There are many things you will need to know before you hire in Germany but here’re our top 3:
1. Employment in Germany
Employer and Employee Social Security in Germany
Social insurance contributions in Germany are fairly high, and include health insurance, pension, unemployment insurance and nursing care insurance. The full contribution amount is nearly 40% of monthly salary, divided equally between the employee and employer. There are contribution caps at certain salary levels, so that needs to be researched and managed in payroll.
2. Tax in Germany
Tax Rates in Germany
Income tax rates in Germany are 0-14% for income up to $52,000, and 42-45% for amounts over $52,000, which would include most employees on assignment. When you factor in the nearly 20% employee social contributions, this becomes quite a burden on employees without some type of tax equalization or other way to offset the payments.
Corporate Tax in Germany
Corporate tax in Germany is 15%.
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3. Payroll in Germany
Social Security Registration
Both the employer and employee must be registered with social insurance agencies who will ensure that the correct contributions are made from payroll. Naturally, this means that a local German corporate entity is required, and remote payroll wont be allowed.
13th/14th month bonus
Because your employees in Germany are on a local payroll, it is customary to offer a 13th month of salary as a bonus each year, which should be included when calculating annual compensation packages.
It’s going to be hard to employ someone remotely. Here’s what else you should be worried about:
The risk of non-compliance is very high, especially when employing in a new country like Germany
Employing in an unfamiliar country like Germany can be overwhelming. The burden and risk of non-compliance is all on you and your company and you need to be careful when navigating the employment and tax laws of Germany. The information you’re looking at may be inaccurate, outdated or in another language. The consequences of non-compliance in Germany are far too high to not invest time and money in thoroughly understanding the German jurisdiction.
Involving tax and immigration providers early is the number 1 most preferred method to manage compliance risks for companies, with 72% stating that they are focusing on outsourcing these services early on in the assignment.
There are many hidden costs that you may have overlooked
When employing in Germany, it is highly like that you may fail to factor in some costs involved while estimating a budget for the assignment. Usually, these costs occur during the course of employment and tend to be country-specific. They are often unpredictable and unavoidable resulting in the assignment being far more expensive than the business intended it to be. Hiring just one employee in Germany doesn’t justify the effort and cost it takes for a company to learn everything from scratch about employing in Germany.
Outsourcing services is the most preferred way for global mobility professionals to contain costs with 71% stating that they have already made outsourcing changes in an effort to maximise cost savings. Unsurprisingly, outsourcing is preferred over reducing the number of assignments/transfers or improving in-house administrative processes as a method to save costs.
These considerations are common when hiring an employee in any new country. In our years of experience employing in Germany we have helped our clients with several other problems specific to Germany. Here’re a few examples:
Other Issues Our Clients Have Encountered When Employing in Germany
File Transfer and Access Management (FTAM) Protocol
Most salary payments to your employees in Germany will use the electronic FTAM system, including any payments for health insurance. So, while having a German bank account is not a requirement for running payroll, it does allow you to use this efficient payment system.
PAYE Tax Withholding System
Germany does use the PAYE system for tax withholding, that requires the employer to calculate and withhold taxes from the monthly salary. This amount must be forwarded to the tax authorities by the 10th of the following month, or you will pay penalties.
Limits on Use of Temporary Workers or Contractors
If you are thinking about using temporary workers or contractors in your German operations that is going to be more difficult now. On April 1, 2017, the German Act on Temporary Agency Work went into effect, creating changes for temporary workers hired by agencies for their business clients.
In short, the new law limits the length of time that a business in Germany can use a temp worker, and grants the worker employee status if the limits are exceeded. Which also means the employer must be properly incorporated in Germany.
Work Permits and Visas
You will need to meet German immigration requirements for your staff on assignment. Employees that are citizens of European Union member countries do not need a visa or work permit under the EU right to travel policy. However, they may still need to secure a residency permit. Non-EU citizens must go through the work permit application process.
One of the ways to meet the work visa requirements in Germany is by obtaining an EU Blue Card, which entitles the employee to work in other EU countries. Of course, the other option is to obtain a Germany-only work permit and residence visa, through the various government agencies that oversee the review and approval process. In both cases, you will need a German entity to sponsor the visas for all employees.
The Employer of Record Solution
As you can see from this overview, the process of hiring even one employee in Germany can be a real challenge for any HR department. This is why the Shield GEO Employer of Record (EOR) solution is a cost-effective and simple way to address your payroll, tax and immigration requirements. The EOR becomes the legal employer of your worker in Germany, with a registered entity that is already in place and prepared to take care of your employment needs.
Our team members can offer personal service, quick communication and the expertise of our regional partners to ensure that our EOR service is delivered seamlessly to support your staff assignments.
Here is a quick summary of what you can expect from your Shield GEO regional account manager:
- A single point of contact for all employee or HR issues and questions
- Assistance with meeting German requirements for the employment contract
- Obtaining visas and work permits sponsored by our German EOR
- Full compliance with German payroll, immigration and employment laws
- Monthly payroll and employment administration
For an HR department located in the home country, the Shield GEO team becomes a local, dedicated resource to handle every aspect of your employee assignments. This allows you to focus on supporting your staff’s project and performance needs, while we take care of the multiple employment administration tasks for you.
Need help hiring an employee in Germany? Get in touch!
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