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Employing in Germany: What You Need to Know

German employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Other factors that complicate matters include the differences between regions and an inconsistent approach to adherence to laws in different districts. For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Germany.

Key Factors to Consider When Employing in Germany

There are several key areas to be aware of within Germany’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the German laws and rules for both German employees as well as foreign nationals.

Employee Entitlements

Information	Explanation
Working on Sundays	Under a five-day week, the average working time is between 35 and 40 hours. The daily productive working time generally may not exceed eight hours. A daily working time of up to ten hours productive working time is possible if, over a period of six months, the average daily working time does not exceed eight hours. Working on Sundays and public holidays is generally prohibited. However, there are some exceptions
Medical Leave	Sick leave is available after 4 weeks of employment, and may be claimed for up to 6 weeks.
Annual Leave Accrual Entitlement	There are laws that regulate leave periods based on years of service and the type of leave requested. Employees are entitled to 24 working days of annual leave, plus holidays.
Maternity Leave in Germany	Female employees are entitled to maternity leave throughout the entire pregnancy, as well as 4 months after the birth. Male and female employees entitled to a maximum of three years’ unpaid parental leave per child. The employer may not terminate the employee, and employees have legal right to work part-time (up to 30 hours per week) during parental leave. After expiry of the parental leave, the employer has to offer an adequate working position to the employee.

Employment Termination

Information	Explanation
Termination of Employment	For Employees who have been employed longer than six months, unfair dissmisal protections apply. Employees can only be fired for particular reasons such as misconduct or redundancy. Employees who are on parental leave, handicapped or pregnant can not be fired without government approval. A minimum of 4 weeks notice is required prior to termination. The notice period increases according to length of service, and after 5 years the notice period increases by one month in the 5, 8, 10, 12, and 15 years of employment. Termination that adheres to the notice periods is Ordinary Termination. Extraordinary Termination, which ends the employment contract immediately, may be used for serious misconduct.

Information

Explanation

Termination of Employment

For Employees who have been employed longer than six months, unfair dissmisal protections apply. Employees can only be fired for particular reasons such as misconduct or redundancy. Employees who are on parental leave, handicapped or pregnant can not be fired without government approval.

A minimum of 4 weeks notice is required prior to termination. The notice period increases according to length of service, and after 5 years the notice period increases by one month in the 5, 8, 10, 12, and 15 years of employment.

Termination that adheres to the notice periods is Ordinary Termination.

Extraordinary Termination, which ends the employment contract immediately, may be used for serious misconduct.

Probation

Information	Explanation
Probation Period	Probation periods are permitted up to 6 months in length. During the probation period the employee is entitled to 2 weeks notice of termination.

Pension

Information	Explanation
Pension Requirements	The system of welfare and benefits is complex in Germany, and cover sickness, unemployment, disability and retirement. There are requirements for both employee and employer contribution rates based on a percentage of salary. The categories of Welfare Contributions include: Pensions: Employer and employee each contribute one-half of the rate of 18.7% of salary Medical Insurance: Employer contributes one-half the premium. Unemployment Insurance: Employer contributes 1.5% of salary and employee also contributes 1.5%

Information

Explanation

Pension Requirements

The system of welfare and benefits is complex in Germany, and cover sickness, unemployment, disability and retirement. There are requirements for both employee and employer contribution rates based on a percentage of salary.

The categories of Welfare Contributions include:

Pensions: Employer and employee each contribute one-half of the rate of 18.7% of salary
Medical Insurance: Employer contributes one-half the premium.
Unemployment Insurance: Employer contributes 1.5% of salary and employee also contributes 1.5%

GEO Solutions or DIY Employment in Germany?

Companies entering Germany must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or German Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a German entity established that can run payroll.

A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and may be a costly option. AtoZ Serwis Plus GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally AtoZ Serwis Plus GEO is responsible for all compliance issues related to the employment.

Tax

Income Tax Rates

Monthly Taxable Income

Grossed income	Tax Rate (%)
$0-$8,354	0
$8355-$52,881	14%
$52,882-$250,730	42%
$250,731+	45%

Tax Returns Supplied

Yes

Corporate Tax Requirements

15%

Employers social security in Germany is extensive and made up of 4 elements.

Pension insurance (Rentenversicherung): 9.45% (charged on earnings up until EU 71400)

Unemployment insurance (Arbeitslosenversicherung): 1.5% (charged on earnings up until EU 71400)

Health insurance (Krankenversicherung): 7.3% (charged on earnings up until EU 48600)

Invalidity/Long-term care insurance(Pflegeversicherung): 1.175% (charged on earnings up until EU 48600)

Total Estimate is 12.5% (there are caps) and is made up of; 18.9% Old Age Pension and 3% Unemployment Insurance (capped at earnings up to Euro 71,400). Split equally between the employee and employer.

Health Insurance is compulsory if the employees wage is less than Euro 53,550. Employee/Employer split 14.6%. Contributions are paid up to earnings of Euro 48,600. Employee also has to pay 0.9% surcharge to a max of Euro 36.45 a month.

If the employee earns more than Euro 4,462.50 a month then they must contribute to a Private Health Insurance plan, pay the full premium and their employer reimburses them for half the premium up to the max they would receive through the compulsory scheme.

Nursing care/invalidity insurance is compulsory and is levied at 2.35% split equally between employer and employee. Childless employees pay an addition 0.25%.

Insurance requirements

Our local entity covers Professional Indemnity Insurance.

Can supply private health care

Yes

Can assist opening bank accounts

Yes

Work Permits

Work Permits
Can Sponsor Work Permit	Yes for both Blue Card/Resident Permits and Skilled Worker Visas/Resident Permits
Work Permit cost	Euro 2500
Work Permit processing time	8-12 weeks depending on the type of work permit and nationality of the applicant
Work Permit process	The process depends on the type of permit / visa and the nationality of the applicant. For a standard work permit or Arbeitserlaubnis the process is as follows: Non-EU citizens (except nationals of Australia, Canada, Israel, Japan, New Zealand, South Korea and USA) must apply in person for a German National Residence Permit (Aufenthaltserlaubnis) at the German Embassy (Deutsche Botschaft) / Consulate in their country of residence before they can enter Germany. To obtain an appointment can take up to 6 weeks. Once the application is lodged in the appointment it takes 6-12 weeks as the application is sent to the local Foreigners Authority (Ausländerbehörde) where the employee will reside in Germany. The Aufenthaltserlaubnis is normally issued in conjunction with an entry visa and valid for 3 months. This typically allows the employee to enter Germany and start work – this right will be explicitly stated on the Aufenthaltserlaubnis. The German local Foreigners Authority (Ausländerbehörde) and Federal Employment Agency (Bundesagentur für Arbeit) must still confirm that the work concerned is suitable and that the employee will not disadvantage the employment of local German or EU employees. This may also involve the local Chamber of Industry and Commerce (Deutscher Industrie- unde Handelskammertag). After these checks are completed the work permit is granted. The following documents are required Passport copy Copy of Diplomas CV Health insurance certificate ( Has to be recognized by German) Job description in German Local Employment contract with dates and annual salary (Original German version) Residence address (in home country) Place of work (in Germany) Address of intended residence in Germany Further documents may be required by different embassies. Letter from End client may be requested
Can Work Permit be processed in country	Yes but depends on the nationality.
Switch Business Visa to Work Permit?	No. However for some nationalities, you can switch from an Entry Visa to Work Permit.
Can Spouse work on dependent visa?	Yes.

Business Visas

Business Visas
Can do Business Visa	Yes.
Business Visa Cost	Euro 500.
Business Visa processing time	Depends on the Consulate but generally 5-10 days.

Payroll and Tax in Germany

There are specific rules for payroll and taxation in Germany, depending upon whether your company employs foreign nationals or local German employees. The primary concerns for a foreign company that needs to comply with tax laws in Germany are: individual income tax (IIT) for employees in Germany, social and health insurance costs, payroll tax, sales tax, accident insurance, withholding tax, business tax and permanent establishment concerns.

nformation	Explanation
Remote Payroll	A remote payroll in Germany is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Germany. One option for a non-resident company to payroll its employees (local and foreign) in Germany is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.
Local Payroll Administration	In some cases, a company will register their business in Germany under one of the forms available, but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Internal Payroll	Larger companies with a commitment to Germany may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a German payroll, and can fulfill all tax, withholding, and payroll requirements. This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with German employment laws.
Fully Outsourced Payroll & Employment	Companies can outsource the employment and payroll of their staff in Germany to a GEO, like AtoZ Serwis Plus GEO. This is possible for both foreign workers and German nationals. This is the easiest, fastest and safest way to payroll staff in Germany. AtoZ Serwis Plus GEO manages all aspects of payroll for workers in Germany, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client. Staff are paid monthly with tax and social security deducted at source and paid to local authorities. AtoZ Serwis Plus GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. AtoZ Serwis Plus GEO provides the employees with payslips.

Setting up payroll in Germany

Information	Explanation
Currency	Euro
Documentation Required for New Employees	ID / Passport Residence Permit / Visa if applicable Tax ID Number & Tax bracket Social security number Where applicable, proof of service in the German military or alternative civilian service Where applicable, certificate of leave from the previous employer Where applicable, residence permit/visa Where applicable, certificate of leave from the previous employer Certification of membership of a statutory health insurance fund /substitute fund Marriage certificate, birth certificates of children, divorce ruling where applicable Bank details (IBAN & BIC code) Germany has very strong data protection regulations. Employers should be aware that whilst an employees personal data can be collected for employment related purposes the information sought and in particular methods used for background checks are very limited.

Information

Explanation

Currency

Euro

Documentation Required for New Employees

ID / Passport
Residence Permit / Visa if applicable
Tax ID Number & Tax bracket
Social security number
Where applicable, proof of service in the German military or alternative civilian service
Where applicable, certificate of leave from the previous employer
Where applicable, residence permit/visa
Where applicable, certificate of leave from the previous employer
Certification of membership of a statutory health insurance fund /substitute fund
Marriage certificate, birth certificates of children, divorce ruling where applicable
Bank details (IBAN & BIC code)

Germany has very strong data protection regulations. Employers should be aware that whilst an employees personal data can be collected for employment related purposes the information sought and in particular methods used for background checks are very limited.

Tax Figures

Information

Explanation

Corporate Income Tax

29.65%

Income Tax Rate

Grossed income	Tax Rate (%)
$0-$8,354	0
$8355-$52,881	14%
$52,882-$250,730	42%
$250,731+	45%

Payroll Tax

n/a

Sales Tax

19%

Withholding Tax

Divident Withholding Tax 25%

Interest Withholding Tax 25%

Royalty Withholding Tax 15%

Can be reduced based on relevant tax treaties

Payments

Information	Explanation
Payment Mode	Not clear if there is a legal rule but payments are usually transferred electronically via the country’s standardized File Transfer and Access Management (FTAM) protocol.
Frequency of Salary Payment	Does not seem to be set at law, but the standard appears to be monthly payments (12)
Invoice / Payslips required	Yes – if you have an employment contract then a written salary advice showing gross payments and detailed deductions is a legal requirement
Minimum Wage	EUR 1,473.00 per month Introduced in Jan, 2015.

Immigration and Work Permits in Germany

Foreign workers are required to have the proper visas and work permits in Germany, as established by immigration laws. Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the German market. If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits.

Whether establishing a company in Germany or relocating as a self-employed expat, visas are an important step to consider. It is recommended to check with the consulate or a local embassy whether your trip will require a visa, and which of the following types are most suitable.

Visit: If just visiting for three months or less, holders of a US passport or residency will generally not need a visa to visit for up to 90 days within any 6-month period. This may be sufficient for short and simple business trips, e.g. to set up a business.
Schengen visas: If one is not eligible to go without a visa, a Schengen Visa would be required for the same length of short term trip, but a residence permit is not likely to be required
Longer-term trips: If one is spending more than three months or more actively working (e.g. ‘employed’ by the company) a national visa and residence permit will be required.
Residency: If one is going for a long-term trip as above or to relocate as a self-employed freelancer, a residency permit will be required.

Use Your Own Company

For a standard work permit or Arbeitserlaubnis the process is as follows:

Non-EU citizens (except nationals of Australia, Canada, Israel, Japan, New Zealand, South Korea and USA) must apply in person for a German National Residence Permit (Aufenthaltserlaubnis) at the German Embassy (Deutsche Botschaft) / Consulate General (Generalkonsulat) in their country of residence before they can enter Germany. They will need the documents listed below as well as a completed application form. To obtain an appointment can take up to 6 weeks. Once the application is lodged in the appointment it takes 8-26 weeks as the application is sent to the local Foreigners Authority (Ausländerbehörde) where the employee will reside in Germany. The approval of the Federal Labor Agency and Foreigners Authority can take a long time if they have difficulty going through the “Labor market check” and it coincides with a slow time e.g. European summer holidays.

The Aufenthaltserlaubnis is normally issued in conjunction with an entry visa and valid for 3 months. This typically allows the employee to enter Germany and start work – this right will be explicitly stated on the Aufenthaltserlaubnis.

The German local Foreigners Authority (Ausländerbehörde) and Federal Labor Agency (Bundesagentur für Arbeit) must still confirm that the work concerned is suitable and that the employee will not disadvantage the employment of local German or EU employees. This may also involve the local Chamber of Industry and Commerce (Deutscher Industrie- unde Handelskammertag). After these checks are completed the work permit is granted.

The following documents are required

Employer

Original signed contract of employment in German showing the occupation, salary level, dates of employment and other relevant terms.
Original letter from employer (Arbeitgeber) to take responsibility for the employees health insurance and other costs whilst they are in Germany
Original letter from employer explaining why a foreign national is required for the position.
Additional documents may be required by the German authorities

Employee

Passport copy
Copy of Diplomas
CV
Health insurance certificate ( Has to be recognized by German)
Job description in German
Local Employment contract with dates and annual salary (Original German version)
Residence address (in home country)
Place of work (in Germany)
Address of intended residence in Germany
Further documents may be required by different embassies.

Processing time : 12 weeks+ depending on if Labor Market Check is required

Cost varies depending on local embassy. Please contact us for a quote.

Use the AtoZ Serwis Plus GEO Employer of Record Solution

Depending on the Visa type (Blue Card/Resident Permits or Skilled Worker Visas/Resident Permit) and the nationality of the applicant the visa process can take 2 – 8 weeks.

Documentation required (Employee): Two completed application forms, Passport copy, CV, Employment Contract or a Letter of Intent, educational degree certificates (these need to be notarized) and 2 passport copies.

The process for obtaining the Skilled Worker/Resident Permit (National Visa) is as follows:

GEO’s local entity and the employee sign a local employment contract.
If the applicant is from a Non-Visa Dependent country (Australia, Canada, Israel, Japan, New Zealand, South Korea and USA) they can travel into Germany and the visa application can take place in country.
If the applicant is from a visa-dependent country the national visa application must first be lodged at the German Consulate in the applicants country of residency.
If the role is ‘whitelisted’ (skill shortage) and has pre-approval from the labour authority the approval process will be around 2 weeks.
If the role is not ‘whitelisted’ and there is no pre-approval the German Consulate we will forward a request for approval to the local labour authority. This can take anywhere from 2-6 months.
For pre-approval Shield’s local entity will need to have advertised the role for a period of time with the labour authority before they labour authority will approve the application.
Once the application has been approved by the Aliens Office and by the Work Office, the Embassy/Consulate will issue the applicant with a Residence Permit which authorizes the applicant to work in Germany.
Note that those from non-visa Dependent Countries can apply for their Residence Permit after entering Germany.

Types of visas in Germany

Category	Description of Visa
Visits ('tourist' visas)	Depending on the activity you will be doing in Germany a tourist visa is generally the easiest option, requiring no special preparation or documents aside from the usual passport. Please note you cannot perform work activities on a tourist visa. While US citizens generally won’t require a visa for trips up to three months long, it is recommended to check with the consulate or embassy before going. Time: None Cost: None
Schengen Visas	Although US citizens generally don’t need visas for short-term (up to 3 month) stays, if a visa is required Schengen visas can be issued for short-term visiting or business purposes. Schengen visas allow free movement between ‘Schengen’ states: Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland. These visas are generally authorized for short periods of time, usually for a 3-month period once in six months. For a longer period of time, national-visas are required. Schengen visas cannot be extended or re-written for any other purpose. How to Apply for A Schengen Visa 1. Submitting the Application at a Local German Embassy Applications for a visa can also be found on most German embassy sites. For those based in the US, the German Missions in the United States offers more information at www.germany.info. 2. Generally, the original and 2 photocopies of the following documents will be required in English or German: ● Application form, ● A valid travel document (e.g. passport) valid for at least 3 months after end of your trip, ● Two recent passport photographs, ● Round-trip airline ticket or proof of confirmed flight reservations, ● Evidence of place to stay and purpose of visit (such as a invitation from a business partner in Germany), ● Proof of travel medical insurance with a minimum coverage of 30,000 Euros (US $50,000) that is valid for all Schengen countries, ● Evidence of travel insurance, ● Evidence of sufficient resources (e.g. money) to pay for living costs and return to home country, or Company guarantee letter with bank endorsement ● Declaration of genuineness of documents. Time: Up to 15 days Please contact us for a quote.
Work Permits and National Visas	For trips that will take longer than three months, a national visa will be required. The process is mostly similar to the Schengen Visa process, however there is a significantly longer wait of up to several months. It will also require a residence permit and additional steps registering after arriving in Germany. Note: foreigners from Australia, Canada, Israel, Japan, New Zealand, the Republic of Korea, Switzerland and the United States are able to freely enter Germany as a non-visa “tourist” but can apply to acquire/change their residence permit even after entering Germany. Citizens of all other countries must apply for visas and residence permits before arriving in the country. For those based in the US, the German Missions in the United States offers more information on their website. How to Apply for a National Visa: 1. Submit Application at Local German Embassy Applications for a visa can be found on most German embassy sites. In addition to the documents mentioned in the Schengen Visa application above, the following are required: ● Two completed application forms and three recent passport photographs ● If intending to stay in Germany more than 12 months, a Certificate of No Criminal Conviction (Polizeiliches Fuehrungszeugnis fuer berufliche Zwecke) may also be required, see below for details. Time: Up to several months Please contact us for a quote. 2. Apply for a Residence Permit This can also be done at the nearest German embassy. Whether a permit is granted depends on the following criteria: ● The business plan ● Qualifications and experience ● Level of financial investment* ● Company’s impact on employment ● Your contribution to the national or regional economy, innovation, and research ● Competition with established businesses *Note that for level of financial investment, immigrants planning to invest at least €250,000 in Germany are highly likely to obtain a residence permit almost automatically. The residence permit will be valid for a limited period of time, and will afterwards need to be renewed at the local immigration office in Germany. 3. Apply for Certificate of Health for Residence Permit (Gesundheitszeugnis für Aufenthaltserlaubnis) If already in Germany, these can be obtained from a German doctor or local health office (Gesundheitsamt). There are no clear guidelines on acquiring one before entering Germany, though it is expected that any doctor can provide suitable certification. A local German embassy would need to provide advice. Time: 1 day Please contact us for a quote. 4. Apply for Certificate of Good Conduct (Führungszeugnis) The German Police Certificate of Good Conduct (Führungszeugnis) is a certificate issued by the Federal Office of Justice, which indicates whether or not the applicant has a criminal record in Germany. These can be applied for through assistance from your home country’s embassy or consulate. Time: Up to 2 weeks (estimated) Please contact us for a quote. No source of information could be found that indicates the timeframe for this certificate; anticipate several weeks as it must go through international post and processing within Germany and then be sent back. 5. Register at Local Residence Registration Office (Einwohnermeldeamt) Within a week of arriving in Germany you must register at your local residence registration office (Einwohnermeldeamt, also known as Bürgeramt), usually located in the town or city hall. They issue an Anmeldebestätigung which will be required in conjunction with a passport for identification. The following documents are needed: ● Passport and visa, ● Two passport photographs ● Birth certificate (and marriage certificate if applicable) ● Proof of travel health insurance ● Your residence registration (Anmeldebestätigung) ● Proof of residence (e.g. rental contract) ● Certificate of good conduct (Führungszeugnis) ● Certificate of Health for Residence Permit (Gesundheitszeugnis für Aufenthaltserlaubnis) In addition, depending on your circumstances: ● Unemployed (e.g. business visit but not actively ‘employed’): proof of means of support, such as letter from the company or proof of adequate financial resources (Finanzierungsnachweis) of around €700/month ● Employed (e.g. for your employees being sent to Germany): proof of employment or letter from employing company ● Self-employed: proof of your status, such as membership of a professional or trade body, a VAT number or registration on a trade register Time: One to two weeks (while waiting you will receive a certificate stating you are awaiting a residence permit). Cost: None
Summary	Visas in Germany can be complex to negotiate because of the number of steps involved and the required involvement from German sponsors. Following the process outlined in this guide should give you a good start, but if you would like more information about visas in Germany or need help getting sponsored please contact us.

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