Employment contracts in Germany are either indefinite or for a fixed term. Fixed-term contracts may not normally be for more than two years, and may be extended or renewed up to two times, provided that the original contracts and all extensions and renewals combined do not exceed the two-year limit. If there is a justification for a longer term, it may be possible for the fixed-term contract to be for more than two years. In particular, start-up businesses may hire employees on fixed-term contracts of up to four years without any justification. Fixed-term contracts must be in writing. An indefinite employment contract may be oral or written, but the written form is strongly recommended. At minimum, a written contract should state:

• identities and addresses of the parties,

• date the employee will begin work,

• term of the contract if it is for a fixed term,

• workplace,

• a clause permitting transfer or relocation if this is a possibility,

• brief job description,

• salary and any other components of the employee’s compensation,

• payment intervals,

• employee’s working hours,

• annual leave the employee is entitled to,

• notice periods for termination,

• length of the probation period if there will be one, and

• what collective, company, or other agreement applies to the contract.

If there is no written contract, the employer must disclose this information to the employee in writing within one month of the employee’s first day of work.

The Minimum Wage Act (Mindestlohngesetz- MiLoG) set the national hourly minimum wage as 12.41 EUR on 1 Jan, 2024.

The 2023 earnings limit for mini-jobs is 520 EUR, and for midi-jobs 2,000 EUR. (A mini job is a position in Germany where the employee earns no more than a certain amount each month, allowing people to work fewer hours free of tax).

However, many different minimum rates are depicted in industry-specific collective bargaining agreements.

Common Benefits

• Transportation/commuter allowance

• Wellness allowance

• Phone and internet allowance

• Vacation and Christmas bonus, performance bonuses

• Car allowance

• Travel insurance

• Edenred Card: a tax-free benefits card that employees can use at shops, supermarkets, and gas stations

• House cleaning allowance

The standard working week in Germany is 40 hours per week, 8 hours per day. The work week can be no longer than 48 hours, 10 hours per day if, within six months or 24 weeks, the overall average working time does not exceed eight hours per day.

Overtime

Overtime work must conform to the maximum working hours stipulated within the employee contract/collective agreement.

There are two common types of overtime: Mehrarbeit, which refers to working time that exceeds the maximum limit of 48 hours per week (8 hours per day across a 6-day working week), as set out in the Working Hours Act. This may be extended up to 10 hours per day if the employee’s total working hours average 8 hours per day over six months.

The second, Überstunden, which is defined as any hours worked on top of one’s contractually agreed hours, is legally permissible and must normally be compensated.

Eligible employees (those who have been employed for four weeks before starting sick leave) are entitled to sick pay of 100% of the regular income for up to six weeks (Entgeltfortzahlung bei Krankheit oder Kur). After six weeks, the health insurance fund (Krankengeld) pays between 70% and 90% of the regular salary, based on the insured employee’s fund level, for up to 78 weeks in three years for incapacity caused by the same illness, calculated from the first day of sickness.

The employee must inform the employer of their incapacity for work and the anticipated duration of the incapacity as soon as possible. If an illness lasts longer than three days, an employee must submit a doctor’s certificate no later than the following working day. From 2023 onwards, working incapacity certificates will be digital and transmitted electronically by the doctor.

Maternity Leave

A pregnant employee is entitled to 14 weeks of paid maternity leave (Mutterschutzgesetz – MuSchG), which can increase to 18 weeks with complicated/multiple births.

Maternity leave consists of two periods: Prenatal leave, which requires the employee to take a minimum of 6 weeks before the expected due date, and Postnatal leave, which requires an employee to take the remaining eight weeks of leave starting from the date of the birth of the child.

The public health insurance fund pays the maternity payment. The payment is equivalent to the average sum of the net wages for the three months before the pregnancy paid by the employee’s public health insurance (or the state in the case of private health insured employees, maximum 210 EUR) and the employer. The public health insurance pays the maternity benefit (Mutterschaftsgeld) only up to a maximum of 13 EUR a day. If the daily net wage of the last three months is higher, the employer must pay a grant (Zuschuss Zum Mutterschaftsgeld) for the difference.

Paternity Leave

Paternity leave falls under the parental leave.

Parental Leave

New parents are legally entitled to unpaid parental leave (Elternzeit) and must request the leave in writing at least seven weeks before the start date.

Parental leave is 36 months (including the eight weeks of postnatal leave) and can be shared between the parents. However, the parents must take at least 12 months of parental leave within the first three years; the remainder, with permission from the employer, can be used at any point between the child’s second and seventh birthday. Parents can also choose to work part-time up to 30 hours per week with prior permission from the employer during parental leave.

The statutory minimum entitlement of annual leave is 20 working days per year for employees working a regular 5-day week, and 24 working days per year for those working a regular 6 day week, as set by the Bundesurlaubsgesetz – the Federal Holidays Act.

Entitlement for paid vacation is called Urlaubsanspruch. The Urlaubstage number is listed in the employment contract or collective agreement (Tarifvertrag), depending on the type of industry.

Many collective agreements increase this entitlement to 30 working days, and employees that work in dangerous or high-risk environments are often entitled to additional leave.

Depending on the collective agreement, employees may be allowed additional leave types once approved between the employer and employee, including family care time (Pflegezeitgesetz). Family care time entitles an employee to up to 10 days unpaid leave to assist a seriously ill family member or family emergency.

Public holidays that fall on the weekend are usually lost.

Date Day Holiday Notes
1 Jan 2024 - Monday - New Year’s Day - National
6 Jan 2024 - Saturday - Epiphany - Baden-Württemberg, Bavaria, and Saxony-Anhalt
8 Mar 2024 - Friday - International Women’s Day - Berlin, Mecklenberg-Vorpommern
29 Mar 2024 - Friday - Good Friday - National
31 Mar 2024 - Sunday - Easter Sunday - Brandenburg
1 Apr 2024 - Monday - Easter Monday - National
1 May 2024 - Wednesday - Labour Day - National
9 May 2024 - Thursday - Ascension Day - National
19 May 2024 - Sunday - Whit Sunday - Brandenburg
20 May 2024 - Monday - Whit Monday - National
30 May 2024 - Thursday - Corpus Christi - Baden - Württemberg, Bavaria, Hesse, North Rhine Westphalia, Rhineland - Palatinate, Saarland, and some local authorities in Saxony and Thuringia
15 August 2024 - Thursday - Assumption Day -Saarland and some local authorities in Bavaria
20 Sep 2024 - Friday -Children’s Day - Thuringia
3 Oct 2024 - Thursday - Day of German Unity - National
31 Oct 2024 - Thursday - Reformation Day - Brandenburg, Bremen, Hamburg, Mecklenburg-Western Pomerania, Saxony, Saxony - Anhalt,Niedersachsen (Lower Saxony), Schleswig-Holstein, Thuringia
1 Nov 2024 - Friday - All Saints’ Day - Baden-Württemberg, Bavaria, North Rhine-Westphalia, Rhineland- Palatinate, and Saarland
20 Nov 2024 - Wednesday - Repentance Day - Saxony
25 Dec 2024 - Wednesday - Christmas Day - National
26 Dec 2024 - Thursday - 2nd Day of Christmas - National

Germany has universal healthcare.

The termination process varies according to the employment agreement and collective agreement, and is based on the type of contract and reason for termination. After the first six months of employment, employees are protected by the German Termination Protection Act.

Notice Period

In general, notice periods in Germany are four weeks but are stipulated within the employment contract/collective agreement and are linked to the employee’s length of service as below:

Up to 2 years -4 weeks (per the 15th or last day of the month)
2 to 4 years - 1 month
5 to 7 years - 2 months
8 to 9 years - 3 months
10 to 11 years- 4 months
12 to 14 years - 5 months

Severance Pay

Severance pay is only applicable when an employer terminates an employment agreement without notice; in this case, the severance pay is the same amount the employee would earn if given notice.

Should the reason for termination be caused by company operational changes, the employer must give severance payment, generally being two weeks regular salary payment for each year of service.

Probation Period

Probation or trial periods are generally set within collective agreements. The common practice in Germany is up to 6 months.

Employer Payroll Contributions

7.30%+0.85%* - Health insurance (KV) (applied on salary up to 5,175.50 EUR per month) additional Percentage depending on employee’s chosen insurance.

9.30% - Pension Insurance (RV) (applied on salary up to 7,550 EUR monthly -7,450 EUR in eastern states)

1.30% - Unemployment Insurance (AV) (applied on salary up to 7,550 EUR monthly -7,450 EUR in eastern states)

1.70% - Long-term care insurance (PV) for employees with one child. * in Saxony: 1.025 %

0.64% - Disability insurance (U1), Maternity insurance (U2), and Insolvency insurance (U3). The percentage is subject to change depending on the employing entity.
* (effective once the employee reaches 23 years of age and is increased to 1.775% for employees with no children)

1.50% - Accident Insurance

20.82% - Total Employment Cost

Employee Payroll Contributions

7.30%+ 0.80%* - Health insurance (KV) Health insurance (KV) (applied on salary up to 5,175.50 EUR per month) *additional Percentage depending on employee’s chosen insurance.
Long-term care insurance (PV) varies with the number of children.

0.70%-2.30% - For Employees without children 2.30% for employees with one child the rate is 1.70%, additional 0.25 points per child from the 2nd child up to the 5th child. ** in Saxony: 1.025 %

9.30% - Pension Insurance (RV) (applied on salary up to 7,550 EUR monthly -7,450 EUR in eastern states)

1.30% - Unemployment Insurance (AV) (applied on salary up to 7,550 EUR monthly -7,450 EUR in eastern states)

21.225% – Total Employee Cost
31.825%

Employee Income Tax

Single Persons Tax rate
0.00% - Up to 10,908 EUR
14.00% - 0,908 EUR to 62,809 EUR
42.00% - 62,810 EUR to 277,825 EUR
45.00% - 277,826 EUR and over

Married Persons Joint Return Tax Rate
0.00% - up to 21,816 EUR
14.00% - from 21,817 EUR to 125,620
42.00% - from 125,621 EUR to 555,652 EUR
42.00% - more than 555,652 EUR

• Church Tax (when registering in Germany, declaration of region is requested, should this be Protestant, Catholic or Jewish there is a liability to pay the church tax, which the tax office collects on behalf of religious organizations in Germany. It is currently 8% in Bavaria and Baden-Württemberg and 9% in all other federal states. If there is no declared religion, there is no church tax to pay).

• Solidarity surcharge: 5.5% of the income tax if the income tax exceeds EUR 18,130 (single/Separately assessed taxpayers) or EUR 36,260 (married/joint tax assessment)
  
  Payroll Cycle
  
  In Germany the payroll frequency is monthly and paid typically on or around the 25th of the month.
  
  13th Salary
  
  13th-month salary payments are customary in Germany and are paid on the December pay date.

A long-term (national) German visa type D is required to work in Germany as it allows a foreigner to stay in the country for more than three months. In 2020 the German legislation changed in terms of the required minimum level of skills of the applicant; this is now diploma level, together with being competent in the use of the German language.

The different types of Visas are as follows:

• EU Blue Card allows an employee to work in all European countries. To be granted an EU Blue Card, the applicant must have graduated from a university, have an employment contract with the employing company, and a lower salary threshold than 39,600 EUR for IT specialists, mathematicians, and representatives of the engineering field, and 50,800 EUR for other applicants.

• Permanent residence for valuable personnel. This condition applies to scientists known for their work, researchers, and professors.

• Permission for highly qualified specialists. Obtaining a work visa to Germany is possible if you have the appropriate skills and a salary of 86,400 EUR annually.

• General employment. This is the most demanded type of German work permit. There are no strict requirements for education and specialty. Also, the profession must be in demand at the time of the request. To apply for a visa, you must confirm your qualifications and have an employment contract on hand.

• For job search. This is for the option of obtaining a work visa to Germany for future employment. If approved, a person can stay in the country for six months, after which it is necessary to re-register or obtain a residence permit.

The standard VAT rate in Germany is 19%.

1. Register with the Trade Office in the municipality in which the business is to be established. To this you need:

• A valid ID document or passport

• Depending on the activity, a permit or approval

• A crafts card if you are planning to set up a business in the skilled crafts sector

• A trade card for activities similar to those in the skilled crafts sector

• A residence permit that also allows you to pursue a self-employed commercial activity

• Between ten and forty euros for the registration fee

• A police clearance certificate or information from the Central Commercial Register may be required.

Describe the activity in as much detail as possible. This will usually take a few days to be processed.

Except for liberal professions, skilled crafts and agriculture, businesses will automatically become a member of the Chamber of Industry and Commerce. This is a legal requirement, and the founder will receive a letter from their local Chamber of Industry and Commerce with all the necessary information.

Before going to the Trade Office, you must know:

• The type of business

• Whether a permit is required

• Where the business will be set up

• The legal structure of the business

2. Apply for a tax number:

After registering, you will automatically receive the “Questionnaire for tax registration” from your Tax Office (Finanzamt).

Businesses must be registered in the electronic Commercial Register. This is normally carried out by a notary.

Apply for a company number (Betriebsnummer)

As an employer, you submit social security reports for your employees who are subject to social security contributions. In order to be able to take part in this notification procedure, you need a company number for each of your employment companies. In this way, you as an employer are clearly identifiable to the social security agencies. This is important, for example, so that your contribution payments can be assigned to your account.

The company number is assigned by the company number service according to certain principles. A decision scheme shows you when a company number is required.

The company number is standardized in paragraphs 18i to 18n, Book Four of the Social Security Code (SGB IV).

The company number service of the Federal Employment Agency assigns company numbers and records the necessary company data. You are legally obliged to apply for the company number electronically.

By law, German employees must have a written employment contract that reflects the key aspects of the employment relationship (parties bound by the contract, work to be performed by the employee, gross salary and benefits, annual leave entitlement, start date of employment, working location and notice periods). There will also be detailed terms and conditions found in Collective Bargaining Agreements.

It is the employer’s responsibility to register all new employees for social insurance. The registration of the new employee with a health insurance company must be done within 6 weeks of hiring the new employee.

If the new employee has private health insurance, he/she must provide copies of their membership documentation from the private health insurer, confirming his/her monthly private health and nursing care insurance contribution amounts for the current calendar year. The documents which the employee must provide are:

‘Bescheinigung für Vorsorgeaufwendung’
‘Bescheinigung zur Erlangung des Arbeitgeberzuschusses für die private Krankenversicherung nach § 257 Abs. 2s Satz 1 SGB V’‘Bescheinigung zur Erlangung des Arbeitgeberzuschusses für die private Pflegeversicherung nach § 61 SGB XI’
Employers are responsible for collecting a capital bond or ‘capital formation savings payment’ (Vermögenswirksame Leistungen) on behalf of the employee, via the payroll. This is referred to as ‘VWL’. Employees can set these up with an insurer of their choice. Some employers offer a monthly contribution to such saving schemes and others do not. Nevertheless, the employer is obliged to deduct the employee’s monthly saving amount from his/her salary and submit the contributions to the insurer on behalf of the employee. A copy of the employee’s VWL contract must be provided when the employee joins the organisation.

New employees must be registered with ELStAM (Electronic Payroll Tax Deduction Characteristics) data prior to the employee’s first live pay run. Employees must provide their personal tax identification number and date of birth as these items of data are required for the reporting of employee tax to the tax office as per the ELStAM process.

International assignees posted to Germany should also ensure they have the appropriate right to work visa/permit as well as a certificate of coverage for Social Security purposes.