summaries of what you need to make the transition into the German market, whichever sector you operate in.

Starting a Business in Germany

Germany boasts a well-educated, skilled workforce motivated by low unemployment, high earnings and strong measures protecting employees’ rights. The economy has a strong manufacturing and industrial base underpinning a robust economy. €200 billion worth of goods pass through Germany – more than any other country in the European Union. In the first quarter of 2020 Germany had an account surplus of €24.4 billion. Beyond its own borders Germany has close to 200 million consumers within an 800km radius. The procedure to open a company in Germany is detailed and many-layered. Germany scores highly as a country for doing business – but beware. When the International Finance Corporation ranked 190 countries for various factors in operating a business, Germany ranked in the top 50 in all categories bar one – ease of starting a business. Germany ranked 114th.

The necessary steps to open a company in Germany include:

  • Register a business address
  • Decide on the type of company. The most popular choices are a private limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) or a branch (Zweigniederlassung)
  • Confirm the company name with the Commercial Register after checking the name is unique with the Unternehmensregister website
  • Open a bank account. Obtain proof of identity through a post office, notary or lawyer and a “certificate of registration” (Meldebescheinigung) as proof of residence
  • Present documentation to the Trade Office (Gewerbeamt) relating to tax and social security authorities, Labour Office, relevant professional bodies, works councils, trades unions
  • Register with the relevant Trade Chamber
  • Enroll with the Commercial Register by providing all documentation through a notary, detailing registered company name, registered office, authorized personnel, confirmation of share capital at minimum amount of €25,000. The company name will then be published on the Handelsregister website
  • Register with the local tax office and provide the Articles of Association certified by a notary within four weeks of commencing business

Expanding Business into Germany

Foreign companies expanding into Germany want to tap into a dynamic economy renowned for an innovative business culture and huge consumer spending power. Germany is Europe’s most powerful economy, ideally placed as a springboard for further expansion into neighboring European Union states such as France, Belgium, the Netherlands and Austria as well as further afield to more recent EU members in Eastern Europe.

Business opportunities in Germany include machinery, chemicals, motor industry, metals manufacturing and processing, consumer electronics, foodstuffs, aerospace, textiles and fabrics, transport, IT and construction.

All of these sectors can be targets for international expansion, in such locations as Berlin, Hamburg, Munich, Cologne, Frankfurt, Essen, Dortmund, Stuttgart and Dusseldorf.

German Business Facts

  • Capital City – Berlin
  • Population – 82.9 million
  • States – Baden-Wurttemberg, Bavaria, Berlin, Brandenburg, Bremen, Hamburg, Hesse, Lower Saxony, Mecklenburg-Vorpommern, North Rhine-Westphalia, Rhineland-Palatinate, Saarland, Saxony, Saxony-Anhalt, Schleswig-Holstein, Thuringa
  • Official language – German
  • Economy and world ranking – World’s fourth largest economy and largest in the European Union (EU), GDP €3.7 trillion
  • Leading sectors – Car manufacture, mechanical and plant engineering, consumer and service, energy and environmental technology, and electronics and IT
  • Main exports – Machinery including computers, vehicles, electrical machinery and equipment, pharmaceuticals, optical and medical apparatus, plastics, aircraft and spacecraft
  • Main imports – Machinery including computers, vehicles, electrical machinery and equipment, mineral fuels, pharmaceuticals, plastics, optical and medical apparatus
  • Main trading partners – EU, USA and China
  • Government – Germany is a parliamentary and federal democracy
  • Currency – Euro

Advantages and Challenges of the German Market

Advantages of expanding into the German market, according to GTAI (Germany Trade and Invest) include:

  • Leading economy: Germany drives Europe’s economy, is the world’s fourth biggest economy, has a large domestic market and easy access to developing markets in the enlarged European Union
  • Global player: Germany is the world’s third highest exporter, behind the USA and China
  • High productivity: Steadily decreasing unit labor costs make Germany one of Europe’s most cost-effective production locations
  • Highly-educated workforce: 81% of population trained to university entrance level or possess vocational qualification, above the OECD average of 67%
  • Innovative power: Europe’s No. 1 location for research and patent applications, backed by billions of Federal funds
  • Logistics: Rail, air, ports and roads infrastructure facilitate smooth transportation of goods
  • Incentives: Comprehensive programs support business investment, from cash incentives to reimbursement of labor and research and development costs
  • Taxes: Reform program is reducing corporate tax levels and indirect labor costs

Challenges facing companies expanding into the German economy include.

The World Bank and International Finance Corporation ranked Germany outside the top 100 nations for ease of starting a business, which is at the heart of problems facing companies wanting to establish subsidiaries in the country. Barriers that have to be cleared include:

  • Dealing with local chambers of industry and business standards, the professional associations of the relevant trade associations, plus enrolling on the Commercial Register.
  • Obtaining construction permits and connections for water and telephones can all be lengthy procedure.
  • Property registration is complex and takes an average of 40 days. Companies must obtain an extract from the Land Registry, a notarised transfer agreement, a rights waiver from the local municipality and pay transfer tax.
  • The German monetary system demands a meticulous approach as companies must make nine tax payments a year and could have to pay up to 14 taxes.
  • Cross-border trading requires four sets of documents for exports and five for imports.
  • German business etiquette, culture and practices also demand research as policies and procedures can slow down the business process.

The 100 per cent solution is to consider the alternative to setting up a subsidiary by working with Bradford Jacobs. Our Professional Employer Organization (PEO) international recruitment specialists will find the perfect fit for the roles you need to fill. Then our Employer of Record (EOR) in-country consultants will handle all the complexities of Germany’s employment laws, tax regulations and payroll, ensuring your German expansion plans move smoothly into gear.

Limited Company / Subsidiary or Branch in Germany

A subsidiary established in Germany is considered a legal entity separate from its parent company, with its own capital and independent administration. There are many advantages for companies expanding by this route – the chance to explore a new market, enhancing their international credibility and opening a gateway to mainland Europe. A branch is entirely different. A branch established in Germany is not independent of the foreign parent company is not treated as a German resident corporation.

Main characteristics of a subsidiary:

  • A 100% legal German entity, typically a private limited liability company (GmbH)
  • Has full independence from the overseas parent company and can perform additional and independent business activities
  • Investors must undertake incorporation procedures that apply to all German companies
  • Subject to the same taxation principles as a German resident company
  • Main characteristics of a branch:
  • A local structure not treated as a German resident company
  • Not independent of the parent company and must have identical name and business activities
  • Taxed according to German laws and any double tax treaties that may apply

Other differences apply:

  • The parent company is liable for all debts and obligations of its branch, but has no liabilities towards its subsidiary in Germany
  • A subsidiary needs its own Articles of Association, whereas a branch can use those of its parent company
  • Resident companies such as subsidiaries are taxed on their worldwide income, whereas non-resident structures (branches) are taxed only on their German income
  • Legal Structures for German Market entry
  • Establishing a subsidiary or opening a branch are the two most popular options for foreign companies entering the German economy. A subsidiary is incorporated under German law, whereas a branch of a foreign-based company is incorporated under the laws of the parent company’s home country and uses that company’s Articles of Association.

The GmbH is suitable for domestic subsidiaries of international groups and is by far the most frequently used corporate legal form in Germany.

The legal structures of a GmbH include:

  • The minimum share capital is €25,000.
  • The GmbH is led by one or more directors (not necessarily domiciled in Germany).
  • Formation of a single-shareholder GmbH is possible, and both German or foreign natural and legal entities can be founders of a GmbH.
  • Only the company’s assets are liable to creditors.
  • Personal liability of the shareholders is excluded if the capital for which they have subscribed is fully paid up.
  • The Memorandum of Association and each transfer of shares must be notarized.
  • The comparatively high minimum share capital of €25,000, although only one-half of the amount need be paid in cash on formation.

The UG, a sub-type of the GmbH, was introduced in 2008. Most of the GmbH rules apply to the UG, in particular the exclusion of personal liability. The minimum capital is €1, but 25% of each fiscal year’s net profit must be transferred to reserves. As soon as the reserves amount to €25,000 the UG can change its registered legal form to GmbH. The UG is quite popular for founders of new businesses in Germany because of its low minimum capital and flexibility, although its creditworthiness is sometimes subject to criticism.

The legal structures for a branch in Germany include:

  • A branch is considered to be a permanent establishment, and must have a local, registered business address, as well as a local bank account.
  • A branch does not require any share capital for incorporation.
  • A branch must be classified as one of two types – dependent or independent. For dependent branch offices, management in Germany cannot make any decisions without approval from the head office. Independent branch offices have decision-making powers, but only in respect to its local activities.
  • Branches in Germany are subject to pay local taxes, such corporate income tax, the surcharge tax, and municipal taxes. Dependent branches must rely on the parent company’s accounting system, but the independent branches may use their own accounting system.

Branch offices must have a designated manager, who will handle the day-to-day activities of the branch and conduct business activities on behalf of the parent company. Documents of incorporation must be prepared the parent company. The parent company must also appoint a legal representative in Germany to complete the registration procedure.

German Employment Contracts

A successful business largely depends on its employees. By creating working contracts that include the right terms and benefits there will be no misconception and the perfect work-life balance can be created. At Bradford Jacobs, this is our aim, and we support companies in over a hundred countries with creating compliant and balanced labor contracts. Our team in Germany keeps track of the German laws and regulations on a daily basis to be duly aware of updates that can be implemented in working contracts. By using our PEO and EOR service we can provide compliant labor contracts for employees in Germany including local benefits. To support your plans, we made this guide including the basics of employment contracts in Germany. After reading this guide you will know everything about social security, notice periods, and the average working hours.

How Do You Hire Germany Employees?

If a foreign company is looking to hire resident employees as part of their global expansion into Germany, they must comply with the recruitment regulations concerning tax, social security contributions, employment law, as well as collaborate with or adhere to any collective bargaining, trade unions, or work council agreements. In Germany, employment agreements are determined in written employment contracts, which is mandatory by law. There are two main types of employment contracts that are practiced – the indefinite contract, and the fixed-term contract. However, the indefinite contract is the standard contract type.

National employment legislation, collective agreements, and works council agreements are the main sources of employment law in Germany, which govern employment conditions, benefits, and health and safety regulations. The conditions performed vary according to the industry and sector. To be fully aware of what you can and cannot apply to your employment practices in Germany, it is important for the employer to know the existing labor laws and employee entitlements, as well as collaborate with the appropriate local employment organizations.

In Germany, an employment contract is required by law to be concluded in writing, and this must be given to the employee no later than one month after the commencement of their employment. All employment contracts must contain the following:

  • Name and address of the employer and the employee
  • Information about the commencement date of employment
  • Anticipated duration of employment (for fixed-term contracts only)
  • The place of work
  • A job description
  • The composition and amount of the employee’s salary
  • The working hours
  • The duration of annual leave

The notice period

A reference to any collective bargaining agreements, works or services agreements that are applicable to the employment relationship (if there are any) Also, to avoid any miscommunications or disputes, a version of this contract must be translated to German. There are two types of contracts that are applied in Germany:

Indefinite employment contract – the standard type of employment contract in Germany, and as a general rule, employment contracts are entered into for an unlimited period. Termination of this contract requires a notice period and a set of dismissal policies.

Fixed-term employment contract – Fixed-term contracts are possible, as long as the employment term is agreed upon in writing before the employment relationship commences. Fixed-term relationships must be justified on objective grounds – such as a temporary increase in workload, or a substitution of an employee on parental leave.

A fixed-term contract is limited to a maximum of two years, and ends automatically, without a written notice at the end of its term.

Any changes to the employment contract must be made with the consent of both the employee and employer. If the employer wishes to amend the employment terms, they must discuss and agree to the changes with the employee before doing so.

Collective Agreements

Collective bargaining and agreements in Germany are practiced, but their influence in employment varies according to the sector. This mainly occurs at industry level between individual trade unions and employers’ organizations. Collective agreements, however, also provide for greater flexibility at company level. There is more than one kind of collective agreement, depending on the issue being covered. Agreements covering pay last at least one year, and sometimes over two years or more – depending on the industry/sector. Collective agreements covering other issues normally last over five years, whilst others are valid until one side wishes to change the terms.

2018 figures from the Institute of Employment Research (IAB) shows that almost half (46%) of employees in Germany were covered by industry-level agreements, with another 8% of employees covered by company-level agreements.

What Laws About Employment Exist in Germany?

German employment law does not have a single code, but it is based on federal legislation, case law, collective bargaining, trades union and work councils’ agreements and individual contracts between employers and employees. Therefore, companies must be aware where agreements apply, rather than legislation.

In employment, certain forms of legislation must be followed, which include:

National Minimum Wage: The German national minimum wage, by law, is €9.50 an hour for employees. Any contract or work agreement for any amount below that may be invalid. Many industries and sectors set their own minimum wages based on collective agreements within their sectors understanding these agreements isn’t always easy.

Working Hours & Overtime: The standard working time in Germany is between 36-40 hours. Overtime is only required to be done if there is a provision in the employment agreement or the collective bargaining agreement which gives the employer the right to ask for it.

Rest Days & Breaks: In a workday, employees are entitled to a rest period of least 11 hours. Most employees are also not to work on a Sunday. In cases where they are needed, however, another rest day must be given as compensation within 2 weeks of the day being worked. Employees must have at least 15 Sundays off in a calendar year.

Health and Safety: In Germany, the employer is responsible for the health and safety of their employees in the workplace. They are obliged to appoint occupational physicians as well as health and safety specialists. When present, the physicians and specialists must collaborate with the works council to carry out their tasks.

Annual Leave: Employees who work five-day weeks are entitled to at a pro-rota of 20 days of annual leave, whilst employees working six-day weeks are entitled to at least 24 days of annual leave.

Sick Leave: In the case of illness, employees in Germany are entitled to receive sick pay of up to 100% per cent of their salary for a period of six weeks. If the incapacity for work continues for more than 3 days, employees must submit proof of incapacity for work with a medical certificate.

Maternity Leave: Pregnant employees in Germany are entitled to six weeks of paid leave prior to the child’s birth, as well as 8 weeks of paid leave after birth. For premature or multiple births, the employee is entitled to 12 weeks of paid leave. All leave types are compensated at the employee’s full pay. Maternity leave in Germany is compensated by the employer and reimbursed by the Health Insurance company.

Paternity Leave: There is no leave benefit that is specific to fathers, although either parent can take advantage of parental leave.

Parental Leave: Parental Leave in Germany is 36 months and may be divided between the parents as they see fit. The eight weeks of maternity leave after labor are also counted as part of this leave. In the mother’s case, however, the parental leave starts after her maternity leave stops.

Parental leave must be requested in writing and submitted to their employer at least seven weeks before its start.

During this time, parents may choose to work part-time for up to 30 hours per week. At least 12 months of parental leave must be taken within the first three years after labor, and the rest can be taken until the child reaches the age of eight.

Probation: The employer and employee may agree upon a probation period, but it is limited by law to a maximum duration of 6 months.

Termination Notice: A dismissal notice must be given in writing, as well as be signed by the employer’s authorized representative. Severance payments are not mandatory if a justified reason is made, as well as a proper notice is given during employment termination.

Severance Pay: Severance payments are mandatory for termination caused by operational changes. In these cases, employers must give a half-month of the employee’s regular wage for every year that the employee has worked in the company.

Employee Benefits

Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Germany might not all be familiar to you yet. By using our PEO and EOR service, we can provide compliant labour contracts for employees in Germany including local benefits. When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Germany, benefits can be guaranteed by labour law and national legislation, as well as collective agreements with trade unions or workers’ councils.

Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into Germany.

What German Compensation Laws exist?

Statutory benefits and compensation for German employees cover a wide area and require a thorough understanding for any foreign companies planning to establish a subsidiary or move staff into the country.  Added complications arise from Germany not having a unified employment code. The high level of worker protection is based on collective bargaining, trades union and works council agreements as well as individual contracts between employers and employees. In all these agreements, however, the following entitlements must be included:

National Minimum Wage – is set at €9.35 per hour in 2020. From January 1 2021 the minimum wage will be €9.50 an hour and is planned to be increased to €10.45 per hour by July 1 2022.

Social insurance contributions – are covered by the Social Code, deducted from salaries and paid jointly by the employer and employer. From January 2020 the following total percentages, cover pension (18.6%), unemployment benefits (2.4%), health (14.6%) and long-term care and nursing (3.05%).

Notice periods – depend on the employee’s length of service, ranging from four weeks for less than two years’ service up to seven months for over 20 years’ service.

Redundancy, termination and severance – are governed by the Employment Protection Act and generally an employee is entitled to severance compensation for dismissals based on operational reasons. The maximum payment stipulated by law equals 12 months’ salary. This rises to 15 months’ salary for employees aged 50 or older, with at least 15 years of continuous service, and to 18 months’ salary for employees aged at least 55 and with at least 20 years of continuous service.

Working hours and rest periods – hours are generally restricted to between 36 and 40 hours over a six-day period, but should not exceed 48 hours per week averaged over six months. Rest periods vary between 30 and 45 minutes depending on the hours worked.

Sick leave – German law requires that employees are paid 100 per cent of salary or wages by their employer during the first six weeks. Thereafter, employees are entitled to statutory / private insurance sickness benefits up to 70% of normal pay over a maximum of 78 weeks.

Holiday / vacation leave – is governed by the Federal Vacation Act (Bundesurlaubsgesetz – BUrlG). Full-time employees are entitled to a statutory minimum of 20 days’ annual paid holiday, based on a five-day working week, or 24 days based on a six-day working week. Part-time employees’ holiday leave is calculated pro rata, based on weekly working hours. Employers regularly grant more than the minimum vacation and between 25 and 30 days per year is common. Holiday due is detailed in the work contract.

Maternity / paternity leave – is covered by the Maternity Protection Act (Mutterschutzgesetz – MuSchG). Female employees are entitled to paid maternity leave, six weeks before and eight weeks after giving birth. Maternity leave after the birth is 12 weeks in case of multiple births, premature births and disabled children. The maternity allowance is determined by the salary of the last cleared calendar months before beginning maternity leave to a maximum of €13 per day plus 65% of their most recent pay. The employer pays the difference between the maternity allowance and previous salary.

Social Security in Germany

German employees are subject to the compulsory social security system, with the employer withholding the employees’ share from wage and salary payments. The deductions are made up to a ceiling of earnings. Expatriates working in Germany are also subject to social security deductions but can benefit in the same way as German citizens. Employer and employee social security contributions are split like so:

  • Employer’s Social Security Contributions
  • Health Insurance: 7.3%
  • Additional Individual TK (health insurance) contribution rate: 0.6%
  • Pension Insurance (RV): 9.3%
  • Unemployment Insurance (AV): 1.2%
  • Long-term Care Insurance (PV): 1.525%
  • Additional Long-Term Care Insurance (for childless individuals): 0.25%
  • Insolvency Charge: 0.12%

Accident Insurance: Depends on industrial sector and the accident risk of the job

  • Employee’s Social Security Contributions
  • Health Insurance (KV) – General Contribution Rate: 7.3%
  • Additional Individual TK (health insurance) contribution rate: 0.6%
  • Pension Insurance (RV): 9.3%
  • Unemployment Insurance (AV): 1.2%
  • Care Insurance: 1.525%

The employee’s salary ceiling in West German states are €82,800, and €77,400 in former East German states.

Employed persons earning more than €62,550pa have the option of remaining in the statutory scheme or taking out private insurance.

Occupational accident insurance (Unfallversicherung) offers protection and assistance after workplace accidents or job-related illnesses. The contributions for statutory accident insurance are funded entirely by the employer, with no contributions by the employee. The insurance covers:

Medical treatment and rehabilitation

Benefits and training support for re-integration into the workforce

Compensation for employees and dependents

Statutory Employment Costs in Germany

National Minimum Wage: The German national minimum wage, from January 1 2021, is €9.50 an hour and is due to increase to €10.50 per hour by July 2022. All employees are entitled to the national minimum wage, but the minimum wages of a role vary according their sector and industry.

Social Insurance: All employers and employees in Germany must contribute to social insurance.

What Benefits are guaranteed in Germany?

Vacations: Employees on a six-day week are entitled to 24 vacation days a year, with 20 days for those on a five-day week.

Public holidays: Employees are entitled to eight national paid public holidays a year, though the total can be between nine to 13 depending on regional and state variations.

Unemployment insurance: This benefit is covered by social security contributions as part of the Social Code and accounts for 2.4% of the total, jointly paid by the employer and employee.

Health and long-term care insurance: Also covered by the social security contributions from employers and employees and together account for 17.65%.

Accident insurance: This is a mandatory contribution from employers, with no contribution from employees, covering accident or illness due to work.

Sick leave: German law dictates employees are paid 100 per cent of salary by their employer during the first six weeks of illness. Thereafter, employees are entitled to statutory/private insurance sickness benefits to 70% of normal pay over a maximum of 78 weeks.

Maternity/paternity allowance and benefits  are governed by the Maternity Protection Act. Mothers are entitled to paid maternity leave, six weeks before and eight weeks after giving birth.

Maternity leave after the birth is 12 weeks in case of multiple births, premature births and disabled children. The maternity allowance is determined by the salary of the last cleared calendar months before the beginning of leave to a maximum of €13 per day plus 65% of their most recent pay with the balance made up by the employer.

German Top Talent

Recruitment can be a tricky business, especially when a company is venturing to unfamiliar countries and exploring new markets. This is where we come in to oversee the process for you – Bradford Jacobs’ expertise and over 20 years of experience in international recruitment services is indispensable for expansion into Germany. Hiring the right talent in Germany to expand your company can result in a thriving business with numerous opportunities. However, the recruitment process can be complicated when you have no physical presence in Germany yet. Our PEO and EOR service can be the solution for your company.

Are you curious about the recruitment process in Germany? In this guide, we will share the ground rules of hiring and recruiting talent in Germany. Our comprehensive knowledge of all German employment sectors and understanding of the culture and customs guarantees an untroubled transition.

The Recruitment Process in Germany

Employers in Germany can use a variety of recruitment methods to find the best applicants for their businesses, such as external recruitment methods (local job centers, recruitment agencies, job boards, LinkedIn, and other online advertising), as well as internal recruitment methods (such as providing career development opportunities and promotion to the company’s workforce). From there, once the right candidate is found, the employer must follow thorough staffing and registration procedures, which include:

  • Registering with the German Tax Office
  • Registering with the Sozialversicherungen (Social Security Organization)
  • Creating employment contracts
  • Applying special expatriation status (if applicable)
  • Calculating monthly salary and creating pay slips
  • Researching available tax-free allowances
  • Submitting wage tax returns and national insurance forms
  • Corresponding with involved parties
  • Creating annual accounts, administration, and year-end statements
  • Creating payment schedule for wage tax, national insurances, and net wages

The recruitment process requires time and dedication, and how can you find these things in the array of all these complicated tasks? Well, allow us to provide the answer – by engaging an Employer of Record (EOR) such as Bradford Jacobs. By acquiring our services, we can convert your Germany expansion goals into an action plan with a few simple steps:

  • Bradford Jacobs steps in as an EOR and acquires the right employees, ensuring they comply with German employment contracts, payroll, HR, tax, visa requirements, and work permits (if required).
  • We manage all work-related registration formalities, whilst you have daily control of your employees.
  • The employees complete their time sheets and expenses claims and we invoice you, the client. Once paid, we deduct all contributions to the German authorities and transfer the balance into employee’s account.
  • Within a few days, your company has international presence in Germany – in a prime position to explore further expansion without risking the expense or hassle of setting up your own subsidiary or branch office.

Legal Checks You Can Make on Employees

When commencing the recruitment process in a foreign country, employers must consider their legal obligations regarding personal information. Employers must carry out background checks, which are only considered fair and legal if they relate directly to a job and are necessary for reaching a decision on recruitment.

These background checks may also only be carried out with the consent of the candidate, and all employee information must be protected according to GDPR and data protection laws.

Nevertheless, employers recruiting in Germany may ask for the following background checks or ‘information/pre-employment verification’ (following certain conditions):

Criminal record checks: a private employer does not have the right of access to an applicant’s criminal record. The employer may, if at all, only be able to request a copy of the criminal record. This kind of background check may also only be requested if it is in direct relation to the applicant’s future tasks and responsibilities in the job in question.

Employment history and qualifications checks: Employers have the right to verify statements made in their job application, such as the academic qualifications, and original copies of reference letters. In the case of reference checks, the employer cannot contact previous employers without the applicant’s consent.

Credit history check: A credit history check is only permissible if future duties involve being in a position of particular financial trust.

Social media background checks: Background checks on social networks are allowed only where there is a professional context, such as on sites like LinkedIn.

Health checks: Requests for a health certificate and/or a medical/physiological checkup may be admissible if the position requires a certain level of physical and/or mental fitness. However, this must occur with the applicant’s consent, and the results of the checks may only be shared with the applicant’s consent.

Immigration compliance: Employers are required to check that job applicants in Germany possess the necessary and immigration papers to work in Germany.

Personal data from rejected applicants may be kept only for six months, without the applicant’s express permission.

Basic Facts on Hiring in Germany

  • An employer’s questions during an interview are regulated and restricted by data protection legislation – they must directly relate to job specifications and requirements.
  • Terms and conditions of employment in Germany are regulated by national legislation, as well as trade unions and collective agreements.
  • For onboarding employees, you will need the following documentation: A social security number, a tax identification number, personal identification, a work permit, and a residence permit.
  • Employers must follow anti-discrimination laws throughout the process of recruitment, which prohibits discrimination on the basis of race and ethnic origin, gender, religion or beliefs, disability, sexual orientation, and age.
  • Collective bargaining in Germany is an important part of recruitment in Germany. This mainly occurs at industry level between individual trade unions and employers’ organizations. Collective agreements, however, also provide for greater flexibility at company level.
  • There is more than one kind of collective agreement, depending on the issue being covered. Agreements covering pay last at least one year, and sometimes over two years or more – depending on the industry or sector. Collective agreements covering other issues normally last over five years, whilst others are valid until one side wishes to change the terms.
  • Administration and enforcement of employment requirements are governed by The Federal Ministry of Labor and Social Affairs.
  • Regarding employment contracts, the employer has a statutory requirement to provide an employment contract, in writing, no later than one month after the commencement of employment.
  • Standard employment contract types include indefinite and fixed-term contracts.
  • The standard working time is between 36 and 40 hours per week.
  • Employers must at least meet the minimum wage for the employee’s salary, but the average monthly salary may differ according to the industry and sector.
  • Working hours should not exceed 48 hours in a week, including overtime. Overtime is usually compensated with time off in lieu, although some companies will also pay for overtime worked too. Compensation, however, varies according to the terms of the collective agreement or contract.
  • In a week, employees are entitled to 2 rest days.
  • Employers are obligated to with-hold and pay employees’ personal income tax and social security contributions monthly.
  • The notice period for employment termination is two weeks during the statutory probationary period, increasing to four weeks after that, and up to seven months after 20 years’ service.
  • The employer and employee may agree to a probationary period of up to 6 months when agreeing on the terms of the employment contract.
  • Notice periods for employment termination are mandatory, unless in cases of dismissal due to gross misconduct.

Working with a Recruitment Agency

In Germany, recruitment services are provided by both public and private agencies.

The Federal Employment Agency (Bundesagentur für Arbeit/BA) is Germany’s public point of contact for both individuals and companies on all questions concerning the labor market. One of the BA’s tasks include helping people find training posts or employment. The agency offers consultation and job placement services, financial services for the unemployed, and education/training opportunities.

Offices can be found in most states, and jobseekers may also use Germany’s major online job board known as JOBBÖRSE for employment or traineeship places. However, registration with the agency is required beforehand.

The government organization International and Placement Service (ZAV) support jobseekers from abroad seeking employment and is a department of the Federal Employment Agency. It operates as a bridge between Germany and the world, advising employers and employees in different sectors of the economy and targeting specific groups of international personnel.

Germany is also a member of the European Employment Service (EURES) – a platform which ensures free movement for workers within the European Economic Area (EEA), where employees have access to searching for job availabilities, as well as living and working conditions in the EEA.

Germany also uses the services of private employment agencies, which can employ both national and international employees. Private agencies must be registered with the Chamber of Industry and Commerce and can charge employers for their services.

What are the Benefits of Hiring Outsourcing for Germany?

Outsourcing recruitment into Germany provides a major benefit of more efficient, speedy, and cost-effective business expansion. Optimizing this service allows companies to focus on managing their new enterprise and meeting their development goals. Other significant advantages for outsourcing include:

  • An extensive talent search done with reduced costs.
  • Guarantees local employment compliance requirements are met with no hassle or reprimands
  • Removes the need to set up a subsidiary.
  • More control over your company’s capital expenditure.
  • Alleviates risks with an easy operation that provides the employer opportunity to explore new markets.
  • Improves work flexibility.

Allows you to focus on your core business operations whilst your administration is taken care of.

Work Culture

To do business in Germany, it is vital to have a good understanding of its business or work culture. Making the right impression with the right people is the key to success in Germany, and it is important to back this up with the right research on the market and potential business associates.

As a global PEO (Professional Employment Organization) it is our goal to be familiar and updated with the business culture in the country we work with and in. By sharing our knowledge about the German work culture, we want to support your global expansion plans. Therefore, we will address all aspects of the work culture in Germany to start your expansion well-informed.

Germans have the reputation of being modern, liberal, and cultured, and their working practices are formal and professional. Employees in Germany are also often viewed as working fewer hours but being more productive. Communication between peers generally relates to their work, not out-of-office activities.

Nevertheless, there is a growing appreciation of striking a work/life balance through flexi-time and taking opportunities for remote working, but in the office itself etiquette still plays a key role. Here are a few tips and working practices you should be familiar with before starting on your expansion:

  • Hierarchy: German business culture has a well-defined and strictly observed hierarchy – with clear responsibilities and distinctions between roles and departments.
    Work ethics in Germany include structuring the work force on the basis of qualifications and experience, where higher-qualified and more experienced employees go on the top of the hierarchy and the lesser qualified and newbies go on the bottom of the hierarchy.
  • Work Relationships/Friendships: Work relationships are considered very important in Germany, but friendships aren’t developed too quickly.
  • Introductions: In Germany, introductions tend to be formal. Using ‘Herr’ or ‘Frau’ is the norm. If speaking German, use the formal version of ‘you’ (Sie), unless invited to use the informal ‘Du’. Shaking hands is also common during introductions.
  • Dress Code: Dress is similarly formal, men wearing dark suits, white shirt, with a solid tie; women wearing dark suits, white blouse, or a formal dress. Only remove jacket if your German colleague does so.
  • Punctuality: In Germany, appointments and meetings are precisely planned and is expected for set times to be adhered to. Being punctual is a matter of good manners.
  • Negotiations: Business communication is generally carried out in formal language, and negotiating a sale or contract is a fair, well-mannered, and well-planned process. Germans are not sold on flashy behavior and prefer the presentation of data for evidence to claims.
  • Agreements: The decision-making process is quite lengthy in Germany, due to the hierarchical structure of many of its businesses. Verbal agreements and handshakes bond an agreement. However, most agreements are in writing. It is also expected of business associates to act on their part of the deal, as unreliability is looked down upon.
  • Communication: In Germany, locals communicate directly and explicitly, and they do not ‘sugar-coat’ their statements. This can make them appear rude or threatening, even though this is not their intention. They also do not easily recognize or respond to verbal subtleties.
  • Meals: Business meals are used to cement relationships, not generally to discuss deals.

Germany Minimum Wage

The German national minimum wage, by law, is €9.50 an hour. Any contract or work agreement for an amount below that may be invalid. However, many industries and sectors set their own minimum wages based on collective agreements within their sectors.

If the minimum wage is not paid, employees can make a claim for the difference between their actual pay and the minimum wage from their employer. Violations of the Minimum Wage Act can trigger fines of up to €500,000.

The government reviews the minimum wage bi-annually. The statutory minimum wage applies to all employees over the age of 18. Under certain conditions, interns may also be entitled to the minimum wage.

Probation in Germany

The employment contract must specify when your employment begins and the length of the probationary period. In Germany, the probationary period usually makes up the first three months of employment, with the maximum probationary period being six months. During this time, the employment relationship can be terminated by either party with two weeks’ notice.

Working Hours in Germany

The average working week in Germany is between 36 and 40 hours over a six-day period, Monday to Saturday. The maximum statutory limit for working hours is eight hours per day and 48 hours per week, averaged over six months. However, under certain circumstances it can be extended to 10 hours.

Most full-time jobs are seven or eight hours a day over five days a week, with an hour or 30 minutes’ rest at lunchtime which can be split into two breaks. A 45-minute rest break must be given if an employee works for more than nine hours, and this can be split into breaks of at least 15 minutes.

At the end of the working day, there must be an uninterrupted rest period of at least 11 hours. In addition, most industries have collective agreements that regulate working hours and holidays. Therefore, some companies may operate a longer working week, but compensate their employees with a higher salary or additional annual holiday leave.

Work on Sundays and public holidays is generally prohibited. There can be exceptions, for example in the service industry. However, work on Sundays must be compensated by corresponding time off within the following two weeks (or eight weeks in the case of work on public holidays).

Overtime in Germany

Overtime pays and surcharges are not regulated by law but are subject to the employment contract, collective bargaining or works council agreements. Overtime must also conform to the maximum working hours (i.e., no more than 60 hours a week, averaging 48 hours over a six-month period).

Overtime is usually compensated with time off in lieu, although some companies only pay for any overtime hours worked. The right to compensation for overtime hours worked will be specified in the employment contract. Some companies maintain that a small amount of overtime is a normal part of the job and will not provide additional remuneration.

Notice period in Germany

Over the decades, Germany has developed a strong social contract with workers. There are many laws and regulations that employers must follow to ensure the wellbeing and fair and equal treatment of employees.

The length of the notice period given by the employer depends on the employee’s length of service, ranging from four weeks for employees with less than two years’ service, to seven months for employees with more than 20 years’ service.

Unless otherwise stated in the employment contract, the extended statutory notice periods are only applicable to terminations by the employer, whereas the employee may terminate the employment with a notice period of four weeks to the 15th or the end of a calendar month.

The minimum notice period given to employees, with length of service:

  • Up to 2 years – four weeks prior to either the 15th or the last day of the next month
  • 2 to 4 years – one month prior to the last day of the next month
  • 5 to 7 years – two months prior to the last day of the next month
  • 8 to 9 years – three months prior to the last day of the next month
  • 10 to 11 years – four months prior to the last day of the next month
  • 12 to 14 years – five months prior to the last day of the next month
  • 15 to 19 years – six months prior to the last day of the next month
  • 20 years or longer – seven months prior to the last day of the next month

Most employment contracts align the notice periods for employees with the extended periods applicable to employers. Collective agreements may specify longer or shorter notice periods, whereas individual contracts of employment may only specify longer notice periods.

Dismissals must be declared clearly and unambiguously. The decision to end an employment relationship, and when it should end, must therefore be stated with absolute clarity in the dismissal notice. Any notice of termination, whether issued by the employer or by the employee, must be made in writing or the notice of termination is invalid.

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