When you’re looking to expand your business, Germany is a great country to choose. Not only does this EU member state have the biggest national economy in Europe, they’ve also made a significant effort to encourage foreign businesses in the post-pandemic world by easing visa restrictions and offering financial incentives.
With all that being said, Germany still prides itself on its confusing maze of bureaucracy, regulations, and cobbled together Acts, Codes, and Agreements that stand in place of a unified national set of employment laws. This makes compliance work when hiring employees in Germany particularly challenging.
As with many things, the best defense is a good offense. Before you start the hiring process, make sure you’re armed with the information you need about German employment laws. In this guide, we’ll discuss the most important things every employer should know before setting up shop in Germany and answer commonly asked employment questions.
1. At-will employment doesn’t exist
Germany doesn’t permit at-will employment. German employers and employees alike must have a written offer of employment detailing a fixed-term contract that doesn’t permit the latter to be subject to unfair dismissal without a notice period.
Below is a brief overview of just some of the acceptable reasons a German employer can terminate an employment relationship:
- There is a fixed-term employment contract that has come to an end, and there will be no consequences for not renewing it.
- Despite the company’s best efforts to solve a problem with or between employees, nothing has worked. In this case, termination of the employment relationship would be considered socially justifiable.
- The company is reorganizing or going bankrupt, and many employees are facing redundancy.
2. Misclassifying employees can be an expensive mistake
Misclassifying employees as independent contractors is one of the worst mistakes you can make in Germany as they’re known for having some of the strictest penalties for the offense. They keep a sharp eye on businesses to ensure everyone is following the rules, and they’re known for dropping in and auditing employers with minimal warning to make sure you’re in compliance.
Why? Well, when you misclassify employees as independent contracts, that means the German government isn’t getting the funds it needs to keep its Social Security system, which ensures sick, out-of-work, disabled, and retired citizens can live comfortably. To learn more about misclassification penalties and how to stay in compliance with the German labor code, read our comprehensive guide.
3. Germany has strong anti-discrimination protections
Equality is a top priority for Germans: not just at the federal level, but also in the workplace and at the individual level. In 2006, the German Government passed the General Act on Equal Treatment (Allgemeines Gleichbehandlungsgesetz). It was overwhelmingly popular and the Bundesrat ratified it without so much as a debate.
The General Act on Equal Treatment, among other things, protects individuals from direct discrimination, indirect discrimination, being discriminated against due to gender identity and sexual orientation, education, and the provision of goods and services. While it applies to every aspect of German life, it’s important to note that it applies in the workplace as well.
4. Most German workers have the right to unionize
While German workers do have the right to join trade unions, co-determination–which is mentioned below as a group of elected officials that negotiates with, has a direct line to, and deals with management– is much more popular and powerful than unions. In fact, because of the power of co-determination, fewer than one-sixth of German workers join trade unions, instead opting for the strong protections afforded to them by the Mitbestimmung and the collective bargaining agreements.
5. If you fail to offer benefits, you’ll be hit with fines, penalties, and legal consequences
German employees (save independent contractors) are entitled to a variety of statutory benefits, including public holidays, protection against unfair dismissal, maternity leave, paternity leave, vacation entitlement, and paid sick leave. Additionally, German employees are not permitted to work more than eight hours in a working day.
German employee rights are heavily protected by co-determination (Mitbestimmung), which gives them the right to have a say in their working conditions.
Finally, due to these many layers of protection, should you fail to offer the mandated benefits package, you could find yourself facing serious legal consequences on many fronts.
6. Non-disclosure agreements (NDAs) are legally binding in Germany
NDAs can be used for company data protection so long as they’re reasonable, specific, and within the public interest. In Germany, NDAs only last for a certain period of time, after which, the third party is free to disclose the information the non-disclosure agreement prohibits them from talking about.
However, An NDA is null and void if it’s being used to cover up criminal activity on the part of the company, and in 2022, the German parliament (the Bundestag) considered passing the Whistleblower Act, which prevents whistleblowers from experiencing retaliation.
You can read more about German NDAs and data protection here.
7. Employers are not required to offer retirement pensions, but they must contribute to them
One of the statutory benefits German employment law entitles full-time employees to is retirement pensions. Now, here’s where it gets a bit tricky: Companies do not have to offer private pension schemes to their employees because the German government offers a state social security plan that both employees and employers pay into through paycheck deductions. Each party splits the 18.6% contribution equally. The social security plan covers German citizens when they reach old age.
8. You need to safeguard employees’ personal information
The personal information of German employees is protected by one of the world’s strongest privacy acts: The European Union General Data Protection Regulation (GDPR). The GDPR is extremely strict about how workers’ information can be used and stored, getting informed consent (which can be revoked at any time) from the employee, transparency on how the data will be stored, the use of top-of-the-line cybersecurity measures, and much more.
9. There’s a law that allows German citizens to form a works council
The Works Constitution Act (Betriebsverfassungsgesetz)-- or more simply, BertVG, has changed several times over the last number of years, but the most important thing to remember is that it allows employees to be an active part of what goes on in their workplace. To name a few of the changes, workers now have increased participation rights at work, the number of women in the workplace has grown, steps are being taken to mitigate the stress between work life and taking care of a family, and so on.
Frequently asked questions about German labor laws
What is the minimum wage in Germany?
It may surprise you to learn that minimum wage laws in Germany weren’t introduced until 2015. Since then, however, they have become a staple of protecting German employees from being paid far too little.
As of 2023, the minimum wage for all German employees is €10.45. Employers should be aware that the minimum wage is raised once every two years depending on a variety of factors, including economic conditions, and that the decision is made by a Minimum Wage Commission (Mindestlohnkommission).
What are the overtime laws in Germany?
The German law doesn’t actually have any regulations when it comes to overtime. This is entirely between you, your employer, and the employment contract you both signed.
Furthermore, remuneration only needs to be provided if the overtime is deemed necessary for the employee to complete their tasks. And there’s good news for employers: You don’t have to pay overtime if your employees work overnight, on Sundays, or on holidays.
While this might seem unfair to the employee, there are some protections in place to ensure they don’t work themselves to the bone. Not only are they capped at working no more than 60 hours per week, but some companies do choose to pay for overtime or offer additional time off in order to boost morale and retain top talent.
What are the required benefits in Germany?
All full-time German workers classified as employees are entitled to the following statutory benefits. It may come as no surprise that the various benefits are administered by not one, but two federal ministries: the Federal Ministry of Labor and Social Affairs and the Federal Ministry of Health.
Before we dive into the statutory benefits, it’s worth reminding employers that independent contractors have no such entitlement to any of these benefits:
- Retirement Pensions
- Unemployment insurance
- Vacation entitlements*
- Public holidays (depending on which of the 16 German states they reside in)
- Workers’ compensation
- Health insurance**
- Paid sick leave
- Maternity leave
- Parental leave
- Long-term/nursing care
Remember: These are statutory minimums. You are certainly welcome to offer more, and many companies do. Germany has a highly educated workforce, and competition for top talent is fierce. You’ll stand out by being willing to offer more than the bare minimum.
For more information on mandatory benefits in Germany, read our complete guide.
*Quick note: Employees who have been with the company for six months or less are not entitled to vacation time. Otherwise, full-time employees who have been with the company for more than six months receive about 25-30 days of paid vacation each year.
**Health insurance is mandatory in Germany, and most citizens are covered under the public health care plan. However, if they make more than a certain amount each year, they are allowed to opt out of the state-run health insurance plan and opt for a private health care provider.
How do I terminate employees in Germany?
It’s crucial to be aware of employee rights when it comes to being terminated. Here’s what you need to know.
First, the official employment contract you and your German employee sign must include a clause that clearly states the company’s policies on termination of employment. The clause should detail the notice period the employee should expect, as well as the severance package they’ll receive.
You must notify the local works council (also called Betriebsrat) that you intend to terminate the employment. Simply put, the works council is a group of elected officials that works with the management of each company. Their primary goal is to protect employees. You’ll be required to detail the reasons for your decision to provide the employee with a notice of termination.
A notice of termination is required unless the case is extreme. While the majority of employees are entitled to a notice period, this doesn’t apply to those who have violated their contract in serious ways, such as embezzling from the company or abusing coworkers.
German severance payments are under the purview of either the local works council or the applicable collective bargaining agreement. The federal government has left this part of employee dismissal to the organizations that have closer ties to the company.
For more information on mandatory notice periods and dismissing employees in Germany, check out our guide.
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Rippling and its affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.