Expand your business into Germany, even without an entity
New Horizons offers a range of services for any organization looking to expand in Germany. With New Horizons’ German professional employer organization (Germany PEO & Employer of Record), and payroll services, you can outsource all of the complex administration and compliance work so you can focus on expanding your business in Germany.
We have an in-house recruitment team, so we can source, recruit, and onboard your new staff members. Additionally, you can use our German subsidiary to act as employer of record for your new hires, so you don’t even need to register an entity in the country but will have total autonomy over your employees.
Our Germany PEO outsourcing solutions could save you thousands in expansion costs, and can help you expand in a compliant, flexible, and scalable way.
Our Germany PEO & Employer of Record simplifies your expansion
New Horizons enables your business to expand its operations into Germany, with or without an in-country subsidiary.
Labour Laws in Germany
AÜG Labor Leasing Licence in Germany
At New Horizons Global Partners Germany, we operate under a labour-leasing license (Arbeitnehmerüberlassung – AÜG), which is seen as a temporary employment solution by the German leasing labor authorities.
However, due to our AÜG license, we can only deploy the employee to the same end-client for a maximum of 18 continuous months.
So, although the employee can essentially have a permanent contract with New Horizons via our Germany PEO & Employer of Record, they can only be deployed to the end-client for a maximum period of 18 months.
Germany employment contracts
Employers in Germany are required by law to prepare formal contracts of employment for employees. These contracts should include the various terms of employment, such as salary in the local Euro currency), termination rules, and any benefits.
When we hire employees and become their official Germany Employer of Record, we can offer the employees a temporary (fixed-term) or a permanent employment contract.
In order to avoid having to terminate an employee’s employment contract, which is not an easy thing to do once the employee is no longer in the probation period, it can be helpful to give the employee a temporary contract with a duration of 18 months. Although this best-case scenario helps avoid any complications at a later date, many employees are hesitant to sign a temporary contract.
For this reason, it is really up to our end-client and the employee to decide how long the contract should last, but all parties need to be informed that if the employment contract is for a period longer than 18 months, or indeed permanent, the deployment to the end-client can only last for a maximum period of 18 months.
Working hours in Germany
Employees in Germany generally work Monday to Friday, and there is a maximum of eight-hours per day, and 48-hours per week. Overtime is legally limited to 12 hours per week.
National holidays in Germany
There are nine nationally followed public holidays in Germany, which most employees receive off work:
In addition to these nine days, there are several regional holidays which may or may not be expected in your location, such as Three King’s Day and Corpus Christi.
Employment benefits in Germany
It’s vital that you know what benefits your employees in Germany are legally entitled to or expected.
Vacation leave in Germany
In Germany, any employee working five-day weeks is allowed 20 days of annual leave, and anyone working six-day weeks is entitled to 24 days. However, the majority of employers offer between 25 and 30 days of annual leave as standard. Also, many employers offer an end-of-year bonus, although this is not required by law.
Social benefits in Germany
Employers and employees in Germany must both pay equally towards a social security system, which covers things like pension, healthcare coverage, unemployment insurance, and so on. Also, accident insurance is required but must be covered exclusively by employers. For an employer, the total contributions to mandatory social benefits will generally be an additional 20% of each employee’s salary.
In addition to these mandatory benefits, many employers offer other perks such as a housing payment, more comprehensive private health insurance, and more.
Sick leave in Germany
In Germany, employees are entitled to a minimum of six weeks of sick leave with full pay if they can provide a doctor’s note. After this period, employees will be paid through their health insurance at a rate of 70% or more.
Maternity and paternity leave in Germany
Mothers are entitled to six weeks of leave full pay before a birth, and eight weeks following it. In the case of multiple births, the post-birth leave is extended to 12 weeks.
Additionally, either parent can take up to three years of leave (unpaid) to care for their child, and a government program also offers benefits to new parents for the first 12-14 months, available on a means-tested scale.
Notice periods in Germany
The process of terminating employees can be complicated in Germany. A standard dismissal requires the employer to follow the mandatory notice period, which varies based on how long the employee has been with the organization:
*Notice periods effective from the end of the month unless otherwise stated
- – Probationary period (up to six months) = Two weeks
- – After probation but less than two years = Four weeks (effective from the end of or the 15th day of the month)
- – Over two years = One month
- – Over five years = Two months
- – Over eight years = Three months
- – Over ten years = Four months
- – Over 12 years = Five months
- – Over 15 years = Six months
- – Over 20 years = Seven months
It’s not uncommon for these periods to be longer, and should be stipulated in an employment contract. Also, full salary needs to be provided throughout the notice period. Payments in place of providing a notice period are not common in Germany.
Employee severance and terminations in Germany
Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time as German labor law is well protective its employees.
In practice, termination scenarios differentiate whether the employee has a permanent or temporary employment contract.
Once the employee has passed the 6 month employment mark, they are protected by the termination protection act (Kündigungsschutzgesetz), meaning that they are indeed entitled to a severance payment, should the permanent employment relationship be terminated by the employer.
- The calculation for the statutory severance payment = gross monthly salary * 0,5 * years of service.
In order to calculate years of service, you round up or round down to the nearest year.
There is no entitlement to a termination bonus, although the employee may claim they are entitled to commission, if this is included in the Annex of their employment contract. Any bonus/commission is paid at the discretion of the employer.
However, should the employment relationship be ending because the employee has a temporary contract, there is no entitlement to a severance payment or termination bonus when the sole reason for the termination of employment is due to the expiration of the employment contract. The temporary contract is something which the employee agreed to before beginning the employment.
In addition, if the employment contract is being terminated by the employer before the expiration of the employment contract, the employee would be entitled to a severance payment.
On a separate note, any accrued but untaken holidays will need to be paid out upon expiration/termination of the employment contract.
Tax laws in Germany
Income tax in Germany is progressive, and ranges from 0% to 45% based on income level. The corporate tax rate is 15%, but additional charges such as a solidarity surcharge and trade tax make the total level of contribution around 30%.
New Horizons’ Germany Employer of Record & PEO can provide assistance to your business as you navigate the complicated ta laws in the country.
Health insurance in Germany
Germany has a socialized healthcare system, and all residents are entitled to free necessary care. However, employees earning above a certain income (and their employers) must also contribute to a social security fund.
Germany compensations & benefits
Compensation laws in Germany
The German minimum wage is €9.35 per hour as of 2020. This is likely to increase slightly year on year. Overtime pay must be laid out in an employment contract.
Benefit management in Germany
It can be difficult to understand and set up employee benefits in Germany, and it can require a lot of time, effort, and investment on the part of employers. However, it is crucial that you adhere to compensation and benefits laws as you can be subject to large fines and legal issues if you fail to.
Outsourcing your benefits management process ensures that you fully understand and adhere to the rules, ensuring your compliance and speeding up the process significantly. At New Horizons, our Germany PEO has employment experts who will help you to find and arrange your benefits, advise on your strategy, and ensure compliance with the law.