Payroll & Employment Guide: Germany

Hiring in Germany

To hire employees in Germany, employers must follow national labour laws, collective bargaining agreements (CBAs) where applicable, and strict social security and tax requirements. This includes compliance with statutory minimum wage rules, working time limits, and documentation obligations.

Whether you are hiring directly through your German entity or via an Employer of Record (EOR), understanding employment contracts, probation periods, leave entitlements, and social insurance obligations is essential to building a compliant and competitive workforce in Germany.

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Employee Benefits & Social Security

Germany has a comprehensive social insurance system. Both employer and employee contribute to mandatory social insurance, and employers must also comply with statutory leave and working time rules.

Mandatory Social Insurance (employer share, typical ranges):

• Pension Insurance: 9.30% of gross salary
• Unemployment Insurance: 1.30%
• Health Insurance: approx. 7.30% (plus additional contribution where applicable)
• Long-Term Care Insurance: 1.7% (employee share may vary based on personal situation)
• Accident Insurance: employer-paid only; rate varies by industry risk level

On top of social insurance, employers must comply with statutory leave, paid public holidays (where applicable), sick-leave policies, and non-discrimination protections.

Other Common Benefits (depending on employer policy or CBA):

• Additional vacation days above the statutory minimum
• Overtime compensation or time-off-in-lieu (especially under CBAs)
• Supplementary health or other private insurance (optional, depending on employer)

Leave Policies & Working Time:

• Annual leave: statutory minimum 20 working days (for a 5-day week); many employers offer 25–30 days
• Public holidays: vary by federal state, generally 10–13 days annually
• Rest breaks: 30 minutes for working 6–9 hours; 45 minutes if working more than 9 hours a day
• Daily rest: at least 11 consecutive hours between shifts

Overtime and work beyond standard hours are allowed under defined conditions. Any premium payments or compensatory time-off arrangements should be set out in the employment contract, works agreement, or CBA.

Designing a benefits package that aligns with German law and market practice will help attract and retain talent while staying compliant.

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Taxes in Germany

Germany operates a progressive income tax system combined with mandatory social insurance contributions. Employers play a central role in withholding wage tax and employee contributions directly from payroll.

Payroll Taxes & Contributions:

• Income tax (Wage Tax) is deducted at source based on tax class and personal circumstances
• Employee social security contributions for pension, health, unemployment, and long-term care are withheld from gross salary
• Employers pay their own share of social insurance contributions on top of gross salary

Employer Cost Impact:
Beyond gross salary, employers’ social contributions often amount to around 22–23% or more, depending on sector, insurance selection, and employee’s personal situation.

In many sectors, collective bargaining agreements (CBAs) may define higher wage levels and additional benefits, which can further influence overall employment cost.

Correctly calculating and remitting wage tax and social security contributions is critical to maintaining payroll compliance in Germany.

Payroll in Germany

Payment Currency: Euro (EUR)

Payroll Cycle: Most employers process payroll on a monthly basis.

Payslips & Deductions:
Employers must withhold income tax (Wage Tax) and employee social security contributions from gross salary. German payslips typically show gross pay, each statutory deduction (social insurance, tax), net pay, pay period, and key employer/employee details.

Employer Costs:
In addition to gross salary, employers must budget for their share of social insurance contributions. Combined employer contributions frequently total around 22–23% or more, depending on factors such as insurance selection, sector, and employee’s personal and family status.

Sector-Specific / Collective Bargaining Wages:
In many industries, collective bargaining agreements (CBAs) set minimum wages and benefits above the statutory minimum. Employers must comply if their employees fall within the scope of these agreements.

Implementing a robust German payroll process means ensuring correct registration with social security authorities, accurate calculation of all deductions, timely payments, and proper reporting to authorities.

Looking for help running compliant payroll in Germany, including wage tax and social security?

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Legal Regulations

Employers in Germany must comply with national labour laws, social insurance rules, data protection standards, and anti-discrimination legislation. This is particularly important for foreign employers hiring locally or via cross-border structures.

Key Compliance Requirements:

• Registering new hires with social security authorities and ensuring health insurance coverage
• Reporting and paying contributions for pension, unemployment, long-term care, and accident insurance
• Respecting rules on working hours, breaks, rest periods, and vacation
• Complying with anti-discrimination laws (no discrimination based on gender, religion, age, disability, sexual orientation, etc.)

Overtime, night work, and weekend work usually require agreement and may trigger additional pay or time off, as set out in contracts, works council agreements, or CBAs.

Termination Procedures:
Termination must respect statutory notice periods, which increase with length of service. Inappropriate or unjust dismissal can result in disputes, potential reinstatement claims, and/or severance obligations, especially where works councils or CBAs are involved.

Having clear policies and compliant procedures in place reduces legal risk and supports a stable employment relationship.

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Work Permits & Visas for Germany

For non-EU / non-EEA nationals, hiring in Germany requires compliance with visa and work permit regulations. The appropriate permit depends on the candidate’s nationality, skill level, job role, qualifications, and duration of employment.

Foreign employers without a local German entity must ensure correct registration and compliance with German authorities before onboarding staff. In such cases, using an Employer of Record (EOR) or local payroll partner can be an efficient route.

Common professional immigration routes include highly skilled or specialist permits, which typically have salary thresholds and qualification requirements. Employers must act as sponsors and ensure that employment terms meet regulatory criteria.

For companies without a German entity, an EOR can support work authorizations while acting as legal employer locally, allowing you to access German talent faster and more compliantly.

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EOR & PEO Services in Germany

For organisations without a German legal entity — or those looking to simplify HR and payroll operations — Employer of Record (EOR) and Professional Employer Organization (PEO) services provide a streamlined way to hire and manage talent in Germany.

Employer of Record (EOR):

An EOR becomes the legal employer of your staff in Germany while you manage their day-to-day work and performance. The EOR typically handles:

• Employment contracts compliant with German law
• Payroll processing, including statutory deductions and contributions
• Social insurance enrollment (health, pension, care, unemployment, accident)
• Leave and benefits administration
• Onboarding, compliance, and termination support
• Employee documentation and HR administration

PEO Services in Germany:

If you already have a local German entity, a PEO can support your HR and administrative operations while you remain the legal employer. Typical services include:

• HR support and day-to-day workforce administration
• Payroll and benefits management
• Compliance with German labour and social security regulations
• Drafting and managing employment contracts and HR policies

EOR/PEO solutions help international companies scale in Germany while reducing complexity, local risk, and internal administrative burden.

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Payroll Calculator

Estimate salaries, employer contributions, and statutory deductions in Germany using Dhi ADT’s payroll calculator. Get an instant view of gross-to-net pay and total employment costs for your German hires.

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