Country profile

Germany

Capital
Berlin
Public holidays
9
Minimum Salary
€12 per hour
Currency
EUR
About country

The most compliant way to hire a full-time remote employee in Germany without a legal entity is to hire them directly. You would be an employer in Germany, pay social security contributions and taxes as a local employer, but would not have any corporation tax liabilities.

Here we provide some information that is helpful for establishing how you should hire an employee v contractor. And relevant information for being an employer in Germany

Remote Work Policy

The law on mobile work (Mobile-Arbeits-Gesetz) was passed in 2019 and came into effect in January 2021.

The law applies to all employees who work remotely at least 20% of their working time. It sets out the rights and obligations of employers and employees in relation to mobile work.

Some of the key provisions of the law include:

  • Employees have the right to request to work remotely.
  • Employers must consider requests in good faith and give a decision within four weeks.
  • Employers can only refuse requests for limited reasons, such as if the remote working arrangement would be detrimental to the business or if the employee’s role cannot be performed remotely.
  • Employees who work remotely have the same rights as employees who work in the office, including the right to breaks, paid leave, and health and safety protection.
  • Employers must provide employees with the necessary equipment and tools to work remotely.
  • Employers must reimburse employees for reasonable expenses incurred as a result of working remotely.

The law also sets out a number of specific requirements for employers, such as the need to have a written agreement with each employee who works remotely.

The penalties for violating the law on mobile work can be significant. Employers can be fined up to €50,000 for each infringement.

Employee Misclassification

There are only two classifications in Germany – employees and ¨freelancers¨ ( also commonly referred to as independent contractors). Some subsets of employees exist such as trainees.

An employee works under a contract of employment and is protected by the agreements within the contract in addition to local labour and social security laws. Taking into account:

  • the work specified in the contract of employment cannot be performed by anyone else other than the employee
  • the employer has the right to provide the individual instructions regarding how, when, and where the work is performed
  • the individual will be fully integrated into the organisation
  • and the individual is financially dependent on the employer

Independent contractors are either self-employed or have their own businesses. They are not protected by local labour laws in Germany. An employer does not make social security contributions for these contractors. But they do enjoy more freedom in terms of determining how, when, and with whom they work.

Determining the correct classification of an individual can be quite difficult in practice. Employers may intentionally, or accidentally misclassify an employee as an independent contractor. Thus, avoiding social security contributions. But the difference to the contractor is substantial as it determines if an individual enjoys protection from dismissal, and has access to vacation allowance, maternity leave, and workplace safety, amongst others.

If the courts find that an employee has engaged in an ¨hidden¨ employee – such as misclassifying employees as independent contractors to avoid social security contributions, whether intentional or not, this can carry severe penalties. The employer would be liable for any outstanding social security payments for the previous 4 years. The management may personally be liable for these payments depending on how the company is structured from a legal standpoint. On top of this, as this could be viewed as social security fraud it may also expose management to the risk of criminal prosecution. Fines may be imposed both on the management and the company.

 

Contracts of Employment

 

There are four main types of employment contracts in Germany:

  • Permanent contract (unbefristeter Arbeitsvertrag): This is the most common type of contract and is for an indefinite period of time. It usually has a six-month probationary period, after which it can only be terminated by the employer if there are legal grounds to do so.
  • Fixed-term contract (befristeter Arbeitsvertrag): This type of contract is for a specific period of time, such as one year or two years. It can be renewed once, but the employer is not obliged to do so.
  • Contract with a recruitment agency or Employer of Record (Personalegentur): With this type of contract, you are employed by the recruitment agency rather than directly by the employer. The agency is responsible for paying your salary and benefits. Temporary contracts of this type can only be for a maximum of 18 months, therefore for ongoing permanent employment employing via a recruitment agency or Employer of Record is not a viable solution.
  • Mini job contract (Minijob): This type of contract is for a small number of hours per week and the employee’s earnings are capped at €450 per month. Mini jobs are not subject to income tax or social security contributions. These contracts are typically used for employing students or interns.
 
Social Security Contributions: Independent Contractors

Independent contractors in Germany are not required to pay social security contributions. However, they are responsible for their own health insurance and pension planning.

Independent contractors can choose to purchase private health insurance or join a public health insurance scheme. The cost of private health insurance will vary depending on the level of coverage you choose. The cost of public health insurance is based on your income.

Independent contractors can also choose to save for their own pension. There are a number of different pension schemes available, such as the Riester pension and the Rürup pension. The amount you need to save for your pension will depend on your individual circumstances.

It is important to note that independent contractors do not have the same social security protections as employees. For example, they are not entitled to paid sick leave or holiday pay.

 

 

Social Security Contributions: Employers

The social security contributions for employers in Germany are split into two parts:

Employee Insurance Contributions (AOW): The employer pays 20.4% of the employee’s gross salary.
Surviving Dependents (ANW): The employer pays 0.1% of the employee’s gross salary.
In addition to these contributions, the employer also pays for accident insurance. The accident insurance rate is 1.7% of the employee’s gross salary.

The total social security contributions for employers in Germany are 22.1% of the employee’s gross salary.

Here is a table that summarizes the social security contributions for employers in Germany:

Contribution Employer
Employee Insurance Contributions (AOW) 20.4%
Surviving Dependents (ANW) 0.1%
Accident Insurance 1.7%
Total 22.1%

It is important to note that these are the standard rates. The actual rates may vary depending on the employee’s income and the employer’s circumstances.

 

Social Security Contributions: Employees
Costs
Holidays
Employment Classification
Details
Essential information
  • Social Security
  • Employer Social Security
    20.70%
  • Population
    84,333,254
  • Minimum vacation days
    24 days
  • Time zone
    CET
Hire an employee in Germany