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Employment in Germany

German employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Other factors that complicate matters include the differences between regions and an inconsistent approach to adherence to laws in different districts.   For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Germany.

Key points on employment in Germany

There are several key areas to be aware of within Germany’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the German laws and rules for both German employees as well as foreign nationals.

  1. Contracts

    Germany requires that workers have employment contracts that meet local standards, and companies must have a professional who can draft local employment contracts.

  2. Probation Periods

    Probation periods are permitted up to 6 months in length. During the probation period the employee is entitled to 2 weeks notice of termination.

  3. Termination Procedures

    A minimum of 4 weeks notice is required prior to termination. The notice period increases according to length of service, and after 5 years the notice period increases by one month in the 5, 8, 10, 12, and 15 years of employment.

    Termination that adheres to the notice periods is Ordinary Termination.

    Extraordinary Termination, which ends the employment contract immediately, may be used for serious misconduct.

  4. Statutory Leave

    There are laws that regulate leave periods based on years of service and the type of leave requested, including:

    1. Annual Leave: Employees are entitled to 24 working days of annual leave, plus holidays.

    2. Maternity Leave: Female employees are entitled to maternity leave throughout the entire pregnancy, as well as 4 months after the birth.

    3. Sick Leave: Sick leave is available after 4 weeks of employment, and may be claimed for up to 6 weeks.

  5. Pensions and Benefits

    The system of welfare and benefits is complex in Germany, and cover sickness, unemployment, disability and retirement. There are requirements for both employee and employer contribution rates based on a percentage of salary.

    The categories of Welfare Contributions include:

    • Pensions: Employer and employee each contribute one-half of the rate of 18.7% of salary
    • Medical Insurance: Employer contributes one-half the premium.
    • Unemployment Insurance: Employer contributes 1.5% of salary and employee also contributes 1.5%

Outsourcing Employment Through a GEO Employer of Record Service

Companies entering Germany can make a decision whether to use their own resources or to use a Global Employment Organization to handle employment and payroll responsibilities. A GEO solution is particularly beneficial when a company is looking to setup an office quickly with a manageable cost. The complexity of employment regulations in Germany makes the use of a GEO advisable to ensure full compliance with employment laws, including the drafting of local employment contracts for workers.

The company that is expanding into Germany contracts with the GEO to employ and payroll their staff on their behalf. The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits if necessary, complying with local employment law and running their monthly payroll. This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.

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