The Federal Republic of Germany is the 2nd-most populous country after Russia in Europe with over 83 million citizens. Berlin is the capital and the largest city in Germany, with the financial center being Frankfurt and Ruhr being the largest urban area.
Germany depicts strong economic growth and is one of the largest economies in Europe. The country ranks the fourth-largest economy by nominal GDP and fifth-largest by Purchasing Power Parity (PPP) with steady growth. Germany also ranks as the third-largest importer and exporter of manufactured goods, contributing highly to the German GDP.
With the economy making a mark as a global leader in several sectors, Germany is a leading contributor to the scientific and technological sector, followed by the manufacturing and industrial sector. Apart from the industrial sector and technology sector, which account for 30%, Germany is also known for its service sector, accounting for about 69% and the agricultural sector accounts for 1% of the total GDP.
Germany is a developed country and ranks the 6th highest in the human development index, making it one of the most attractive and preferable countries for employees worldwide to work and for businesses to expand their teams and operations in this economy.
Education and apprenticeship are mandatory for the young German population, with affordable fees in state-run schools and universities. This has made Germany the leading destination for international studies as per a study conducted by OECD in 2014.
With an educated and highly skilled workforce in Germany, expanding your business and hiring German employees would be relatively complex. This is where the German professional employer organization (PEO) and employer of record (EOR) can help. Multiplier’s German PEO and EOR solution assume all your HR responsibilities, such as onboarding German employees, compliance management, payroll, employment contracts, etc. – while you focus on expanding your business in Germany.
As a German PEO and EOR partner, Multiplier ensures your tax and compliance matters and HR services are in check while complying with employment laws in Germany.
Why use a German PEO?
Germany’s employment and labor laws apply to resident individuals and temporary residents.
As per the employment laws in Germany, employment contracts are mandatory when hiring new employees that must include:
- Work to be performed
- Notice periods
- Parties to the contract
- Gross salary and benefits
- Starting date of employment
- Place of performance
Employees can elect work councils in any company with more than five employees in Germany. The works council represents the employees’ best interests, ensures negotiations, and keeps in contact with the business for mass layoffs, hiring new employees, changes in the business location, etc.
Although expanding your team and business operations may seem daunting, it is crucial to ensure that you comply with the relevant laws and pay taxes on time. A German PEO will help by taking all responsibilities pertinent to expanding your business and employing compliantly in Germany.
German PEO Costs
Usually, PEO platforms charge based on two pricing models – variable and fixed. A PEO platform based on the fixed pricing model charges a transparent fee ranging from $200 – $1000 per employee per month.
We at Multiplier offer PEO solution for Germany at a cost starting from $200 per employee per month. However, the final cost depends upon the complexity of the employment laws of the employee’s jurisdiction.
Our prices are designed to ensure that you get the most out of your employee spending. Every employee hired through our German EOR also receives benefits management, HR support, and a live dashboard to track your workforce spending in real-time.
How to Hire in Germany
Germany is a strong economy with a proven record of ranking high in manufacturing, scientific, and technological sectors. These sectors contribute significantly to the the German GDP. Owing to the advancements in these sectors businesses are expanding their operations in Germany.
The country is known to have a social market economy, a growing level of innovation, and a highly-skilled workforce. Although the manufacturing, service, and technology sectors make the maximum contribution to the German GDP, the German automotive industry is known to employ a highly skilled and educated workforce. It makes a mark constantly due to its innovation and being competitive with other countries in the same industry.
Research and development efforts also form a crucial aspect of the German economy, ranking 10th globally on the Global Innovation Index.
While Germany is a leading innovator in several industries, there has been an influx of job opportunities for German citizens and foreign employees. Therefore, this has made Germany an attractive destination for businesses to hire talent and expand for better business opportunities.
With access to constantly changing technologies and the digitalization of businesses, employees now have access to a plethora of job opportunities. Therefore, you must streamline your onboarding process. Partnering with Multiplier, German EOR platform, will give you a competitive edge. Its SaaS-based PEO and EOR solutions ensure Germany’s smooth global HR operation.
Local Entity in Germany
Germany is a hub of business opportunities in several industries. With such a vast range of opportunities for businesses to expand their operations and teams, you may want to consider the types of local entities in the country. The most commonly incorporated legal forms of entities in Germany include –
- Sole proprietorship
- Registered commercial businesses
- Small businesses
- General partnerships
- Limited liability partnerships
- Branch offices
- Information offices
The governing law for businesses and their operations is the German company law (Gesellschaftsrecht). The Company Law is an influential legal regime that ensures policies are correctly implemented by all businesses (public and private companies) functioning in Germany.
German Employment laws have laid out a strict legal framework for employment contracts. Employers must generate employment contracts within 30 days of hiring an employee. Both parties must agree on all the clauses within the employment contract.
If you have found your right fit in Germany, your employment contracts must cover:
- Full name and address of the employer and the employee
- Starting date (and ending date of employment must be mentioned in case of temporary contract)
- Probationary period
- Notice period
- Job description and responsibilities
- Salary and performance-based bonus
- Working hours and workplace location
- Leave entitlement
When creating an employment contract, you can refer to the job description, compensation, responsibilities, and benefits.
You can alternatively partner with German PEO – Multiplier. Multiplier helps generate employment contracts after you have made the right hire.
Taxation in Germany
All residents and permanent residents in Germany are taxed on their worldwide income. Non-resident individuals are taxed on their income derived in Germany.
* Taxes are progressive and start at 14% up to 42%.
Partner with a German EOR platform that would help you compliantly file your payroll taxes in Germany. With a team of professionals at Multiplier, you can file payroll taxes for your employees in Germany in just one click.
Payroll in Germany
The payroll frequency in Germany is monthly. Employers typically pay their employees on or before the 25th of every month. Although not mandatory, 13th-month pay is customary. In December, the 13th-month salaries are paid to employees on their regular pay cycles.
Process your payroll for your employees in just one click by partnering with a German PEO platform – Multiplier.
Employee benefits in Germany
With a dynamic change in work culture, providing employee benefits is crucial for retaining skilled employees in Germany. You can compliantly provide employee benefits or add additional benefits on our German EOR platform without hassle.
Key employee benefits that an employer in Germany must provide include –
Employer and employee contributions towards German social security are mandatory. The German social security covers –
- Unemployment insurance
- Health insurance
- Nursing care insurance
- Accident insurance
Both the employers and the employees contribute equally to social security. However, the employer contributions must be in addition to the employee’s gross salary, and the employee accident insurance is contributed solely by the employer.
Insurance and healthcare
An employee can contribute to multiple statutory health insurances in Germany. However, only employees with an annual income of EUR 64,350 are exempt from contributing. Such employees can opt for private health insurance with the employer’s assistance. In both cases, the employer and employee contributions must be equal.
The following leaves in Germany are mandatorily provided to employees annually –
Annual leaves – All full-time employees in Germany are entitled to twenty days of annual leave (for a 5-day workweek). Therefore, an employee ideally is entitled to four weeks of annual leave in a calendar year.
Public holidays – There are ten public holidays in Germany. However, the number of public holidays differs depending on Federal Sates.
Maternity leave – All female employees in Germany are entitled to fourteen weeks of paid maternity leave. Female employees can take maternity leave six weeks before and eight weeks after childbirth. Employees can extend them to twelve weeks in cases of:
- Premature births
- Multiple births
- Birth of a disabled child
Maternity pay is provided by statutory health insurance.
There are no provisions for paternity leaves in the German employment law.
Parental leaves – All male and female employees in Germany are entitled to three years of parental leave per child. However, it is a requirement for an employer to pay employees during parental leaves.
Sickness and disability leaves – Employees are entitled to six weeks of sick leave after completing a minimum of 4 months with an employer. The sick pay during sick leaves is 70% x (gross salary for 78 weeks).
An employee with a severe disability is entitled to utilize 5 additional days of leaves in a calendar year.
Pensions in Germany
Pensions in Germany follow a ‘pay-as-you-go’ structure. There are three pillars in the pension system that the employer and the employee may contribute towards.
Alternatively, employers may provide additional pension schemes to their employees as a supplementary benefit.
Employee severance and terminations in Germany
The termination process and severance pay regulations is an area that often differs in each country. Hence, understanding and complying with the rules and regulations is essential.
Termination of employment contracts in Germany: Termination of employment contracts in Germany will be considered valid only in cases of:
- Dismissal by an employer due to gross misconduct or
- Termination by written notice
Providing a notice period when terminating employment is mandatory in Germany by both parties. The notice period depends and increases on the seniority of the employee. However, the notice period must be mentioned and agreed upon by both parties in the employment contract.
Severance payments: There are no provisions under the German employment laws about severance payments. However, employees are entitled to severance pay under a social plan called the works council. The works council ensures that the employers provide the severance pay in case of:
- A mass layoff or
- A collective bargaining agreement
Multiplier’s German PEO and German EOR solution can help you onboard your candidate and handle payroll and HR issues without worrying about setting up a subsidiary in Germany. Once you have hired your desired talent, you can start customizing employment contracts and employee benefits and compliantly pay them in a few clicks from a single platform. You can ensure compliance with local laws and pay payroll taxes while focusing on your German business operations. Hire and expand into Germany using the best SaaS-based PEO service in Germany.
Contact us to grow your business in Germany today.