An international workforce may be the bedrock of your business’s ability to succeed in a progressively growing global market. With Germany economically outshining many European countries, many companies worldwide are looking to hire employees in this country. Hiring employees in your home country is one thing, but hiring Germans is a whole different ball game. There are so many factors you need to consider, from cultural differences to language to complex labor laws. Let’s now look at some of the most crucial considerations when hiring employees in Germany.
In Germany, the relations between employees and their German employers are stringently regulated under the employment and labor laws of the country. The employees working in a company need to have employment contracts in place that reflect key areas of the employment relationship. This employment contract needs to reflect the parties involved in the contract, gross salary and other benefits, work needed to be done, starting date of the employment, vacations, place of work, and notice period.
Employment contract period
German employees will expect a written employment contract before they can start working for your company. The contract should highlight the key terms and conditions of the job. Some requirements are enforceable only if put in writing. You can take advantage of this to incorporate provisions such as non-competition covenants, confidentiality, and intellectual property rights into the contract. But keep in mind that various obligations and rights enforced by German law may override contractual agreements.
Even though it is typical to have an employment contract that is unlimited in time the parties involved can agree to a contract having limited terms. Employers tend to use limited-term employment contracts even though they are subject to restrictions according to employment and labor laws. The employer can enter into a limited-term contract rather than renewing the employment contract for a term of up to 2 years without any restrictions. However, if you are new in the German market and are looking to hire employees in Germany, you should hire a professional employer organization, which will guide you through all the necessary steps such as international payroll, contracts, employee registration, taxes, etc.
The tax laws in Germany cover federal income and additionally, there is a range of social taxes applicable for covering the multi-faceted social insurance schemes of the country. The social tax responsibility is to be shared jointly by employers and employees. Apart from this, the employers are required to hold onto a solidarity surcharge of 5.5% of the employee’s taxes and it is mandatory.
The income tax is pay-as-you-go and is classified as Lohnsteuern. The income tax is administered by the Finance Ministry and it is payable to the local state tax office of the state. It is the responsibility of the employers to withhold the tax amount from the employee’s salary and pay this amount to the government. The employers hiring German citizens or German residents are covered under federal tax laws.
An offer of stock plans to the employees
The stock plans that are offered to the employees are taxable when they take effect. Employers are required to withhold the income tax on the employee’s salary and the amount is based on the difference between the purchase price of the equity and the value of the stock at the time of exercising the payment. The amounts of the share plan are subject to the same tax calculations as exercised under the payment of normal wages. These amounts are also subject to the amount of social tax. Employers are required to remit these taxes in the manner they are required to remit income tax collected from the salaries of the employees.
Know what Protection Against Dismissal Entails
The protection against Unfair Dismissal Act comes into effect when you hire over 10 workers in Germany. So you’ll need a legally justifiable reason to dismiss a worker who has been working for you for over six months. If you have employed less than 10 workers, no reason for dismissal is required. But the dismissal must meet the relevant notice period and conform to the principles of good morals as well as good faith. Bear in mind that some groups of workers like pregnant employees, those on parental leave, and those with severe disabilities have special protection against unjust dismissal.
Social insurance programs
Germany has an elaborate social security system in place that makes sure that the citizens of the country are living comfortably even when they are disabled, sick, unemployed, or even retired. The expats living in the country can also participate in the program to a great degree. The earning people need to make payment for the 4 essential components of the system that is long-range nursing care, health insurance, unemployment, and nursing care. These payments amount to around 40% of their annual gross salary.
The social insurance system of the country is multifaceted and it is financed by contributions from employers and employees. The portion of the payment from employees is around 20% of the gross wages and it is held at the source with the employer. There are other kinds of insurance payments to be made such as unemployment insurance, health insurance, retirement pension insurance, pension fund, etc.
Working Hours Regulations
Recruits should work a total of 48 hours per week to be categorized as full-time workers, with employees working a maximum of 8 hours per day. Saturday is considered a workday. If your company operates only 5 days a week, your staff should only work a total of 40 hours. Employees who work overtime should be compensated with time off. Alternatively, you can pay your employees an overtime bonus and incorporate specific conditions into the individual contract (though this isn’t legally required).
Rest and Holiday Leaves
German employees working five days per week are entitled to 20 days of paid holiday every year. But many labor agreements offer a higher number of paid holiday days (between 25 and 30 days). The statutory law offers employees with severe disabilities an extra five working days of paid holiday.
Unique Employment Sites
If you want to post a job opening in Germany for your business, it’s important to have a clear idea of where Germans search for new employment opportunities. They check different job sites than in your home country. The most popular employment sites in Germany include Indeed.com, stepstone.com, arbeitsagentur.de, Moster.com, and xing.com.
Preference for Email
Like other Europeans, Germans prefer to be contacted via email when it comes to recruitment. They also want the email communication to be followed up with personal contact. Only a small fraction of Germans want to be approached via text message.
Employees are responsible for paying these amounts to the government such as,
- Long-term-care benefits for the employees.
- Workers or work injury compensation.
- Other taxes are not related to social insurance.
- Benefits taxation.
- Church tax.
- Solidarity surcharge.
- Capital assets tax.
Termination of the working relationship
The duties and rights involved in the working relationship including the termination are specifically determined by the employment agreement, collective bargaining agreements, agreements between the employer and the work council, labor laws, and the German constitution. For resolving any conflicts in case of either individual employees or collective labor disputes, you will find the labor court playing a significant role.
The employment relationship can be terminated with mutual consent by agreeing to a separation agreement or just by the expiry of the employment agreement. However, the termination notice has to be in writing and must be signed by the responsible member of the company such as the HR Director or Managing Director.
Christian Kruse is an economic in marketing specialization, Strategic Consulting. With over 20 years’ experience working at the intersection of marketing and technology. A transformational leader, Kruse has held a raft of executive positions throughout his career including Chief Strategy, Data, Strategic Director for Oracle Marketing Cloud, and Responsys in America.