Germany is known for its robust economy and skilled workforce, making it an attractive choice for companies looking to expand globally. However, Germany also has some of Europe's most comprehensive labor laws, designed to protect employee rights while maintaining a productive business environment.
For companies looking to hire in Germany, understanding these labor laws isn't just helpful, it's essential for compliance and avoiding costly penalties.
This guide will walk you through everything you need to know about German labor laws to hire compliantly and build successful teams in this key European market.
Key takeaways:
- Germany's labor laws strongly favor employees, from strict termination rules to co-determination rights and widespread collective bargaining agreements.
- German employees are entitled to substantial protections and leave entitlements, including a minimum of 20 days of paid vacation, up to six weeks of employer-paid sick leave, and extensive parental leave benefits.
- Germany has strict compliance rules around hiring contractors, with the government regularly auditing companies to prevent false self-employment.
Labor Laws in Germany: What You Need to Know
German labor law is renowned for its employee-friendly provisions, combining strong statutory protections with co-determination principles that give workers a voice in company decisions.
The employment relationship in Germany is primarily governed by the German Civil Code (Bürgerliches Gesetzbuch or BGB), the Protection Against Dismissal Act (Kündigungsschutzgesetz), and numerous other specific laws covering aspects like working hours, paid leave, and workplace safety.
German employees are entitled to a comprehensive range of statutory benefits that employers must provide, including:
- Paid vacation time (minimum of 20 working days per year)
- Paid sick leave (up to six weeks at full pay)
- Maternity and parental leave
- Overtime pay compensation
- Notice periods before termination of employment
- Severance pay in certain circumstances
- Social Security benefits
A distinctive feature of German labor law is the concept of co-determination (Mitbestimmung), which gives employees the right to participate in company decisions through works councils.
This system extends employee influence beyond traditional union activities, creating a collaborative approach to labor relations.
Who Is Covered by Employment Laws in Germany?
German employment laws generally apply to all employees working within Germany, regardless of their nationality or the employer's country of origin. This includes:
- Full-time employees
- Part-time employees
- Fixed-term contract workers
- Apprentices
- Interns (with some exceptions)
- Foreign workers employed in Germany
Most employment protections do not cover independent contractors, but German authorities strictly scrutinize contractor relationships to prevent misclassification.
Executive employees with significant managerial authority may be exempt from specific provisions, particularly working hours limitations. However, they still benefit from many fundamental protections.
Employment Contracts & Probation Periods
Employment contracts form the foundation of the employer-employee relationship in Germany and must comply with specific legal requirements.
Types of Employment Contracts
German law recognizes several types of employment contracts:
- Indefinite-term contracts (unbefristeter Arbeitsvertrag): The standard form of employment with no fixed end date
- Fixed-term contracts (befristeter Arbeitsvertrag): Must be justified (such as temporary project work or replacing an employee on leave) and may only be renewed a limited number of times (generally up to two years, with three extensions).
- Part-time contracts (Teilzeitarbeitsvertrag): For employees working less than full-time
Required Contract Elements
According to the German Verification Act (Nachweisgesetz), employers must provide written documentation of essential employment terms within one month of the employment start date.
These include:
- Names and addresses of both parties
- Employment start date (and end date for fixed-term contracts)
- Job location and description
- Remuneration details (including bonuses and allowances)
- Working hours
- Vacation entitlement
- Notice periods
- Reference to applicable collective agreements
- Information on company pension schemes
While verbal agreements are legally binding, written contracts are strongly recommended and practically necessary to fulfill documentation requirements.
Probation Periods
German law allows for probation periods (Probezeit) of up to six months, during which either party can terminate the employment relationship with reduced notice periods (typically two weeks).
Special Employment Categories
Germany distinguishes between traditional employment and several special categories:
- Mini-jobs: Capped at EUR 538/month. Employees don’t pay tax; employers pay a flat contribution. Popular among students and retirees.
- Midi-jobs: Income between EUR 538.01 and EUR 2,000. Employees receive reduced Social Security rates.
- Freelancers (Freiberufler/Selbstständig): Must manage their own tax and insurance. Not eligible for labor protections like paid leave.
- Interns: May be paid or unpaid depending on duration and structure. Long-term interns (over three months) are entitled to minimum wage.
- Apprentices (Azubis): Employed under vocational contracts with rights to minimum wages, paid vacation, and health insurance.
Collective Bargaining & the Right to Unionize
The Collective Agreements Act (Tarifvertragsgesetz or TVG), enacted in 1949, establishes the framework for collective bargaining in Germany. This legislation has remained relatively unchanged and continues to play a crucial role in German industrial relations.
German workers have the constitutional right to join trade unions and engage in collective bargaining. However, fewer than one-sixth of German workers are union members, partly because the co-determination act provides strong workplace representation through other means.
Collective agreements (Tarifverträge) can be negotiated at the industry or company level, establishing standards for wages, working hours, and other employment conditions.
These agreements may be declared generally binding by the government, extending their application to all employers and employees in a particular sector, even those not affiliated with the negotiating organizations.
The Right to Form a Works Council
The Works Constitution Act (Betriebsverfassungsgesetz, or BetrVG) gives employees in companies with at least five permanent employees the right to establish a works council (Betriebsrat). These councils represent employee interests and are separate from trade unions, though they often cooperate.
Works councils have significant co-determination rights in areas such as:
- Working hours and breaks
- Temporary work reductions or increases
- Vacation scheduling
- Monitoring of employee performance and behavior
- Introduction of new technical systems
- Workplace safety measures
- Personnel matters (hiring, transfers, terminations)
Employers must inform and consult with works councils on these matters, and in some cases, obtain their approval before implementing changes. Companies with more than 100 employees must also establish an economic committee to discuss business developments and changes that may affect employees.
Working Hours & Wages
Germany’s Working Time Act (Arbeitszeitgesetz) limits the regular workweek to 48 hours — typically eight hours per day, Monday through Saturday. It can be extended to 10 hours a day with compensatory time off. In 2025, the minimum wage is EUR 12.82 per hour. It’s updated annually.
Overtime
Overtime must be explicitly addressed in the employment contract or CBA. There is no statutory overtime premium, but many collective agreements specify supplements of 25-50% above the regular hourly rate. Some agreements also allow for compensatory time off instead of monetary compensation.
While not legally mandated, many German employers provide a 13th-month salary (Weihnachtsgeld or Christmas bonus), particularly in industries covered by collective agreements.
Health & Safety Standards
The Occupational Health and Safety Act (Arbeitsschutzgesetz) requires employers to:
- Provide a safe working environment
- Conduct regular risk assessments
- Supply protective equipment when needed
The General Act on Equal Treatment (Allgemeines Gleichbehandlungsgesetz or AGG), enacted in 2006, prohibits discrimination based on race, ethnicity, gender, religion, disability, age, or sexual orientation. This applies to all aspects of employment, including recruitment, promotion, compensation, and termination.
Employer Taxes
Employers in Germany contribute approximately 20% of an employee’s gross salary to mandatory social programs, including:
- Pension insurance (~9.3%)
- Health insurance (~7.3%)
- Unemployment insurance (~1.2%)
- Nursing care insurance (~1.5%)
- Accident insurance: Paid entirely by the employer
These contributions are automatically withheld and remitted via the payroll system.
Additionally, employers must withhold income tax from employee wages according to individual tax brackets.
Termination Guidelines & Severance Pay
Unlike the at-will employment common in the United States, termination in Germany is strictly regulated, particularly by the Protection Against Dismissal Act (Kündigungsschutzgesetz or KSchG), which applies to companies with more than 10 employees and to employees who have been employed for more than six months.
Valid Grounds for Termination
Employers must have valid grounds for termination, which fall into three categories:
- Conduct-related: Serious misconduct or persistent violations of employment obligations
- Person-related: Inability to perform required duties due to long-term illness or lack of necessary qualifications
- Business-related: Economic necessity, such as company restructuring or downsizing
The termination must be proportionate to the situation, with less severe measures (like warnings or transfers) considered first.
Notice Periods
Statutory notice periods in Germany depend on the employee's length of service, ranging from two weeks during a probationary period, to seven months for employees with over 20 years of tenure. Employment contracts and collective agreements may specify longer notice periods but cannot reduce the statutory minimum.
Severance Pay
While there is no statutory right to severance payments for regular terminations, it's commonly provided in these situations:
- Termination agreements negotiated between employer and employee
- Court settlements in wrongful dismissal cases
- Social plans in case of mass layoffs
- Specific provisions in employment contracts or collective agreements
When provided, severance typically ranges from 0.5 to 1.5 months' salary per year of service.
Health Insurance
Health insurance is mandatory for all residents in Germany. The system consists of two main types:
- Statutory Health Insurance (Gesetzliche Krankenversicherung or GKV): Mandatory for employees earning less than EUR 69,300 per year (as of 2024)
- Private Health Insurance (Private Krankenversicherung or PKV): Optional for employees earning above this threshold and for self-employed individuals
For employees in the statutory system, contributions are shared between employer and employee. Employers also participate in the administrative aspects of the system, including registration and contribution payments.
Some employers offer supplementary private health insurance as an employee benefit to cover services not included in the statutory scheme.
Vacation and Holiday Leave
German employees are entitled to at least 20 paid vacation days per year (based on a five-day workweek). Many employers offer more, with 25-30 days being common, especially under collective agreements.
Additionally, Germany has 9-13 public holidays, depending on the federal state. Major nationwide holidays include New Year's Day, Good Friday, Easter Monday, Labor Day (May 1), German Unity Day (October 3), and Christmas (December 25-26).
Sick Leave
Employees are entitled to continue receiving their full salary for up to six weeks during illness, paid by the employer. A medical certificate is typically required after the third day of absence.
After six weeks, statutory health insurance provides sick pay (Krankengeld) at approximately 70% of regular earnings for up to 78 weeks for the same illness within a three-year period.
Parental Leave
Germany offers extensive parental leave benefits:
- Maternity leave (Mutterschutz): Six weeks before and eight weeks after childbirth (12 weeks for premature or multiple births)
- Parental leave (Elternzeit): Up to three years per child, which can be divided between parents and taken until the child turns 8
- Parental allowance (Elterngeld): 65-67% of previous net income (capped at EUR 1,800 per month) for up to 14 months when shared between parents
During maternity leave, employers must supplement health insurance benefits to maintain the employee's full salary. During parental leave, the government provides the parental allowance, with jobs protected for employees' return.
German Independent Contractors
Companies must be careful to avoid misclassification when hiring independent contractors in Germany. German authorities are particularly vigilant about false self-employment (Scheinselbstständigkeit), where contractors are treated as employees in practice.
Key factors that determine true independent contractor status include:
- Working for multiple clients
- Control over working hours and methods
- Using their own equipment and workplace
- Bearing entrepreneurial risk
- Not being integrated into the client's organization
Misclassification risks are significant in Germany, with authorities conducting regular audits and investigations, especially in sectors where contractor use is common.
Penalties for not Following German Labor Laws
Non-compliance with German labor laws can result in severe consequences:
- Financial penalties: Fines ranging from a few thousand euros to millions for serious violations
- Back payments: Retroactive payment of unpaid wages, benefits, and social security contributions
- Legal costs: Expenses related to litigation in labor courts
- Business restrictions: Potential exclusion from public contracts for certain violations
- Criminal charges: In cases of severe violations such as wage withholding or dangerous working conditions
- Reputational damage: Negative publicity affecting business relationships and talent acquisition
How to Stay Compliant When Hiring in Germany
Companies looking to hire in Germany have two main options:
- Establish a legal entity: Establishing a German subsidiary provides full control but requires significant time (3-6 months) and resources, including minimum capital requirements, registration with multiple authorities, and ongoing compliance obligations.
- Partner with an Employer of Record (EOR): An EOR like RemoFirst enables companies to hire German employees without establishing a legal entity. The EOR becomes the legal employer, handling payroll, benefits, and compliance while the company maintains day-to-day management oversight of employees.
For many companies, especially those testing the market or hiring a small team, an EOR offers the most efficient path to compliant employment in Germany.
Hire in Germany with RemoFirst
If you're ready to expand your team into Germany without the complexity of establishing a legal entity, RemoFirst can help. Our Employer of Record services enables you to hire top German talent quickly and compliantly.
With RemoFirst, you can:
- Hire and onboard employees in Germany in days
- Ensure complete compliance with all German labor laws and regulations
- Offer competitive benefits that attract and retain top talent
- Manage payroll in local currency, with all required tax withholdings
We help companies hire staff in 185+ countries, including Germany, with industry-leading expertise in local employment law and competitive pricing starting at $199 per person/month.
Not only that, we can also help you compliantly hire, manage, and pay German contractors for $25 per person/month.
Book a demo today to discover how RemoFirst can support your expansion into Germany.
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