Employment Law

Fixed Term

Indefinite

German Employment Contract

German law requires employers to prepare formal employment contracts for employees. These contracts should include various terms of employment such as wages in local euros), termination rules and any benefits.

When we hire employees and become their official German employer of record, we can provide employees with temporary (fixed-term) or permanent employment contracts.

To avoid terminating an employee's employment contract once the employee is no longer on probation is not an easy matter, it may be helpful to offer the employee a temporary contract for 18 months. While this best-case scenario helps avoid any complications later on, many employees are hesitant to sign a temporary contract.

Therefore, the contract duration is indeed determined by our end client and employee, but parties need to be informed that if the employment contract is for longer than 18 months, or is effectively permanent, deployments to the end client will only last for a maximum of 18 months .

German Working Hours

German employees generally work from Monday to Friday, with a maximum of 8 hours a day and a maximum of 48 hours a week. The law stipulates that overtime hours must not exceed 12 hours per week.

Employment Benefits in Germany

It is important to understand what benefits your employees in Germany are legally entitled to or can expect to receive.

Vacation in Germany

In Germany, any employee who works five days a week is entitled to 20 days of annual leave, and any employee who works six days a week is entitled to 24 days of annual leave. However, most employers offer 25 to 30 days of annual leave as standard. Additionally, many employers offer year-end bonuses, although this is not required by law.

Social Welfare in Germany

Employers and employees in Germany must contribute equally to the social security system, which includes pensions, medical insurance, unemployment insurance, etc. In addition, accident insurance is required but must be exclusively covered by the employer. For employers, the total contribution to mandatory social benefits is usually an additional 20% of each employee's salary.

In addition to these mandatory benefits, many employers offer other benefits such as housing allowance, more comprehensive private health insurance and more.

Taking Sick Leave in Germany

In Germany, employees are entitled to at least six weeks of fully paid sick leave if they can provide a medical certificate. After this period, employees will have 70% or more of their salary paid through health insurance.

Maternity and Paternity Leave in Germany

Mothers are entitled to six weeks of fully paid leave before childbirth and eight weeks after childbirth. In the case of multiple births, the postpartum leave can be extended to 12 weeks.

In addition, either parent can take up to three years of unpaid leave to care for a child, and the government scheme also provides benefits for new parents for the first 12 to 14 months, with benefits being means-tested.

Notification Period in Germany

The process of terminating an employee in Germany can be complex. Standard dismissal requires the employer to comply with a mandatory notice period, which varies depending on the length of time the employee has been with the organization:

* Notice periods are effective from the end of the month unless otherwise stated

• Trial period (maximum six months) = two weeks
• After probation period but less than two years = four weeks (effective from the end of the month or the 15th of the month)
• More than two years = one month
• More than five years = two months
• More than eight years = three months
• More than ten years = four months
• Over 12 years = 5 months
• More than 15 years = six months
• More than 20 years = seven months

These longer periods are not uncommon and should be stipulated in the employment contract. Additionally, full salary is required throughout the notice period. In Germany, it is uncommon for payment to be made in lieu of a notice period.

Employee Severance Pay and Termination of Contracts in Germany

For companies expanding overseas for the first time, handling employee layoffs and dealing with severance packages can be complicated, as German labor laws protect employees well.

In practice, the termination scenario differentiates whether the employee holds a permanent or temporary employment contract.

Once an employee exceeds 6 months of employment, they are protected by the Termination Protection Act (Kündigungsschutzgesetz), which means that they are indeed entitled to severance pay if their employer terminates their permanent employment relationship.

The calculation method of statutory severance pay = total monthly salary * 0.5 * working years.

To calculate years of service, you need to round up or down to the nearest year.

Although employees may claim that they are entitled to commission, they are not entitled to a redundancy bonus if this is included in an addendum to their employment contract. Any bonuses/commissions are paid at the sole discretion of the employer.

However, if the employment relationship is terminated due to the conclusion of a temporary contract and the only reason for the termination is the expiry of the employment contract, there is no entitlement to severance pay or a termination bonus. A temporary contract is something an employee agrees to before starting employment.

In addition, if the employer terminates the labor contract before it expires, the employee is entitled to economic compensation.

Please also note that any accrued but untaken holiday will need to be paid upon expiry/termination of the employment contract.

German Tax Law

German income tax is progressive, ranging from 0% to 45% depending on income level. The corporate tax rate is 15%, but additional charges such as the solidarity surcharge and trade tax bring the total contribution level to approximately 30%.

Remoly's German Employer of Record and PEO can help your business as you navigate the country's complex labor laws.

Health Insurance in Germany

Germany has a socialized healthcare system and all residents are entitled to free necessary care. However, employees (and their employers) who earn above a certain income must also contribute to the Social Security Fund.

Salary and Benefits

German Compensation Law

As of 2020, the minimum wage in Germany is €9.35 per hour. This number is likely to increase slightly year over year. Overtime pay must be stipulated in the employment contract .

Welfare Management in Germany

Understanding and setting up employee benefits in Germany can be difficult and can require significant time, effort and investment from the employer. However, it's critical to comply with payroll and benefit laws because if you don't, you could face hefty fines and legal issues.

Outsourcing your benefits administration processes ensures you fully understand and follow the rules, ensuring your compliance and significantly speeding up the process. At Horizon, our German PEOs have employment experts who will help you find and organize your benefits, advise you on your strategy, and ensure legal compliance.