Want to expand your business and start hiring employees in Germany? Contact NNRoad for more information and smooth market entry.
Contract for hiring employees in Germany
A written contract has to be used to make employment official.
Immigration Requirements
Individuals who are not EEA/EU citizens or Switzerland citizens will need a working permit to be employed in Germany. Additionally, a German company will have to sponsor the employee. It is initially provided for a year of employment and can be extended.
HR & Labor
Working hours: Employees should work 48 hours a week to be considered full-time employees, with employees working 8 hours a day and including Saturday as a workday.
If the company only works 5 days a week, employees should only work 40 hours in total. Employers are required to compensate for overtime with time off. Although not legally required, an overtime bonus may be paid to employees and specific conditions should be included in the labor agreement or individual contract.
Minimum working age: Individuals as young as 15 can be employed, but employers will have to refer to the Youth Labor Protection Laws that protect the employee until they turn 18. Employees are guaranteed breaks throughout the day and a lunch break, although the specific amount depends on total hours worked.
Payroll
Employers will usually disperse salary on a monthly basis, typically at the end of the month, but a different set up can be specified in the employment contract.
Social Security in Germany
Social Security Deductions in Germany
When hiring employees in Germany, employment law sustains that, participation in social security contributions is mandatory. The employer is liable for the total payment and is responsible for withholding the contributions from the employee’s salary. Contributions must be made on a monthly basis.
The below rates shall be applied against gross salary given the below ceilings:
Contribution rates in Germany
Employee
Germany Pension Insurance: 9.8% of employee’s monthly gross salary.
Unemployment Insurance: 1.50 % of employee’s monthly gross salary.
Health Insurance: 8.2 % of employee’s monthly gross salary.
Long-Term Insurance: 0.975 % of employee’s monthly gross salary.*
Total cost: 20.475%
*Note:
- An additional 0.25% surcharge on long-term care insurance is to be borne by employees without children
Employer
Germany Pension Insurance: 9.8% of employee’s monthly gross salary.
Unemployment Insurance: 1.50 % of employee’s monthly gross salary.
Health Insurance: 7.3 % of employee’s monthly gross salary.
Long-Term Insurance: 0.975 % of employee’s monthly gross salary.*
Total cost: 19.575%
Individual Income Tax & Benefits in Germany
Individual Income Tax
All persons subject to German income tax must file an income tax return annually with the appropriate local tax office (depending on the place of residence). Geometrically progressive rates start at 14% and rise to 42%. Income tax is calculated based on the progressive tax rate schedule below:
Personal Deductions
The following deductions are allowed as it applies to each individual:
• Alimony payments- Individual taxpayers may take deductions up to EUR 13,805 for the alimony paid to a divorced partner.
• Charitable contributions- Contributions to German charities and certain international charities are deductible up to 20% of adjusted gross income. The church tax is also fully deductible.
• Childcare expenses- The actual expenses for child care can be deducted up to a maximum of EUR 4000 per year/child for children younger than 14 years or for handicapped children.
• Education expenses- 30% of tuition fees (except for housing, care, and food) of a recognized private school located in the EU/EEA countries or of German schools is applicable.
Social security contributions- Social security contributions and insurance premiums can be deducted up to specified limits:
• Health insurance and long-term care contributions- Contributions to health insurance are completely tax-deductible as far as these contributions are paid for primary healthcare. Contributions to long-term care insurance are also tax-deductible.
• Unemployment insurance contributions- Contributions paid to certain other insurance policies can be deducted up to a maximum of EUR 2,800 per year
• Pension scheme contributions- Contributions to old-age pension schemes are, in general, tax-deductible up to an overall limit of EUR 23,362
Personal Allowances
The following allowances are deductible in computing taxable income:
Employee’s allowance: EUR 1,000
Investor’s allowance: EUR 801
Social security allowance: Variable
Lump-sum special expense deduction: EUR36
Child allowance- per child: EUR 3,678
VAT/ GST Rates
The standard VAT rate for supplies and goods of services is 19%. For certain goods and services, the VAT tax rate is 7%.
Employee Termination Policies in Germany
An employment contract may be terminated by the employer or the employee. Dismissals must be in written form. Both parties must follow the notification periods. An employee must submit a notice with a minimum notice period of one month, effective either on the 15th or end of the month.
For the employer, the minimum notice period depends on the duration of employment. After the probationary period of a new employment contract has ended, the initial notice period is four weeks. This increases to seven months after 20 years of job tenure in the same company.
Severance Pay
When hiring employees in Germany, employment law does not sustain statutory severance payment law in Germany unless the reason for termination is redundancy/corporate restructuring. However, severance pay may be provided through collective agreements or social plans.
Under the Employment Protection Act, an individual employee on a permanent contract is entitled to severance pay if the employer indicates in the notice of dismissal that the dismissal is based on operational grounds and offers compensation or if the worker does not file a complaint against the dismissal within three weeks time.
In this case, severance payments of half a month’s wage for each year of the employment relationship can be filed. 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.
Probationary Period in Germany
The probationary period usually lasts the first three months of employment. The maximum probationary period is six months. During this time, the employment relationship can be terminated by either party with two weeks’ notice. An employee is not entitled to severance pay during a probationary period.
Rest & Holiday Leaves in Germany
Annual Leaves
When hiring employees in Germany, employment law sustains that employees with a five-day working week are entitled to 20 working days of holiday.
Public Holidays
New Year’s Day – January 1
Good Friday – March 30
Easter Monday – April 2
Labour Day – May 1
Ascension Day – May 10
Whit Monday – May 21
Day of German Unity – Oct 3
Christmas Day – Dec 25
2nd Day of Christmas – Dec 26
For additional information, contact NNRoad to help successfully expand your business to Germany and other international destinations!
