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Employer of Record in Germany

Access to top-tier global talent presents tremendous opportunities for any growing company. However, hiring internationally holds a host of challenges, including onboarding, payroll management, employee benefits, and adherence to tax regulations.

That is why modern and agile companies are turning to the Employer of Record (EOR) service to bypass all these hurdles. With an EOR solution, you can hire talent anywhere in the world without the hassle of setting up a legal entity. If you want to hire talent in Germany, for example, you can simplify and streamline the entire process by leveraging employer of record services.

In this guide, we will provide the necessary information for you to compliantly hire, manage, and pay talent in Germany, covering topics such as hiring options, employee background checks, and how to leverage employer of record services for your international recruitment efforts.

Hiring in Germany

What must employers do when hiring an employee in Germany?

In Germany, hiring an employee requires a thorough understanding of the labour laws and regulations that employers must adhere to. Here are some guidelines employers must keep in mind when hiring an employee in Germany:

  • Employment contracts: When hiring an employee in Germany, employers must provide a written employment contract that includes key terms and conditions such as the job description, working hours, salary, and duration of employment. This written agreement not only sets clear expectations but also fulfills legal requirements.
  • Working hours and rest periods: Employers must comply with Germany’s Working Hours Act (Arbeitszeitgesetz) when hiring an employee in Germany. Employers must ensure that employees adhere to the maximum working hours and receive stipulated rest periods.
  • Social security and health insurance: It is mandatory to register an employee in Germany with the relevant social security agencies and deduct social security contribution from their salaries. Employers in Germany should be aware of the health insurance requirements and exemption based on earnings or employment status to provide the necessary coverage and benefits for employees.
  • Tax and payroll obligations: Registering with the local tax office (Finanzamt) and acquiring the necessary tax identification numbers is a basic step for employers to maintain compliance with tax and payroll regulations in Germany.
  • Employee benefits and leaves: Understanding the rules governing paid leaves and payment obligations helps employers in Germany to develop attractive employee benefits. Employers must adhere to minimum vacation entitlement laws, granting employees a minimum of 20-30 working days off per year.

Cost of hiring a new employee in Germany

The cost of hiring a new employee in Germany can vary depending on factors such as salary, social contributions, and taxes. Calculating the recruitment costs comprehensively can provide insight into the total expenses associated with hiring a new worker. Salary is the primary cost you will incur when hiring a new employee in Germany. To attract a highly skilled talent, you must determine a competitive salary that aligns with industry and market standards.

Apart from the direct costs associated with hiring an employee, recruitment expenses should also be taken into account. This may include expenses related to advertising job openings, conducting candidate interviews, and conducting background checks. These costs can vary depending on factors such as the recruitment method and the level of the position. Taking these factors into consideration helps you assess the financial implications of your expansion efforts in Germany.

Can you hire employees on a trial basis in Germany?

In Germany, it is common for employers to hire employees on a trial basis, known as a probationary period. While trial or probation periods are common in Germany, they are not mandatory.

Employers can choose whether or not to include a probationary period in the employment contract. During this period, both the employer and the employee have the opportunity to assess the fit of the working relationship and decide whether to continue the employment.

The maximum duration of a probation period in Germany is six months. However, the specific duration can be determined through mutual agreement between the employer and the employee, and it can vary depending on various factors, such as the nature of the job and the industry.

The probationary notice period is generally two weeks. This shorter notice period allows for more flexibility in terminating the employment relationship if it is not working out during the trial or probation period.

Employee background check in Germany

Are employee background checks legal in Germany?

Employee background checks are legal in Germany. The processes and regulations governing background checks in Germany are subject to stringent data privacy laws, including the Federal Data Protection Act (BDSG) and the General Data Protection Regulation (GDPR). These laws mandate the protection of personal data and privacy rights, which require employers to obtain explicit consent from the candidate before conducting a background check.

Gathering relevant information for employee background checks

When conducting employee background checks in Germany, employers should focus on collecting information that is directly relevant to the job position in question. This typically includes the candidate’s name, date of birth, current address, and social security number. Gather only the information necessary to assess the candidate’s qualifications and suitability for the role.

Types of employee background checks in Germany

The following are the common background checks performed on employees in Germany:

  • Criminal record checks: Employers can request a criminal record check for prospective employees, which is only permissible with the applicant’s consent. Not all roles justify the need for a criminal record check, and the decision to request this information should be based on the specific responsibilities and nature of the job. For specific employment positions in sectors such as public services, education, medical, and security services, it is required to have a statement of good standing known as “Führungszeugnis” from the Federal Central Register (Bundeszentralregister).
  • Reference and employment verification: Verifying a candidate’s work history, qualifications, and employment references is a common practice in Germany. Employers can contact previous employers and educational institutions to confirm the accuracy of the candidate’s provided information. There should be explicit consent from the candidate before employers in Germany pursue these checks.
  • Credit history and financial checks: In certain industries or for specific roles, employers may seek information regarding a candidate’s financial history and creditworthiness. However, such checks are subject to strict limitations and should only be conducted if they are directly relevant to the job requirements.

Storing and retaining background checks records

It is essential to handle and store candidate data securely throughout the background check process. Companies hiring an employee in Germany must implement robust data protection measures to prevent unauthorised access or loss of personal information. Moreover, background check records must be retained only for a reasonable period as required by German law and dispose of them securely once they are no longer needed.

Immigration compliance when hiring an employee in Germany

Residence and work permit

For countries within the European Economic Area (EEA), including the EU, Iceland, Liechtenstein, Norway, and Switzerland, individuals do not require additional residence and work permits when seeking employment in Germany.

However, for employees from countries outside the EEA, a residence and work permit are necessary. Germany also offers EU Blue Card for highly skilled non-EEA nationals to gain access to employment and residency in Germany. Eligibility is contingent on a university degree and a job offer meeting specific income threshold requirements.

Meanwhile, nationals of certain countries, including the United States, the United Kingdom, Israel, and Japan, may have access to fast-track procedures, which can streamline the immigration process and facilitate their entry into the German workforce.

Hiring options in Germany

Employers should be aware of the various hiring options they can explore to ensure a smooth and successful recruitment process. Here are some key hiring options that employers must know:

  1. Employee
    In Germany, employers can hire employees on indefinite or fixed-term contracts, and they can choose between full-time or part-time working hours. This flexibility allows businesses to meet their specific needs and adapt to changing demands.

    • Equal treatment: Part-time or fixed-term employees should be treated no less favourable than full-time or permanent employees purely based on their employment status. There are cases where different treatment between employees can be justifiable, but only if there are objective reasons. Objective reasons may include factors such as the nature of the job, or legitimate business requirements.

  2. Freelancers and independent contractor
    Companies in Germany have the option to engage independent contractors directly by the company or through a personal services company. However, employers must be aware of the potential misclassification exposure that comes with engaging independent contractors. This carries financial and legal risks for businesses.

    • Worker misclassification: When it comes to work instructions and organisational integration, employers need to exercise caution. If an independent contractor is given extensive work instructions and is heavily integrated into the company’s organisation, it may jeopardise their independent contractor status.
    • Cost of worker misclassification: If an independent contractor is found to have been incorrectly classified, for instance, the organisation may be obligated to pay both the employer’s and employee’s share of social security contributions for up to the last 4 years. In cases of intentional misclassification, this obligation may extend up to 30 years. Additionally, the individual contracted as an independent contractor could claim an employment relationship, which can further complicate the matter.

  3. Agency worker
    Hiring through temporary work agencies is another option for employers in Germany. These agencies employ workers and provide their services to client companies for a specific duration. When it comes to agency workers in Germany, there are specific regulations that employers must be aware of to ensure compliance and mitigate potential risks. These include:

    • Limitations on work duration: Agency workers in Germany are not permitted to work for unlimited periods at the same business. This rule is in place to ensure fair and balanced employment practices.
    • Special permit requirement: Agencies engaging in this type of worker placement are required to obtain a special permit from the Federal Employment Agency. This permit is a crucial prerequisite to legally conduct agency work in the country.
    • Equal treatment and statutory maximum lease period: Agency workers are entitled to fair treatment, including pay and essential working conditions in the same manner with regular employees, unless specified otherwise in a collective agreement. Additionally, there is a statutory maximum lease period of 18 consecutive months for an individual agency worker with the same client, which may be modified through collective agreements.
    • Consideration of previous assignments and cooling-off period: Previous assignments to the same company after April 1, 2017, with a gap shorter than 3 months are taken into account. At the end of this period, the employees are required to either be permanently employed by the employer or withdrawn by the temporary employment agency.
    • Clear declaration and consequences of breaches: Prior to the commencement of agency work, the contractual agreement must openly declare the nature of agency work and identify the specific agency worker. Breaches of employee leasing laws can lead to severe consequences for the lessee, including the potential claim of an employment relationship by the employee.

  4. Apprenticeships
    Germany has a strong apprenticeship system where employers can hire apprentices for on-the-job training. This is an excellent way to develop skills and ensure a pipeline of qualified talent for the future.


By understanding and using these various hiring options in Germany, you can effectively attract and retain top talent, foster workforce flexibility, and build a strong and capable team to drive your business towards success.

German language level required to work in Germany

There are no statutory requirements; employees are often open to English agreements or policies. In cases of litigation, the courts will request official translations.

Is the German language required to work in Germany?

The language level requirement to work in Germany varies depending on the industry and the specific job requirements. In general, a minimum level of B1 language proficiency is often required for many industries. This level of proficiency allows individuals to communicate effectively in everyday work situations, including basic conversations, reading job-related documents, and writing simple emails. Jobs in the hospitality and customer service sectors, such as hotel staff or restaurant workers, for example, might require a lower proficiency level ranging from A1 to B1.

On the other hand, some sectors, such as the healthcare industry, may require a higher level of language proficiency, such as B2 or higher, due to the critical nature of their work and the need for effective communication with patients, colleagues, and regulatory authorities.

Corporate presence requirements and payroll setup in Germany

When it comes to engaging employees in Germany, foreign companies can do so without having a local corporate presence. However, it is important to consider factors related to doing business and corporate tax implications.

To ensure compliance with employment and payroll requirements, registrations with tax and social security authorities are necessary. Regarding employee earnings, withholdings are applied. Social security withholdings are determined based on a gross monthly income ceiling. For the states of the former West Germany, this ceiling is €7300, while for the states of the former East Germany, it is €7100. Typically, the employer and the employee split these withholdings equally.

In addition to social security withholdings, wage tax must also be considered. This tax is calculated based on a progressive tax rate, which can range from 14% to 45%. To ensure compliance, it is important to accurately calculate and deduct the appropriate wage tax amount from employees’ earnings.

Corporate governance in Germany

Corporate governance in Germany covers various laws and regulations that govern the conduct and responsibilities of companies and their directors. The legal framework for corporate governance in Germany includes:

  • AktG (Aktiengesetz): The German Stock Corporation Act governs the legal framework for stock corporations (Aktiengesellschaften) in Germany. It sets out the rules and regulations regarding the organisation, management, and supervision of these corporations.
  • Corporate Governance Code (Deutscher Corporate Governance Kodex): This provides guidelines and best practices for the management and governance of publicly listed companies. While compliance with the Code is voluntary, it is widely followed and expected by stakeholders.
  • Board of directors: Companies in Germany are required to have a two-tier board structure consisting of a management board (Vorstand) and a supervisory board (Aufsichtsrat) for certain types of corporations. The management board is responsible for the day-to-day operations of the company, while the supervisory board oversees and monitors the management board’s activities.

Meanwhile, here are some significant developments under corporate governance in Germany that you must know:

  • Implementation of the Corporate Sustainability Reporting Directive: This was adopted by the European Parliament in November 2022 and came into force in January 2023. The directive aims to expand reporting obligations by including additional information on environmental, social, and governance (ESG) issues. This requires that companies provide detailed disclosures related to sustainability, promoting transparency and responsible business practices.
  • Implementation of the Whistleblower Protection Act: This came into force in July 2023, which aligns with the Whistleblower Directive of the European Union and offers protection to individuals who report corporate malpractice or wrongdoing. It establishes specific rules and requirements to safeguard whistleblowers and ensure the proper handling of reported concerns.

Setting up payroll in Germany

There are different ways to set up payroll in Germany, depending on the needs and resources of the employer. Here are a few common approaches:

  1. Internal payroll: Some companies choose to handle payroll internally by establishing an in-house payroll department or using a dedicated payroll software. This option gives employers more control over the process but requires sufficient resources and expertise to manage all aspects of payroll, including tax calculations, social security contributions, and reporting obligations.
  2. Outsourcing: Employers can also outsource their payroll functions to an external local payroll provider in Germany. These providers handle payroll processing, tax calculations, and reporting on behalf of the employer. However, your company will still be liable if payroll mistakes occur.
  3. Employer of Record (EOR): Companies can consider using an employer of record (EOR) service to handle payroll for their employees in Germany. EOR acts as the legal employer and takes care of all payroll and HR responsibilities on behalf of the company, including compliance with tax regulations and managing social security contributions. This option is particularly advantageous if businesses wish to tap into Germany’s talent pool without establishing a legal entity. Moreover, it allows companies to quickly and compliantly scale up or down as needed.

Unlock new growth opportunities with CXC

As you expand into new markets, understanding country-specific laws and regulations is crucial to ensure compliance. That is where CXC excels. With our extensive experience in the global employment space, we can help you find, hire, manage, and pay workers anywhere in the world — all while ensuring full compliance. Through our comprehensive Employer of Record (EOR) solution, you can skip the hassle and expense of setting up legal entity and go straight to growing your business.

Speak to our team today and learn how we can support your global expansion efforts in more than 100 countries worldwide.

Compliantly hire workers anywhere with CXC

With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.

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