Employer of Record Germany
Apart from being one of the most powerful nations from a geopolitical perspective, Germany is also a desirable market for new investors and business owners. It is one of the largest economies in Europe and the fourth largest country globally. However, for a new business to extend its operations in Germany, it can get complicated during the initial processes. Therefore, we at Infotree Global are always here to assist you as your Employer of Record in Germany and ensure the entire process is seamless.
Table of Contents
Hiring in Germany
The typical hiring process in Germany usually includes an online application as it is a convenient and straightforward way for both the applicants and the employer. Applicants usually apply for a given position through a cover letter providing information about their qualifications and previous work experience. The further process includes an interview. The employer can choose to quit the employment agreement during the process if the applicant presents false information.
Moreover, local laws do not allow the employer to ask a female applicant whether she is pregnant. However, the requirement of asking whether the applicant has a criminal record or not is expected. The hiring process in Germany can be long and tiring for new businesses in a new market. Therefore, it is ideal to take timely assistance and guidance from an experienced Employer of Record in Germany to avoid any hassle during the hiring process.
While setting up a new business in Germany, an employer must have a detailed insight into employment compliance. These processes usually include rules and regulations concerning working hours, compensation, probationary period, and termination. While the process is usually straightforward, it can also get complicated for a new business in an entirely new environment. Therefore, we at Infotree Global help our clients as their German Employer of Record to make the process easy.
Working hours – The working time act regulates its rules and regulations concerning working time in Germany. According to the law, the maximum daily working time should not be more than 10 hours. However, usually on business days, the limit is an average of 8 hours per day. Moreover, there is no limit on the minimum working time as it can depend on individual agreements listed in the employment contract agreement between the employer and their employees. The collective agreement may include different provisions that will govern the employment relationship between an employer and their employee, subject to changes and extensions depending upon the agreement.
Compensation – Germany has a specific rule for the minimum wage at the latest amendment in 2022. As per the amendment, the limit for minimum wage is 12.50 euros per hour. However, the law also recommends specific exceptions, including interns, long-term unemployed candidates, and candidates working under 18 years of age. The rules are so strict that an employer may have to pay a fine of up to Euro 500,000. Employers are also required to pay employers for overtime work, but it should not exceed more than 60 hours a week. However, it is equally necessary to know that Germany does not have any rules concerning overtime and compensation as it can be agreed upon between an employer and employee.
Probation Period – In Germany, there is no rule to govern the duration and other matters concerning the probationary period in organizations. However, the common practice recommends providing a probationary period of up to 6 months. During this period, there is also a possibility of terminating the employment contract. In such cases, it is necessary to provide a notice of two weeks by the employer and the employee, but there is no comparison in explanation.
Bonuses – Employees working in Germany get an annual Christmas Bonus, popularly known as the 13th-month bonus. Although it is not necessary as per the law, certain collective agreements between an employer and their employee may require the former to pay the Christmas Bonus to their employees. In addition, as a common practice in Germany, employers also provide vacation bonuses to their employees. While it can get confusing during the initial period for a new business in Germany, it is equally necessary to understand the importance of proper guidance throughout payroll management processes. We at Infotree Global can work as your German Employer of Record to simplify the process.
Termination and Severance – An employer in Germany may terminate an employment contract by either providing notice of termination or with an immediate effect. However, it is necessary to know that ordinary and extraordinary terminations can subject the agreement to legal restrictions. German civil code applies if an employment contract is terminated with immediate effect. According to this law, an employer may not continue the employment relationship after the end of the ordinary notice period. In such cases, the management of termination and severance gets complicated, which is ideal for taking guidance from an experienced Germany Employer of Record to make the process seamless.
Germany has no legal requirements for severance. In such cases, employees are entitled to these payments only if a social plan covers them and works with the council. Moreover, collective bargaining agreements can also provide for severance. Usually, both parties agree on provisions of the employment contract to avoid any legal proceeding concerning termination effectiveness.
Employee entitlements include maternity leave, paternity leave, vacation, health benefits, and pension. It is essential for a new business extending its operations in Germany to know about employee entitlement as it is a basic requirement. However, while it is an important requirement, businesses must not miss out on getting the right guidance at the right time while expanding their operations in a new country. In such cases, it is ideal to get help from a Germany Employer of Record to manage employee entitlements better.
Maternity leaves – German law provides that an employee is entitled to up to 14 weeks of maternity leave, covering six weeks before and eight weeks after the child’s birth. Moreover, the employee is also entitled to take three weeks of leave in the case of multiple births and premature birth. Entitlement is also applied in the case of a child with a disability.
Sick Leave – As an employee working in Germany, an individual is entitled to a paid sick leave of up to 6 weeks. During this period, an employer is responsible for paying a full salary, which is often termed as continued remuneration. However, if an employee has just started their job and they fall sick within the first four weeks, it is not mandatory for the employer to pay for it. In such cases, an employee can request the public health insurance cost to release the payment. However, if the management is facing any problem getting the request approved, a local representative working closely with Germany Employer of Record can be a great help.
Vacation – Employees working in Germany are entitled to a minimum holiday duration of up to 24 working days every year. However, it is equally important to note that the duration is based on working periods, not including Sundays. Furthermore, the entire vacation entitlement begins only after an employee has completed at least 6 months with your employer. In the case of termination before this period, the employee will be entitled to only 1/12 of the annual vacation entitlement.
Pension – The German pension system stands in the 13th position in the world. Irrespective of whether a candidate chooses to stay in the country or move abroad, it is necessary to make the decisions concerning pension contribution. The three-pillar pension system includes mandatory state pensions, company pensions, and private pensions. According to the current system, the official age for both men and women in the country is 65 years. However, speculations revealed that the same number will increase to up to 67 years by 2029.
Pensions are an important part of taking care of employee entitlements for a new business expanding in an entirely new environment. Such cases require expert guidance from the experienced Germany Employer of Record to avoid any further complications. .
Health Benefits – Employees working in Germany are also eligible to get health insurance coverage. State Health insurance and Private Health Insurance are two significant categories catering to the same issue. State Health Insurance is mandatory for certain groups, including employees working within the limit for general commercial insurance. It is also applicable for candidates eligible for pension as long as they fulfill the qualifying periods.
Paternity Leaves – There is no statutory requirement in Germany concerning paternity leave. However, a common practice is to take parental leave where each parent is entitled to up to three years of leave per child. Fathers can begin their parental leave during childbirth, but they also have to take at least a part of their parental leave before the 3rd birthday and end the period before the 8th birthday.
Other Benefits – Other employment benefits in Germany include social security covered by the national social security system. The cover also provides for health care and insurance apart from the compulsory Maternity and paternity leave as per the employment contract. Although there are no official rules and regulations concerning several categories of employment entitlements, employment contracts play an important role in defining the limitations and significance of these benefits.
Payroll & Tax in Germany
Germany’s payroll and taxation system has different categories of taxation for corporate entities and individuals working with them. These include social security contributions, corporate income tax, and value-added tax.
Infotree Global is one of the leading Employer of Record in Germany with years of experience in different markets as an employer of record supporting thousands of businesses in managing the management of their taxation. Therefore, if you are also about to take your business to the next level by expanding it in the German market, you can always reach out to us for best-in-class guidance and assistance in business expansion.
VAT – The value-added tax in Germany stands at 19%, especially for Merchandise purchased within the local territory. There are specific rules and regulations in case of a refund and export by an abroad customer. The refund is an advantage that the German government grants to business houses. It is the middleman to the end customer. Therefore, a value-added tax plays an important role in the entire taxation system of Germany.
Corporate Tax – The corporate income tax is applicable at 15%, in addition to a surcharge of 5.5 %. This surcharge is termed a quality surcharge which increases the total tax rate up to 15.825% in certain cases.
Social Loads – Better known as social security contributions, social security tax is a mandatory requirement only for employees as for employers, it is generally tax-free. The contribution for pension insurance tends to be at 9.30%, while the unemployment insurance contribution accounts for 1.20%. The contribution for health insurance is 7.90% and 1.525% for long-term care insurance. In addition to this, the employer is responsible for contributing towards insolvency contribution at a rate of 0.12% but only if it qualifies up to the income limit of Euro 85,200 annually.
Employment Laws in Germany
The employment law structure in Germany follows a different and consolidated system that does not come under a single labor code. Therefore, the country has different statutes to cover essential employment laws. However, it is also necessary to know the main focus of German law to understand employment rules and regulations to protect employees and employers. The law aims to protect their legal status so that there are several provisions to take care of their interests. Therefore, the law requires having a written employment contract between the employer and the employee.
There are different rules and regulations for available work time and vacation so that there is little to no dispute between private organizations and public institutions. Germany also has exceptionally rigid rules concerning the termination of employees depending on the tenure and whether the employer has given notice after seven months before the termination or not. Therefore, a new business may find it difficult to adjust to an entirely new market requiring expert guidance from an experienced Employer of Record Germany to work closely with. This can be a huge advantage for business owners to scale their businesses in the German market.
Work Permit and Visa in Germany
In addition to this, any foreign candidate can apply for a German Visa if they satisfy several conditions to work in the country. The eligible categories for applying for a German visa are divided into two categories: highly qualified for hours and intra-corporate transferees. Individuals qualifying as highly qualified candidates can include researchers processing special technical knowledge and teaching candidates eligible for prominent positions. The next category includes general managers and specialists.
Foreign employees looking forward to working in Germany require a German employment visa to settle and work in their profession. Suppose the candidate has an opportunity to live and work in the country for two years and requests an extension on the visa. However, if a candidate wants to go for a residence permit, they can apply for an EU blue card.
Challenges When Expanding into Germany
According to research, Germany ranks 114 in the ease of setting up a new business. However, a foreign business is likely to experience several challenges while expanding its business operations in the country. While working closely with an Employer of Record Germany can help deal with these challenges, it is equally necessary to be aware of them.
- If we look at the process of starting a new business in Germany, it is pretty complex. Due to the modern Outlook and global standing, Germany requires foreign companies to navigate a long process that can take several months. Moreover, the law also requires businesses to liaise with the local authorities, commercial register, and Office of Business and Standards to comply with the regulations.
- The fiscal system of Germany is complicated for a new business to navigate. Corporations need to comply with the standard and pay for most nine categories of different taxes for a financial year which can take more than 200 hours.
- Contract important and insolvency resolution is also a complicated process for foreign businesses in Germany. The existing legal system in Germany takes about 395 days to complete the process and resolve the insolvency matter.
- The Cultural and linguistic difference is also a significant challenge for new businesses set up in Germany. It requires them to have sufficient cross-cultural awareness so that we can ensure a balance between the business landscape and German culture. Moreover, businesses must also know that hierarchy has significance in the German culture and the legal system involving different procedures and policies that can affect the efficiency and speed of a business to implement its plans.
Benefits of Employer of Record in Germany
To simplify your expansion process let Infotree Global assist you to deal with all the complexities. Be it hiring employees or distributing payroll or taking care of expenses, we are there to assist you at every step. Partner with us and start your global business without worries.
Market Access – Relying on the professional expertise of an Employer of Record is the best way to enter an unknown market quickly. By using Employer of Record services, an international organization can avail the expertise of German employees to work for its company. Besides quick access to the German market, the EOR also enables the client to ease off worries related to payroll and HR.
In-Country Laws – It is hard to ignore the importance of regulations and compliance in a foreign country. If you are operating a business in Germany you need to be well aware of the payroll and taxation rules. With German Employer of Record services, a company can hire a foreign individual or local employees and deal with the complexities of the country’s rules. Be it income tax, social security contribution, expanse management, withholding charges, or business tax, an EOR company takes care of it all with total compliance.
Diverse Solutions – No matter whether you already have a company in an international location or you are going to establish one, an employer of record can help you significantly. The EOR Company can hire staff on your behalf without having the need of setting up a branch in Germany. If your company is already operating, using EOR for managing payroll tasks can be a great idea as they can present an effective solution to tax and accounting responsibilities in the country.
Why Infotree Global Solutions?
Infotree Global is dedicated to providing professional assistance to help you set up a business in Germany. We provide the support of our in-country team of professionals to undertake all the legal formalities associated with employment in Italy and help you stay compliant with country labor laws. Owing to our rich industry experience, we help you hire the most talented individuals for your company and embrace all payroll-related jobs. Thus, we help you save time without worrying about legal hassles so that you can stay focused on your expansion endeavors. With our global payroll and employer of record solutions, you can experience professional assistance at every step and expand your business without worrying about legal complexities.
Make the most of our professional services and overcome the challenges associated with international hiring. If you want to partner with our Italy Employer of Record and need assistance, connect with us.