As one of the largest economies in the world and the strongest in Europe, Germany is home to a highly skilled and educated workforce. For many international employers, hiring in Germany enables them to expand operations into their thriving market. Others simply want to recruit the best global talent, no matter where their employees are based. 

Whatever your company’s motivation to hire in Germany is, you’ll need to know how the legal hiring process in Germany works, the country’s most popular hiring methods, and more. We’ll cover everything foreign employers should know below.

While it can get complicated, partnering with an AuG-licensed company like Payoneer Workforce Management may help make it simple to hire employees in Germany. 

Hire employees in Germany: Options for U.S. companies

For U.S. companies, hiring in Germany can be done in three main ways: registering as a legal German entity, hiring contractors, or partnering with an Aug-licensed company. 

1) Set up a legal entity in Germany

Companies looking to hire employees in Germany can register their business as a legal German entity. However, this process can be complicated, and you’ll want to work with a team of experts to help you navigate their tax systems and business regulations. 

For major enterprises looking to set up base in a country, this could be an option. But for companies seeking flexible solutions, the cons may outweigh the pros. Registering a German entity takes a lot of work, time, and money to get up and running, with an added language barrier to navigate. 

2) Hire contractors in Germany

U.S. Companies hiring in Germany can also work with independent contractors, which works well for short-term or project-based needs. However, this approach isn’t ideal for long-term roles and comes with serious risks if misused. 

Misclassifying an employee as a contractor violates German employment laws and can lead to major penalties. 

Contractors can be a flexible solution for temporary work, but the legal and financial risks make them a poor fit for building a long-term team in Germany.

3) Partnering with a Temporary Work Agency (AuG Company) in Germany

Germany does not permit the Employer of Record (EOR) model under its labor laws. Instead, businesses must engage talent through a licensed temporary employment agency, known as an Arbeitnehmerüberlassung (AÜG) company. These agencies are required to hold an AÜG license, which is essential for any labor leasing arrangement.

Licensed temporary work agencies provide comprehensive support, including:

• Preparing employment contracts and other essential documentation
• Registering employees for payroll and statutory benefits
• Managing onboarding in compliance with German employment regulations
• Running payroll within Germany
• Offering ongoing HR and administrative assistance

These services enable companies to remain compliant with local labor laws without establishing a legal entity in Germany.

Payoneer Workforce Management operates as a licensed AÜG company in Germany, allowing businesses to engage talent without setting up a local entity.

Where to find employees in Germany

To start the hiring process in Germany, you’ll need to find German candidates for your open roles. You can access Germany’s talent pool through online job boards or recruitment agencies.

Popular job boards in Germany

Companies can post open job listings on German job sites. Keep in mind that many of these job boards are in German, so you may need to translate your listings. 

Some of the most common job boards in Germany include:

• Arbeitsagentur
• JobMESH
• Stepstone
• Indeed
• Staufenbiel
• LinkedIn
• Xing

Work with local recruitment agencies

Sometimes it can be better to outsource hiring in Germany to a specialized or local recruitment agency. They’ll have a pool of available, high-quality candidates and can help you fill roles efficiently. They can also help overcome any language barriers that may slow the process down. 

However, it’s important to consider costs because working with an external recruitment company can be expensive. Plus, their support stops once you decide to hire a candidate, leaving you to deal with onboarding, payroll, tax, and further compliance. 

Recruit through an AuG-licensed partner

Working with an AuG-licensed partner may support you in finding and selecting the candidate for your role. You may maintain control over the hiring decision while delegating administrative responsibilities.

Once the candidate is chosen, the licensed partner helps manage all employment formalities. This includes collecting required documentation, preparing a compliant employment contract, onboarding the employee, setting up payroll, calculating taxes, and more. Their support continues beyond hiring, helping you remain compliant with German employment regulations.

Onboarding employees in Germany

Onboarding your German employees in line with local labor laws is essential, not just for compliance, but also to ensure employees have a smooth experience. 

Here’s an onboarding checklist for employees you hire in Germany:

1. Send an offer letter: Make sure it includes the essential elements of a compliant German contract. Contracts should be bilingual (German and English) and include statutory elements.
2. Run background checks: Always get the employee’s written consent and only collect relevant and necessary data.
3. Add them to payroll: German employees should be paid in Euros, with the correct tax contributions and deductions.
4. Enroll them in benefits: In Germany, statutory benefits include pensions, unemployment insurance, vacation entitlements, public holidays, workers’ compensation, paid sick leave, healthcare benefits, maternity or paternity leave, and long-term care insurance.
5. Order and configure their devices: Make sure they have the necessary tools to perform their duties.
6. Schedule orientation: Set up meetings for new employees to meet the team and their manager. 
7. Organize training: Plan a few weeks or months of training to help them settle into the role and your company. 

Key employment laws and requirements in Germany

There are many labor regulations in Germany that employers need to know. Here’s an overview of the key ones to be aware of:

Employment contracts

To stay compliant, your employment contracts for German workers should have: 

• Full names and addresses of the employer and employee
• Contract start date
• Contract duration
• Probation period duration
• Place of work (where applicable)
• Job description and role duties
• Remuneration information, including salary, allowances, bonuses, and overtime
• Wage payment timelines

Employee benefits

German employees are entitled to several statutory benefits, including:

• Vacation leave: At least 20 vacation days per year for employees working 5 days per week and 24 days for a 6-day week.
• Sick leave: 6 weeks of fully paid sick leave, followed by 70% gross pay after 6 weeks. 
• Maternity leave: 14 weeks total maternity leave.
• Public holidays: 9 national public holidays, though it can vary by state.
• Social security: Employers and employees contribute to statutory insurance that covers health, pension, unemployment, and long-term care.
• Bonuses: While not mandated, most companies in Germany grant a 13-month salary or bonus to their employees. 

Working hours and holidays

Germany’s standard working hours are 8 hours per day and 40 hours per week. 

Employees may work overtime, but the maximum working hours are 10 hours per day and 48 hours per week. 

Where an employee works a 5-day work week, they’re entitled to a minimum of 20 vacation days per year. They also receive an additional 9 days off on public holidays at a federal level, though it varies by state. 

Tax obligations

Under payroll law in Germany, employers must withhold employee taxes and pay on their behalf. Here’s an overview of the tax contributions and deductions:

• Income tax: German employees are taxed under progressive tax brackets, based on their annual salaries.
• Social insurance contributions: Employer contributions total approximately 29.47%, including U1, U2, and the insolvency levy.

Termination and severance

Terminating an employee in Germany requires giving proper notice. The notice period can range from 2 weeks during probation and one month after, depending on the type of employment contract and the length of employment. 

An employee needs just cause for termination, such as misconduct, operational requirements, or performance. If the circumstances are severe, the employer may not be required to observe the notice period.  

While severance pay isn’t legally required under German law, it is common in mutual agreements or redundancy cases. The typical calculation is 50% of one month’s salary for each year of service, capped at 12 months pay (or up to 15 months for employees over 50).

Try Payoneer Workforce Management to hire employees in Germany

U.S. companies looking to hire employees in Germany should understand the various methods of hiring internationally, the legal process for onboarding German employees, and how German labor law will affect them. 

Payoneer Workforce Management helps companies engage talent in 160+ countries, without needing to set up a legal entity. 

Our unified platform provides the following services:

• Onboarding local talent efficiently
• Running payroll on a global scale, in a few clicks
• Support with managing taxes, benefits, timesheets, and more

Ready to get started? Request a call with our experts on hiring in Germany today. 

FAQs

1) What is the cost of hiring an employee in Germany?

The cost to hire employees in Germany varies based on the hiring method you use, the role, region, experience, and skillset. Typically, recruitment agencies in Germany charge hefty fees, and their support ends once you’ve found a suitable candidate, so you need to factor in the cost of onboarding, setting up payroll, and more. You may consider partnering with Payoneer Workforce Management, an AuG-licensed company for cost-effective local hiring.

2) What are the options for U.S. companies hiring in Germany?

You can hire employees in Germany by:

• Registering a legal entity in Germany,
• Hiring independent contractors, or
• Working with  an AuG-licensed company 

Registering an entity in Germany isn’t a simple process, and you’ll be solely responsible for operating within German employment law. 

With an AuG-licensed company, you may reduce risks and administrative efforts. 

What is the hiring process in Germany?

Here are the key steps to hire employees in Germany:

1. Advertise vacancies on German job boards
2. Hold interviews and select your candidates
3. Send employment contracts to your selected candidates that comply with German regulations
4. Run background checks
5. Onboard them in compliance with local labor laws
6. Get them set up on payroll

An AuG-licensed company may support staying compliant through every step of the hiring process in Germany and through the entire employment cycle of local employees.