Germany is such a European Union member state that has a robust economy and a whole lot of financial incentives prepared for businesses planning expansion and startups, not to mention a skilled English-speaking workforce. Many companies expanding overseas are now trying to hire German independent contractors and conduct international payments. However, if you want to hire people in Germany then there are only two ways in which this is possible. Either you have to establish a legal entity or get an EOR Germany that will be ready to help you. With an Employer of Record in Germany, one of the main benefits is that you get a faster market entry along with reducing your administrative burden while handling each employee’s records. Let’s take a deeper look into why you need to opt for an EOR in Germany while hiring new employees.

Table Of Contents

• Overview of Germany
• What is an Employer of Record in Germany?
• Employer of Record vs Legal Entity
• Use Cases for Availing EOR Services in Germany
• Labor Laws and Compliance in Germany
• Best EOR Companies in Germany
• What EOR Services Are Provided in Germany?
• How to Hire Employees Through an EOR Germany Partner
• Remote EOR Employee Onboarding Checklist for Germany
• Taxes in Germany
• CTC Calculator for Hiring Employees in Germany
• Key Considerations for Hiring Employees Through EOR in Germany
• Employee Benefits in Germany
• Terminations in Germany
• How to Choose the Right EOR Germany Services?
• Benefits of Working with an EOR Service Provider in Germany
• Risks and Drawbacks of EOR Germany
• EOR Germany vs Traditional HR Software
• Costs of Using an EOR in Germany
• Conclusion: EOR Germany
• FAQs – EOR Germany

Overview of Germany

Germany is considered to be the powerhouse in the European economy. It offers a compelling landscape for businesses that are seeking both growth and innovation. With a highly skilled workforce and a stable political environment, Germany has surely been one of the magnets of international organizations.

An unbeatable economy

Germany boosts a diverse economy driven by sectors such as engineering, automotive, IT, and manufacturing. It’s a strong emphasis on development and research that fosters better technological and innovation advancements.

A business-friendly environment

Germany’s well-established legal framework, strong intellectual property protection, and efficient bureaucracy create a favorable environment for a lot of your businesses. There are also key cities present that you can target such as Berlin, Hamburg, Stuttgart, Frankfurt, and Munich which offer a wealth of chances for entrepreneurs and established companies alike.

A skilled workforce

Germany’s education system tends to produce a highly skilled workforce, especially when you consider STEM fields. The country’s commitment to vocational training ensures you get a steady supply of skilled workers for all industries.

Why Germany?

By using an EOR in Germany, you could efficiently navigate through the complexities of the German labor market while also accelerating your establishment. Not to mention Germany is surely a great idea for the following reasons:

• Government support – Germany offers a lot of support programs and incentives for those foreign businesses that are new.
• Skilled workforce – You get a high skilled and educated workforce for your organization
• Strong EU membership – Since Germany is a part of the core member of the EU it offers a lot of benefits such as capital, labor, services, and goods.

What is an Employer of Record in Germany?

An EOR Germany or employer of record in Germany is a third-party organization that acts as the legal employer for foreign companies looking to hire new employees in Germany. This strategic partnership has in fact helped a lot of companies since they do not need to establish a legal entity in Germany which eventually streamlines the hiring process and ensures there is proper compliance with local labor laws.

How it works?

While the EOR is surely the formal employer for the employee, the hiring will retain control over the employee’s job function, day-to-day management, and the work associated. Here is how an EOR works.

• Hiring – The company tends to identify and hire the ideal candidate
• Legal environment – The EOR tends to become the legal employer of the inidvdual that you have hired.
• Payroll and HR – The EOR further handles all the HR functions such as benefits, payroll, compliance with German labor law, and taxes.

Employer of Record vs Legal Entity

The decision to select between an EOR vs legal entity will entirely depend on various factors. These factors that govern which one if the best would include your company’s long-term strategy, the scale of your operations, and the level of control you desire.

Here is a detailed difference between legal entity Germany vs EOR Germany and what makes them different.

Criteria	Legal Entity (Germany)	Employer of Record (EOR) in Germany
Definition	A legal entity is a company registered in Germany, legally allowed to hire employees directly.	An Employer of Record (EOR) is a third-party provider that officially employs workers on behalf of a client company, ensuring compliance with German labor laws.
Ownership	Fully owned by the parent company or its shareholders.	The EOR is the official legal employer, while the client company retains operational control of the employees.
Employment Contracts	Employment contracts are issued directly by the legal entity and must adhere to German labor laws.	The EOR provides employment contracts compliant with German labor regulations and standards.
Compliance Responsibility	The legal entity is fully responsible for compliance with German labor laws, tax systems, social security, and employee benefits.	The EOR ensures compliance with all German employment regulations, including taxes, statutory benefits, and local laws.
Payroll & Benefits Management	Managed internally by the legal entity, including payroll, tax deductions, social contributions, and employee benefits.	The EOR manages payroll processing, tax payments, social contributions, and benefits, ensuring accuracy and compliance.
Tax Liabilities	The legal entity assumes all tax liabilities, including income tax, social security contributions, and other local taxes.	The EOR assumes all tax-related responsibilities for employees, including deductions and filings in accordance with German law.
Time to Set Up	Setting up a legal entity in Germany can take several months due to bureaucratic processes, registration, and operational setup.	The EOR can onboard employees within days or weeks, as it already has an established legal framework in Germany.
Employee Onboarding	Managed internally, requiring HR resources to handle contracts, compliance checks, and system setup.	The EOR handles all aspects of onboarding, including drafting contracts, compliance checks, and administrative processes.
Employment Law Expertise	The legal entity needs to hire local legal experts or consultants to navigate German employment laws and regulations.	The EOR provides expertise in German labor laws, minimizing legal and compliance risks for the client company.
Risk & Liability	The company assumes full legal risks, including fines, penalties, or lawsuits related to non-compliance.	The EOR assumes all employment-related risks and liabilities, protecting the client company.
Control Over Workforce	Full control over hiring, recruitment, day-to-day management, and termination of employees.	The client company maintains operational control over employees’ work, while the EOR ensures compliance and legal management.
Flexibility	Limited flexibility, as the legal entity setup involves significant commitments, making scaling or exiting complex.	Highly flexible, enabling quick hiring or scaling in Germany without establishing a local entity.
Cost & Investment	High upfront costs for legal registration, HR setup, tax management, and operational expenses.	Lower costs, as the EOR handles legal compliance, HR, and payroll without requiring a significant upfront investment.
Global Expansion	Expanding into Germany requires establishing a legal entity, which is time-consuming and resource-intensive.	The EOR facilitates quick global expansion, enabling companies to hire employees in Germany seamlessly without setting up a local entity.

Use Cases for Availing EOR Services in Germany

Hiring in Germany could be quite hard, especially with a lot of laws needing to be followed. The German Civil Codes outlines the key labor laws however there are also certain additional protections for German workers. This is exactly why an EOR in Germany could be quite beneficial. However, there are certain scenarios where having an EOR would be great!

Market expansion

For those organizations that would like to establish a quick presence in the German market without having to deal with a lot of cost and time associated with a legal entity, this could be a great choice. Also, for those who are looking to scale your workforce based on the changing business needs.

Hiring remote employees

Ensuring compliance with labor laws in Germany could be exhausting but it doesn’t have to be when you have an EOR in Germany. All your HR tasks could be taken care of such as benefits, payroll, and contract management.

Freelancer to a full-time employee

You can seamlessly transition from becoming a freelancer to becoming a full-time employee while letting the employer of record handle all the administrative and legal processes.

Global talent hire

You can hire talent out of your area while also managing their contracts, payroll, and benefits. There could also be ease in the mobility of employees to Germany. You can also process visas and handle immigration.

Labor Laws and Compliance in Germany

Germany has a very robust labor law framework that protects all of its employee and their rights. It also ensures fair working conditions are being provided. Understanding the laws in Germany is very important for companies that operate in Germany whether it is direct or via an EOR.

Employment Contracts

All employment contracts in Germany must be in writing. They should also clearly state the terms of employment that you’d like for your employee including job duties, working hours, salary, and notice periods.

Social Security

Employers are obligated to contribute to Germany’s social security system which mainly covers a lot of benefits such as unemployment insurance, pension, and health insurance. Germany works on a Pay As You Earn (PAYE) model.

Working Hours

German labor is very strict when it comes to regulating working hours for its employees. The typical working hours is about 40 hours per week. It also takes care of overtime pay and rest periods to ensure they get compensated properly.

Employee Rights

German labor laws provide extensive protection for employees which includes their right to paid leave, maternity/paternity leaves, or sick leaves. There are in total 9 public holidays along with an annual entitlement of about 20 days of leave for a five-day work week. Those working on a six-day work week have 25 days leave entitlement. Sick leave entitlement in Germany is six weeks and requires a medical certification from your medical practitioner.

Collective Bargaining Agreements

Collective Bargaining Agreements or CBAs play a very important role in determining the working conditions in Germany. CBAs are negotiated between employers’ associations and unions that often set industry-wide standards for benefits, wages, and working hours.

Best EOR Companies in Germany

There is no doubt that getting a Germany-based EOR will help you manage the complexities of German employment regulations. This in turn will also help you concentrate better on growing your business. However which German EOR service is the best? Well, here’s a list of the best EOR companies in Germany that you might want to take a look at.

Asanify

Asanify is a specialized EOR provider that is focused on the German market They also offer a number of HR services such as payroll, compliance, and benefits. They are also known for their personalized approach and commitment to client satisfaction.

Deel

Deel is a global payroll and HE platform that offers multiple EOR services in Germany. It is also quite known for its user-friendly interface and comprehensive suite of tools. Deel also helps a lot of businesses to hire and manage their employees in Germany without having a need to establish a new legal entity in Germany.

Remote

Remote is quite a popular choice for businesses that are looking to hire remote workers in Germany. They also provide a seamless onboarding experience while also handling all HR and payroll tasks. This is all done while ensuring compliance with German labor laws.

Suggested Read: EOR India- A Detailed Guide on Employer of Record 2024 

What EOR Services Are Provided in Germany?

An EOR that is present in Germany offers a range of HR and payroll services that help any employer to streamline the hiring and management of their employees. Here are a few of the EOR services in Germany which may interest you.

Payroll management

EORs tend to handle all the timely and accurate payroll processing. This also includes salary calculation and distribution according to Germany’s payroll laws. There is also a deduction for taxes and social security contributions.

HR and employee administration

There are a range of HR services that are taken up by an EOR such as performance reviews, employee relations, and disciplinary actions. They also manage all the employee benefits such as retirement plans, health insurance, and vacation time.

Onboarding and contract management

EORs help in drafting legally compliant employment contracts, conduct background checks, and manage the entire onboarding process. They also ensure that all the necessary paperwork is completed and that all the employees are compliant with German labor laws.

How to Hire Employees Through an EOR Germany Partner

You can easily bypass all the hassle and easily expand throughout Germany without having to open up a new legal entity by partnering with a Germany EOR. Here are a few of the steps for hiring employees through an EOR Germany partner.

Step 1 – Choose an EOR with good expertise

Check which EOR is the right start for your international hiring and workforce journey by checking their expertise. This also includes knowledge of Germany’s local labor laws. An EOR Germany is supposed to be up to date with all the laws so that they can protect you from matters of non-compliance. They could also help you in translation from German to English since they are aware of specific German business traditions.

Step 2 – List our job requirements

When you hire an employee, you might want to specify all your details or job descriptions based on the employee you want to hire. Make sure you outline what the job role entails such as the duties and responsibilities that an employee is supposed to fulfill. This description should also include salary bonuses and benefits that you wish to provide your employee.

Step 3 – Create a compliant German employment contract

Now you might want the EOR to oversee the contract process. The contract created must be completed and negotiated on behalf of the client company. To maintain German employment contract compliance you need to adhere to the German civil code. Working with a German EOR will help you get a breakdown of the employment laws that govern the employment process. This guarantees that the contract presented to an employee complies with all the important labor laws right from working hours to minimum wages to employee benefits.

Step 4 – Onboard the candidate with EOR

Onboarding in Germany starts with checking whether your employer has work eligibility. An EOR could help perform an in-depth background check in addition to obtaining the paperwork such as the employee’s visa and permits, tax ID number, and the “steuerklasse”, which refers to the tax classes that an employee belongs to.

Step 5 – Monitor payroll and engage with EOR for ongoing employment issues

When the client companies work with an EOR in Germany it guarantees that all the correct deductions have been taken care of according to labor laws. The client company remains in charge of its workforce and will have access to payroll deductions to ensure accuracy. You might also want to ensure that you are fully aware of the various codes and acts that relate to employment laws.

Remote EOR Employee Onboarding Checklist for Germany

Onboarding Step	Responsibility	Details
Before Offer Letter
Collect Employee Details	Company	Gather necessary details like name, DOB, contact info, address, previous employment documents, etc.
After Offer Letter
Draft Employment Contract	EOR	Create localized employment agreements compliant with German labor laws and regulations.
Background Verification	EOR	Conduct background checks with informed consent from the new hire.
Welcome Email	Company & EOR	Company sends a welcome email; EOR manages the local onboarding process.
On Joining Day
Employment Documentation	EOR	Ensure all paperwork like contracts, NDAs, tax forms, and other required compliance documents are completed.
Payroll Setup	EOR	Collect required documents and set up payroll systems, tax calculations, and social contributions.
Policy Briefing	Company	Explain leave policies, workplace code of conduct, company processes, and procedures.
Account Setup	EOR	Assist in setting up bank accounts for salary deposits as per German requirements.
Introduction to Systems	EOR	Provide an overview of payroll systems, HRIS platforms, and other HR tools.
IT Setup	Company/EOR	Deliver necessary equipment, software access, and IT training for smooth operations.
Mentor Assignment	Company	Assign a buddy or mentor to help the new hire adapt to company culture and processes.
Post-Onboarding
Payroll Explanation (First Paycheck)	EOR	Explain payslip components like gross salary, tax deductions, social contributions, and net pay.
Ongoing Support	Company	Conduct regular check-ins and 1:1 meetings to address concerns, offer support, and share feedback.
HR Operations	EOR	Manage ongoing payroll processing, statutory compliance, benefits administration, and HR tasks.

Taxes in Germany

German workers are usually paid monthly. Germany has progressive tax brackets and the rates are mainly based on each of the employee’s annual income. The tax slab rates are as follows:

Income Tax Rates in Germany

Income Range (€)	Tax Rate (%)
0 to 10,347	0%
10,632 to 61,971	14% to 42%
61,971 to 277,825	42%
277,824 and above	45%

Payroll taxes also include

Germany also employs a progressive tax system where your tax rates go on increasing as your earnings become higher. To benefit from tax deductions, they are also supposed to complete an annual tax return. Many of the employees in Germany tend to submit one even if they are not obliged to, to make sure they are not overpaying any taxes. The standard VAT rate right now is 19%.

CTC Calculator for Hiring Employees in Germany

In Germany, the total cost to the company does not only involve the gross salary of your employee but also covers the various employer contributions that you are supposed to submit along with statutory deductions. These additional costs could highly impact your overall cost of hiring an employee.

Breakdown of CTC in Germany

• Taxes and Levies – Various taxes and levies are imposed on both employers and employees.
• Gross Salary – This is considered to be your employee’s base salary before taxes and deductions
• Pension Contributions – Employer contributions to the statutory pension scheme are also supposed to be added to CTC.
• Health insurance – Employee and employer contributions to health insurance
• Unemployment insurance – An employer contribution towards unemployment insurance

Example calculation

Key Considerations for Hiring Employees Through EOR in Germany

When you hire employees in Germany through an EOR it is important to be aware of a few key factors that help ensure compliance and a smooth onboarding process.

Legal considerations

Ensure that there is proper legal compliance with German labor laws. This also includes adhering to the standards of employment contracts, considering collective bargaining agreements, and strictly complying with German data protection laws.

Work-related considerations

Understanding the German working hour regulation which also includes standard workweek, overtime rules and mandatory rest periods is very important.

Leave and benefits consideration

Familiarity with German statutory leave policies such as vacation leave, sick leave, and parental leave is also considered. Additionally, you need to ensure that employees are covered by either public or private health insurance and provide social security contributions as considered suitable.

Suggested Read: Employer of Record Services India- The Ultimate Guide 

Employee Benefits in Germany

Germany tends to offer a comprehensive social security system that provides a range of statutory benefits to its workforce. Some of these benefits include the following:

Minimum wage

Germany holds both an industry-specific wage and a minimum wage for its employees. The national minimum wage is set to €12.41 per hour. Industry-specific wages on the other hand would be set higher than national minimum wages.

Working hours

The average working hours per week range between 38 to 40 hours. Workdays are 8 hours and should not exceed beyond 10 hours.

Overtime

Overtime payment is very important especially when it is stated in individual contracts or collective labor agreements. The maximum working week hours is about 48 hours.

Public holidays

There are in total 9 public holidays that are observed in all of the 16 federal states in Germany which also includes Christmas Day, German Unity Day, and New Year’s Day.

Sick Leave

The first 6 weeks of sick leave is covered usually by the employer with 100% salary being provided by the employer. After 6 weeks any additional payment is covered by health insurance. Since 2023, you do not need to give a sick note to your employer. You can get a digital note from your health insurer.

Maternity Leave

Mothers are entitled to 6 weeks of maternity leave at full pay prior to their child’s birth and 8 weeks at full pay post-birth. You are also entitled to 18 weeks of leave in the event of multiple births, premature birth, or if your child has any sort of disability.

Terminations in Germany

Terminations in Germany are quite complex. During the probation period, employers need to justify the termination and the process usually varies based on the agreements, contract type, and the reason why the employee was dismissed. The employees are also protected by the German Termination Protection Act after six months. An employee may be terminated compliantly for one of the following valid reasons:

By mutual agreement

• Termination for good cause – dismissal due to conduct-related issues or breach of employment terms
• By the expiration of the contract
• Voluntarily by the employee

Notice period in Germany

Employees in Germany are usually entitled to a minimum statutory notice period of four weeks before the 15^th or the last day of the following month, based on the duration of their tenure with the organization.

• Up to 2 years: 4 weeks
• 2 – 4 years: 1 month
• 5 – 7 years: 2 months
• 8 – 9 years: 3 months
• 10 – 11 years: 4 months
• 12 – 14 years: 5 months

Severance in Germany

In Germany, severance pay is provided to an employee when an employer terminates an employment agreement without any notice. It is often customary though not legally important to offer severance after an employee has been with the organization for 6 months to mitigate any litigation risks.

How to Choose the Right EOR Germany Services?

You need to consider some of the key factors when selecting which EOR is best for your expansion into a country like Germany. A poorly chosen EOR could lead to a lot of troubles with compliance issues, inflating costs, and a detrimental effect on the employee experience. It is hence important to assess an EOR’s understanding of Germany’s labor laws, regulations, and cultural aspects. Additionally, you might want to check for the following factors which will help you decide whether they are the right partner for you or not.

Legal compliance

An EOR is supposed to have in-depth knowledge of the German laws and regulations pertaining to labor and cultural aspects. Look up a provider that has a proven track record of handling legal compliance challenges in Germany that is specific to your industry.

Customer service

A reliable EOR is one that offers exceptional customer support. You need to have a team that is ready for a 24 by 7 service.

Total cost of ownership

While initial costs are important it is also important to take a look at what the long-term commitment would cost you. Avoid choosing a low-cost provider that may compromise on the quality of service or compliance. Instead, go for a reliable EOR that can provide exceptional value and minimize risks.

Transparency in pricing

Many EORs tend to have lower entry costs. However, this is followed by hidden fees or a confusing pricing structure. Choose an EOR that provides you with a clear understanding of the pricing models where they are quite straightforward.

Benefits of Working with an EOR Service Provider in Germany

One of the key benefits of working with an EOR service provider in Germany is that it eliminates any need for you to set up a legal entity in Germany. Through the EOR’s local entity, you can hire both full-time employees and contractors without having to register a new business, spend money to hire and manage workers, or even open a new office space.

Since the EOR tends to act like an employer on your behalf, it takes on the legal responsibility and risks that are associated with international hiring. From employing workers and setting up onboarding procedures to even processing your employee’s payroll and benefits, your EOR has an expert team that works in compliance with the labor laws in Germany. Using an EOR further takes care of the following aspects:

• Protection for your IP rights and data security
• Holidays and holiday pay
• Employee classification
• Termination processes
• Country-specific wages and benefit packages
• Labor and employment law compliance.

Partnering with an EOR is the best way to grow your business cost-effectively. Hiring international employees could be a simple process if you have the right employer of record accompanying you in your expansion journey.

Risks and Drawbacks of EOR Germany

While there surely are a lot of benefits when you hire through an EOR in Germany there are also some risks and drawbacks that include the following:

Loss of control

For some businesses, hiring through an EOR might feel like not being in control completely. Businesses that prefer managing everything in-house typically struggle since they need to outsource important workforce management tasks.

Not suitable for a long-term expansion

If you are someone looking for a long-term expansion then working with an EOR would not exactly help you with it. This is because it does not help establish a physical presence and only hires a limited number of employees at a time.

Limitation regarding length of employment

In some countries the maximum duration of the EOR agreement is limited. One example is Germany. Under certain circumstances, an EOR arrangement might trigger the need to get an AUG license which is the local labor leasing license. When combined with an AUG license the employment duration via an EOR of an employee is limited to 18 months or at the most 24 months in some cases.

EOR Germany vs Traditional HR Software

When expanding in Germany you might face the decision of whether to use a traditional HR software or to get an EOR service. Here’s a breakdown of the key differences that might help you select between the two of them.

Feature	Traditional HR Software	EOR Services
Focus	Internal HR functions (record keeping, timekeeping, performance tracking)	External HR functions (payroll, taxes, compliance, benefits)
Responsibilities	Limited to internal HR processes	Comprehensive HR management, including legal and administrative tasks
Legal Liability	The company remains fully liable	EOR assumes legal liability for employment-related matters

Costs of Using an EOR in Germany

The cost of using an EOR service will vary depending on where you are hiring workers from and the number of workers you are willing to hire. Costs could be way low as $599 or even exceed to as much as $2000 per employee per month for an employer of record services. Some EORs however also provide special rates for startups, NGOs, or for hiring refugees.

The important part however would be to understand the EOR’s pricing model and what services are being offered and what are excluded in the quoted price package. Make sure you find an EOR that offers a complete range of services that suit your business requirements such as compliance, taxes, onboarding, benefits, and payroll at a no-hidden, flat rate. The table shows a sample format of how an EOR costing works:

Conclusion

Employer of record EOR service in Germany is hence one of the most streamlined solutions for businesses that are looking to expand in the German market. Partnering with an EOR company could help you quickly hire employees while also ensuring there is proper compliance with local labor laws, reducing administrative burden, and mitigating risks. To effectively leverage the services provided by EOR companies should assess their specific needs select a reputable EOR provider, and clearly understand the pricing and service structure. By following all of these steps you can easily enter the German market and attain your goals and objectives.

FAQs

1. What is an EOR in Germany and how does it work?

An EOR is a third-party organization that legally employs staff on behalf of another company, handling HR functions like payroll, taxes, and benefits.

2. What are the benefits of using an EOR to hire employees in Germany?

There are a lot of benefits of using an EOR. Some of them are as follows:

• Faster market entry
• Compliance assurance
• Reduced administrative burden
• Risk mitigation
• Cost-effective solution

3. How do I know if an EOR is right for my company in Germany?

If you need to quickly hire employees in Germany without setting up a local entity, an EOR is a good option.

4. Can I hire remote employees in Germany through an EOR?

Yes, EORs can handle remote employees in Germany.

5. What does the EOR in Germany handle, and what do I still need to manage?

The EOR handles HR tasks, while you manage recruitment, performance, and expectations.

6. Are the costs of using an EOR in Germany higher than setting up a local entity?

Often, EORs are more cost-effective due to reduced overhead and administrative costs.

7. How does an EOR ensure compliance with German labor laws?

EORs have deep knowledge of German labor laws and handle compliance matters.

8. How long does it take to onboard employees through an EOR in Germany?

Onboarding through an EOR can be relatively quick, usually taking a few weeks.

9. Can I terminate employees hired through an EOR in Germany?

Yes, you can terminate employees, but you need to follow local termination laws and procedures.

10. What are the tax implications of hiring through an EOR in Germany?

The EOR handles tax-related matters, including income tax, social security, and corporate taxes.

Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant  or Labour Law  expert for specific guidance.