Using an employer of record in Germany

Hiring in Germany offers foreign employers the opportunity to tap into a new labor market, but it also comes with specific challenges. Foreign companies must comply with labor laws in Germany (and anywhere else they operate), which can become complicated quickly.

An Employer of Record (EOR) in Germany softens those barriers. EORs like Payoneer Workforce Management (WFM) simplify hiring and paying employees in Germany, handling compliance on behalf of employers. 

Learn about Payoneer WFM’s EOR services in Germany, or keep reading to find out more about what an Employer of Record in Germany does.

How to hire employees in Germany

There are three main ways foreign companies can hire workers in Germany:

1. Setting up a local entity: By registering a legal entity in Germany, you’ll be able to employ directly. This is a lengthy and expensive process that involves extensive legal and compliance work. 
2. Hiring independent contractors: Rather than hiring employees, you can hire independent contractors. However, misclassifying employees as independent contractors can lead to legal trouble and significant penalties.  
3. Working with an EOR in Germany: With EOR services in Germany, companies can employ workers without setting up their own legal entity. EORs help employers stay compliant as per local labor laws, saving them time and money. 

Partnering with an employer of record in Germany

An EOR can help your company employ workers globally. The EOR acts as the legal employer, while you manage employees’ day-to-day responsibilities and tasks. 

Here are some things an employer of record in Germany can help with:

• Drawing up employment contracts and other key documents
• Registering employees for payroll and benefits
• Onboarding employees in line with German employment law
• Running payroll in Germany and beyond
• Supporting with ongoing HR needs

All these tasks, and more, are carried out in compliance with local labor laws when you choose employer of record services in Germany. 

Payoneer WFM offers EOR services in Germany and 160+ other countries, allowing employers to scale across borders with ease. 

How to onboard employees in Germany

Certain onboarding processes are critical for complying with the German labor code, but it’s also essential to provide a good experience for your new employees. 

Here’s a brief overview of the onboarding process in Germany:

1. Send an offer letter that includes all the essential elements of a compliant contract. 
2. Run background checks. Get the employee’s written consent and only collect information relevant to their role.
3. Enroll them in benefits, including retirement pensions, unemployment insurance, vacation entitlements, public holidays, workers’ compensation, paid sick leave, healthcare benefits, maternity or paternity leave, and long-term care insurance.
4. Add them to payroll and set up tax contributions and deductions.
5. Order and configure their devices. Make sure they have all the necessary tools and equipment they’ll need to perform their duties. 
6. Schedule an orientation. Help them get to know their new coworkers with team meetings, 1-to-1s with managers, and an office tour where applicable.
7. Organize training to help them settle into their role. 

An EOR in Germany can help you manage the onboarding process so your new hires can hit the ground running.

Germany payroll

The tax year in Germany runs from January to December. Payroll cycles are usually monthly, with wages paid at the end of each month. 

The minimum wage in Germany is at EUR 12.82 per hour, as of January 2025. While employers are not required to pay bonuses, it’s customary for employers to pay a 13th-month salary bonus at the end of the year, usually equivalent to 1 month’s wage. 

Employers in Germany withhold employees’ income tax and pay it to the relevant authorities. The 2025 income tax brackets in Germany are:

Taxable income range	Tax rate
EUR 0 to EUR 12,096	0%
EUR 12,096 to EUR 68,429	14% to 42%
EUR 68,429 to EUR 277,825	42%
EUR 277,826 and over	45%

Employers in Germany are also required to contribute to the social security system and deduct employee contributions from their wages. 

The total social security contributions are 21.84% for employers and 20.30% for employees, which are broken down as follows:

Social Security component	Employer contribution	Employee contribution
Pension	9.3%	9.3%
Health	7.3%	7.3%
Long-term care	1.8%	2.4 to 3.4%
Unemployment	1.3%	1.3%
Disability, maternity, and insolvency	0.64%	0%
Accident	1.5%	0%

The easiest way to pay wages and employee taxes is through an EOR. Germany payroll legislation is regularly reviewed and updated, so working with an EOR can help you stay compliant. 

Employment laws in Germany

Labor laws in Germany are not consolidated into a single code. Instead, Germany has separate laws that provide different regulations and protections for employers and employees. 

Here are some key German employment laws and regulations that foreign employers should know.

Working Hours Act (Arbeitszeitgesetz)

The Working Hours Act states that German employers must record their employees’ working hours and overtime. 

The standard working week should be between 36 and 40 hours, though the maximum is 48 hours. 

Federal Paid Leave Act (Bundesurlaubsgesetz)

The Federal Paid Leave Act entitles employees who follow a 5-day work week to a minimum of 20 vacation days per year. 

Probation periods (Probezeit)

Under the German Civil Code (Bürgerliches Gesetzbuch or BGB), probation periods can last up to 6 months.

Rest days

The Working Hours Act (Arbeitszeitgesetz) stipulates that employees are entitled to an uninterrupted daily rest period of at least 11 hours. They should also be granted at least 1 day off each week. 

Together with the 11-hour statutory daily rest period, they should receive a 35-hour uninterrupted weekly rest period.

Continued Payment of Remuneration Act (Entgeltfortzahlungsgesetz)

The Continued Payment of Remuneration Act protects the regular payment of employees on leave due to illness, injury, and other reasons.

Minimum wage in Germany

From January 2025, Germany’s minimum wage is:

• Per hour: EUR 12.82 ($14.89)
• Per 40-hour week: EUR 512.80 ($595.6)
• Per month: Roughly EUR 2051.20 ($2,382.40)

Germany’s government regularly reviews and updates the minimum wage to ensure it aligns with the cost of living and inflation. For example, the German government recently announced that the minimum wage will increase to EUR 14.60 ($16.95) by 2027. They’ll achieve this by raising it twice between 2025 and 2027. 

Germany employer of record services can help monitor minimum wage regulations to keep your business compliant and competitive.

Employment contracts in Germany

While verbal contracts can be legally binding in Germany, it’s best practice to have a written agreement in place. 

This helps employers stay compliant and provides documentation of key employment details. 

 Employment contracts in Germany should include:

• Names and addresses of the employer and employee
• Contract start date
• Contract duration
• Probation period and duration
• Place of work
• Job description 
• Remuneration, including salary, additional allowances, bonuses, and overtime
• Leave allowances
• When salary will be paid

Leave policy in Germany

German employees are entitled to various types of paid time off and leave, including:

Leave	Policy
Public holidays	9 federal public holidays, though it can vary by state
Vacation days	At least 20 days per year
Paid sick leave	6 weeks of paid sick leave. After 6 weeks, health insurance covers 70% of gross salary or up to 90% of net salary for up to 78 weeks within 3 years of an illness.
Maternity leave	14 weeks or for premature or multiple births, 18 weeks
Parental leave	14 months with access to a parental allowance, which varies based on duration and regular salary

This is a brief overview of leave policies in Germany. Employer of Record partners can help keep you on track when granting leave to employees, keeping your company compliant with statutory minimums. 

Work permit in Germany

In Germany, work permits are granted in conjunction with residence permits that include work authorization. 

Citizens of countries outside of the European Union (EU) and European Economic Area (EEA) will need both a work permit and a residence permit. 

There are various types of work permits in Germany, including:

Visa type	Description	Cost (approx.)
EU Blue Card	For graduates with recognized qualifications and a salary over EUR 48,300 (unless it’s a shortage role)	EUR 75 ($88)
Work visa for qualified professionals	Skilled workers with recognized qualifications	EUR 75 ($88)
Visa for professionally experienced workers	For third-country nationals with qualifications and experience	EUR 75 ($88)
Recognition partnership visa	Allows work during the qualification recognition process	EUR 75 ($88)
Opportunity card (Chancenkarte)	A points-based option enabling job search	EUR 75 ($88)

It can take anywhere between 1 and 3 months for a German work permit to be issued. 

Background check in Germany

Background checks are common in Germany. Employers often run background checks after making a conditional offer but before an employee starts work.

While there aren’t any specific German laws governing background checks, employers need to comply with privacy regulations, like the EU’s General Data Protection Regulation (GDPR) and Germany’s Bundesdatenschutzgesetz (BDSG). 

Complying with GDPR and BDSG means:

• Obtaining a candidate’s explicit, written consent before running a check
• Informing candidates about what information you’re collecting and why
• Not using information collected through a background check to discriminate against a candidate based on race, age, gender, sexual orientation, religion, or any other protected characteristics under Germany’s General Equal Treatment Act.

Some standard background checks in Germany include:

• Employment background verification
• Education verification
• Reference check
• Criminal record check
• Social media screening
• Credit check
• Medical history check

Employment termination in Germany

German employment contracts can be terminated by mutual consent, whether through notice or the expiration of a fixed-term contract. 

Notice periods depend on employment contracts and the length of service and can range from 2 weeks to 7 months.

In any other circumstance, employers need just cause to terminate an employee in Germany. Just cause includes misconduct, operational requirements, or performance issues. In severe circumstances, employers may not be required to provide notice of dismissal.

Under the Dismissal Protection Act (DPA), redundancy is an ordinary termination. However, before carrying out mass redundancies, employers should consult with the German works council. 

Severance pay isn’t a legal requirement in Germany, though employers usually pay 50% of an employee’s monthly salary per year of service. 

Company registration in Germany

To set up a private limited company in Germany (Gesellschaft mit beschränkter Haftung or GmbH), you’ll need to:

1. Create the Articles of Association (Satzung)
2. Apply to the Commercial Register (Handelsregister)
3. Open a business bank account

Once registered, you’ll need to apply for business insurance, pay taxes, and more. More information is available on the Gewerbeanmeldung website.

For a simpler alternative, many businesses choose Employer of Record services in Germany to hire employees without going through the full company registration process.

PEO in Germany 

A PEO (Professional Employer Organization) and an EOR (Employer of Record) both help with HR and payroll tasks when building an international team. However, there are some important differences to consider.

While PEOs are useful for outsourcing HR tasks, they won’t act as the legal employer for your employees in Germany. That means you still need to establish a legal entity in Germany if you want to hire employees there. 

An EOR, on the other hand, legally employs workers in other countries on your behalf. Plus, they handle related HR, compliance, tax responsibilities, and more. EORs let you completely bypass the company registration process, saving you time and money.

That’s why most U.S. businesses choose to partner with an Employer of Record. Germany is full of talent ready to work for your business; you just need the right EOR partner. 

Payoneer WFM: Leading EOR services in Germany

Payoneer WFM operates in more than 160 countries as an Employer of Record. Germany is just one location where you can hire. 

We help you onboard foreign talent, create localized contracts, and manage payroll in multiple currencies, while staying compliant with local labor laws. 

FAQs about Germany employer of record

1) Is employer of record legal in Germany?

Yes, using an EOR in Germany is legal. It’s also one of the most cost-effective and time-efficient ways to hire employees in Germany. Employer of Record services include acting as the legal employer for your employees abroad and assuming the related compliance responsibilities. You manage your employees’ day-to-day tasks, and your EOR handles the rest. 

2) Do companies do background checks in Germany?

Yes, it’s common for companies in Germany to conduct background checks on their employees. However, all background checks must comply with privacy regulations, such as GDPR and BDSG.

3) How much does an employer of record in Germany cost?

The cost of EOR in Germany varies with the provider. For instance, Payoneer WFM’s EOR pricing starts from around $299 per month per full-time employee. EOR services in Germany are a more cost-effective option than registering a local entity.