A message lands in your inbox.
“Hey, I was thinking of spending the next few months working from Berlin. Is that okay?”
You want to say yes. They’re doing the same job, just in a different location. And this type of freedom is why you built a global team.
The moment your employee lands in Germany, the legal and tax framework around their employment changes completely, and most companies are unprepared for it.
Multiplier’s Global Hiring Gap report confirms that this is a growing challenge for many teams: only 8% of companies state they’re confident about getting global compliance right.
That means 92 out of every 100 companies managing cross-border employment know they’re operating in a grey area, aware of the risk but unsure if they’re actually compliant.
So before you sign off on anything, here’s what you need to know about navigating the German legal system.
The question HR is suddenly getting everywhere
This isn’t a one-off request anymore, but a growing pattern UK employers are seeing.
Your employees want flexibility. To be closer to their family or experience a new city.
Their request comes in casually, often framed as temporary. But once you approve it, “temporary” can easily turn into months. And when those months pile up, they create a permanent legal obligation you didn’t plan for.
What changes the moment your employee crosses the border
Once your UK employee starts working abroad, the tax jurisdiction, the employment law, the social security obligations, and your company’s corporate tax exposure change.
Your employee is now working in Germany, and they’re not just a team member in a different time zone. Their employment contract, role, reporting line, and salary remain the same, but their relocation triggers the German tax law, employment protections, and regulatory expectations.
The fact that you’re a UK company paying them through UK payroll doesn’t make those obligations disappear, because employment law follows the location of work, rather than the location of the employer.
Tax residency and the 183-day rule
If your employee spends more than 183 days within 12 months in Germany, they become a German tax resident and the country has the right to tax their worldwide income.
The UK-Germany Double Taxation Agreement allows Germany to tax income if the work is physically performed in their country, even if they spend less time there.
For example, if your UK employee spends four months working full-time in Berlin, Germany can claim taxing rights on their salary earned during that period even if they’re not a full tax resident yet.
The Double Taxation Agreement protects your remote worker from being taxed twice (by both Germany and the UK), but in practice, it determines which country gets to tax the income first.
For the employee, this means they may need to file a German tax return and pay income tax on their earnings while working from Berlin.
For you, it raises the question of whether you’re withholding the right tax and reporting it to the right authority.
Most UK employers whose employees work abroad continue running payroll as usual and assume PAYE covers it. But it doesn’t if the work is done in Germany.
Permanent establishment: the risk most companies miss
Permanent establishment (PE) is a taxable presence in a foreign country. If German authorities determine you have created a PE in a foreign country, you’re liable for German corporate tax linked to that presence.
You don’t need to have an office there to trigger a PE. Here’s how it can happen:
- Fixed place of business: If your UK employee is working from the same location in Germany regularly (even a home office), and that location is at the disposal of the company for business purposes, it can constitute a fixed place PE
- Dependent agent: If your employee has the authority to conclude contracts on behalf of the company and is exercising that authority in Germany, they can create a dependent agent PE
- Construction or installation project: Less common for remote knowledge workers, but if your company is conducting a project in Germany that lasts more than 12 months, it can trigger a PE
The fixed place of business is the biggest permanent establishment risk that remote workers can trigger.
A single UK employee, working from their flat in Germany for several months, can create a taxable presence for the entire company, depending on their authority and responsibilities.
The consequences are serious. You’ll need to file German corporate tax returns, face potential audits, and pay taxes you never budgeted for.
Which employment law applies? UK, German, or both?
Your employee has a UK employment contract; they’re paid in pounds, but they’re temporarily working from Berlin. Which employment law applies?
Under the Rome I Regulation, the employment contract is governed by the law of the country where the employee “habitually carries out their work.”
So when your employee moves to Germany and works there for an extended period, German employment law may apply even if the contract says it’s governed by English law.
And Germany has stronger employment protections than the UK in several areas:
- Dismissal protections: The German Dismissal Protection Act applies to employees after six months. Dismissals must be justified (personal conduct, operational reasons, etc.), and the process is more rigid than in the UK
- Working time: The German Working Hours Act limits daily working hours to eight hours (extendable to 10 hours) and mandates an 11-hour rest period between shifts
- Holiday entitlement: The German Federal Holiday Act mandates a minimum of 20 days for a five-day work week (24 days for a six-day work week)
Even if the contract remains under UK law on paper, German authorities may still apply German protections if the work is performed there.
And if you need to terminate the employment contract, you could be facing a German unfair dismissal claim under German procedural rules, not the UK ones.
Social security: which country gets contributions?
If your employee is working in Germany temporarily (less than 24 months), they may be entitled to remain in the UK social security system under the UK-EU Social Security Coordination Agreement.
They will need an A1 certificate (formerly an E101), which is issued by the HMRC and confirms that the employee remains subject to UK social security legislation, so they continue paying National Insurance.
But there’s a catch.
To get the A1 certificate, the employee needs to prove that their work is “genuinely temporary,” and that they’re still “meaningfully connected” to the UK employer. For example, the assignment has a defined end date, and the employee is expected to return.
But if your employee plans to stay in Germany indefinitely or if the HMRC concludes that the arrangement seems permanent, they may not grant them an A1 certificate.
If that happens, both you and the employee become liable for the German social security contributions, which are higher than the UK National Insurance.
In 2025-2026, the combined employer and employee contribution rate in Germany is around 38.74% of gross salary (covering health, pension, unemployment, and long-term care insurance).
For UK employers used to NI rates of 15% (employer) and 8% (employee) as of April 2025, German social insurance costs represent an increase, with employer contributions alone rising from 15% to 19.42%.
And if you fail to register and make contributions in Germany when required, you’re exposed to penalties and back-payments.
Work authorisation: do they need a visa?
Post-Brexit, UK nationals are no longer EU citizens, and that changes the rules.
Your employee can enter Germany (and the Schengen Area) without a visa and stay for up to 90 days in any 180-day period as a visitor. But they cannot work during that time under visitor status, even if they’re working remotely for a UK employer.
For working from Germany, they’ll need a residence permit with work authorization.
Getting a work permit as a UK national is not automatic. It requires:
- Proof of employment or income
- Health insurance
- Proof of accommodation and financial means
- Registration with local authorities
Processing times vary. Some cases are resolved in weeks, others take months, depending on the local immigration office.
While your UK employee waits for their permit, they can’t show up in Germany and start working while they sort out the paperwork. By doing so, they’re putting themselves and the company in breach of German laws.
They could be facing fines, deportations, or a ban on re-entry. And your company becomes liable for employing someone illegally, even if you don’t have an official entity in Germany.
Your three options: UK payroll, shadow payroll, or EOR
So your UK employee still wants to work from Germany, and you want to make it work. What are the practical routes?
Each approach to hiring in Germany has different trade-offs between cost, compliance, and control.
Option | How it works | Limitations |
UK payroll only | The employee remains on the UK payroll with standard PAYE and NI deductions. No German registration or filings. | Ignores German tax, social security, and employment law obligations entirely. Creates significant PE and compliance risk for stays beyond 90 days. |
Shadow payroll (Germany) | UK payroll continues as usual. A parallel German payroll calculates and withholds German income tax and social security. | Administratively complex and expensive to maintain. Requires German tax registration and ongoing compliance filings. Doesn’t eliminate PE risk or German employment law exposure. |
Employer of Record (EOR) | Multiplier becomes the legal employer in Germany with a locally compliant contract. You retain operational control. No PE risk, shadow payroll, or German entity required. | Employment relationship transfers to the EOR entity, requiring a transition discussion with the employee. Most practical for arrangements lasting over three months. |
Option 1: Keep them on UK payroll
Most UK companies take the route of keeping the employees on the UK payroll and deducting UK tax and NI.
This works if the employee is only going for a few weeks, and it’s really a short-term trial or temporary arrangement, if they receive the A1 certificate.
And if they don’t, plus they stay in Germany for months or have any client-facing or decision-making responsibilities in Germany, you’re exposing yourself to tax residency, PE risk, social security compliance, and German employment law.
And if HMRC, the German authorities, or the employee themselves challenge any of that, your company has no defense.
Option 2: Shadow payroll in Germany
Shadow payroll means you pay the employee through UK payroll, but you also register in Germany as an employer to deduct and pay German taxes and social contributions to the German authorities.
This works for situations where your employee is working in Germany long-term, and you want to retain direct employment and control.
Here’s what you will need to do:
- Register with the German tax office and social security authorities
- Appoint a fiscal representative in Germany
- Calculate and withhold German taxes and contributions
- File monthly and quarterly returns
- Issue German-compliant payslips
This is complex and costly to run. It requires in-house expertise or a third-party payroll provider with German capabilities.
With all that, shadow payroll doesn’t fully eliminate the PE risk and the need to comply with the German employment law.
Shadow payroll makes sense if you have several employees in Germany and want to maintain direct employment while eliminating the PE risk. But for one or two remote workers, it requires a disproportionate amount of resources.
Option 3: Employer of Record (EOR)
Working with an EOR partner like Multiplier means they become the legal employer in Germany, handling all local compliance while you retain full control over the employee’s work.
The UK employee moves to a compliant German contract, but they keep reporting to you and working on your projects.
This option is perfect when you want compliant German employment that lasts over three months without having to set up an entity, manage shadow payroll, or navigate the local compliance.
Working with an EOR company in Germany costs more than keeping someone on the UK payroll and requires a conversation about the transition with the employee.
However, it eliminates permanent establishment risk, ensures local compliance, and keeps your UK company outside of the complex German regulatory system.
How to handle the conversation with your employee
After receiving the request, say:
“Let me look into what this involves. There are tax and legal implications we need to understand before we can confirm.”
Saying “yes” without doing the groundwork could put both of you in a difficult position if you later realise you can’t employ them compliantly.
Be transparent about the complexity and explain that working from another country triggers tax, employment law, and visa rules that affect both of you.
Then, collect necessary information and set the timeline for making the decision.
Ask:
- How long are they planning to be there?
- Is this definite or exploratory?
- Do they have the right to work in Germany, or will they need a visa?
Consider whether their role is client-facing, if they sign contracts, or manage revenue-generating work, as this could trigger PE.
If you choose to go the EOR route, explain to them what changes.
Be clear that moving to an EOR means their employment relationship formally transfers.
They’ll have a new legal employer (the EOR), a German employment contract, and German payroll. On paper, they’re employed by the EOR entity in Germany. But they’re still a part of your team.
Frame it like this:
“To make this work compliantly, you’d need to move to an EOR, basically a new employer on paper, but we want to make sure you’re comfortable with that before we proceed.”
If the compliance burden is too high or the added cost doesn’t work for you, it’s okay to say “no” and set clear boundaries around where they can work from.
What Multiplier does when this request lands
When a UK-based company asks us about an employee working from Germany, we evaluate the situation, recommend the right route, and handle compliant German employment if an EOR is the best solution.
Multiplier offers:
- Compliant payroll infrastructure: Automated German income tax, social security, and statutory benefit calculations every cycle, eliminating compliance risks
- No entity required: We serve as the legal employer in Germany, eliminating PE risk and avoiding lengthy entity setup
- Work permit support: We handle residence permit applications and visa documentation for UK nationals working in Germany
- Local expertise: Germany-based HR and compliance specialists provide up-to-date regulatory guidance on employment law and tax obligations
- Transparent pricing: All-inclusive monthly fees with no hidden charges for clear budgeting
Ready to handle cross-border employment properly? Discover how UK companies employ talent in Germany compliantly with Multiplier — book a demo today.
FAQs
Does the 183-day rule mean my employee can work in Germany for 182 days with no issues?
No. The 183-day rule determines tax residency, not whether Germany can tax income. Under the UK-Germany Double Taxation Agreement, Germany can tax salary earned for work physically performed there, even before 183 days.
Can one remote employee create a permanent establishment in Germany?
Yes. If the employee works regularly from the same location in Germany (even a home office), it can trigger a fixed place PE. If they have the authority to conclude contracts on behalf of the company and regularly exercise it in Germany, that creates a dependent agent PE.
What is shadow payroll and when does a UK company need it?
Shadow payroll means keeping the employee on UK payroll for payment, but also registering as an employer in Germany to withhold German income tax and social security contributions, which are then reported to German authorities.
UK companies need it when an employee works in Germany long-term, but the company wants to retain direct employment rather than using an EOR.
Does my employee need a visa to work in Germany after Brexit?
Yes. Post-Brexit, UK nationals need work authorization to work in Germany, even remotely for a UK employer. They can visit for up to 90 days in any 180 days, but working remotely from Germany on a visitor visa is illegal. For any work activity, they need a residence permit with work authorization from day one.
Does using an EOR completely remove permanent establishment risk?
Yes. When you use an EOR, the employee is legally employed by the EOR's German entity, not your UK company. Since the EOR is the legal employer conducting business in Germany, there's no permanent establishment risk for your UK company.
How long does it take to set up an EOR in Germany?
With Multiplier, onboarding in Germany takes 3-5 business days . You're using the provider's existing German entity rather than creating a new one, so setup is fast. The timeline depends on how quickly employment contracts are finalized and the employee provides the required documentation.
