PEO Germany

World Bank Ease of Doing Business Ranking

• DB Rank – 22
• DB Score – 79.7

Rankings on Doing Business topics – Germany

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Global PEO in Germany

Germany, as a Professional Employer Organization (PEO) country, boasts a highly developed and dynamic business environment that attracts both domestic and international companies seeking to expand their operations. With its strategic location at the heart of Europe, Germany offers unparalleled access to the European market, making it an ideal hub for companies looking to establish a strong presence in the region. The country’s stable political landscape, transparent legal system, and robust infrastructure provide a secure foundation for businesses to thrive. Moreover, Germany’s highly skilled and educated workforce, renowned for its technical expertise and innovation, further enhances its appeal as a PEO destination. Whether it’s navigating complex labor laws, managing payroll, or handling human resources functions, PEOs in Germany play a crucial role in facilitating smooth market entry and operation for businesses, offering a competitive edge in the global marketplace.

What Is a PEO?

A PEO, or Professional Employer Organization, is a company that provides a range of HR and payroll services to small and medium-sized businesses. These services can include employee benefits, payroll, compliance with labor laws, and recruiting and training.

PEOs work by entering into a co-employment agreement with the businesses they serve. In this arrangement, the PEO becomes the employer of record for the business’s employees, taking on responsibilities such as payroll, tax withholding, and employee benefits. The business, however, retains control over its day-to-day operations and the supervision of its employees.

PEOs can help businesses streamline their HR and payroll processes, reduce costs, and free up time and resources to focus on their core business activities. They can also provide access to a range of benefits and resources that small businesses may not be able to afford or manage on their own.

PEOs are also understood as employer of record / EOR at times.

Germany – Country Overview

Germany has the largest economy as well as the largest population in Europe. The capital city, Berlin, is also its biggest city. After World War II, Germany faced an economic crisis but is now the global center of industrial and technological innovation. 

Capital City

Berlin

Currency

Euro (€)

Principal Language

German (Deutsch)

Government

Federal Parliamentary Republic

Employment Contracts in Germany

A written contract is the most common type of contract in Germany. However, written agreements are not mandatory for employment for an indefinite period. Nevertheless, employers should provide contracts in Germany. 

Some of the details typically mentioned in the written employment  contract in Germany include: 

• Work classification and a brief job description 
• Salary, bonuses, and any other extra payments 
• Work hours, annual leave, and termination notice periods 
• Reference to collective bargaining and other agreements 
• and more 

The different types of employment relationships are: 

• Permanent Employment – Unless specified in the employment contract, employment in Germany is deemed indefinite. 
• Fixed-Term Contracts – Per German law, fixed-term contracts should not exceed two years and four years for new businesses. Employers can renew fixed-term agreements up to 4 times (including the first contract), provided the total period does not exceed two years. 
• Temporary Employment – Temporary employees in Germany can be hired through an agency for a maximum of 18 months, according to the amended Temporary Employment Act.  

Probationary Period

In Germany, a probationary period typically lasts up to 6 months, and either party may terminate the relationship with two weeks’ notice. 

Working Hours in Germany

The Hours of Work Act states that work hours may extend up to a maximum of 10 hours per day if an employee does not exceed an average of 8 hours per working day over six calendar months.

Employee Leave in Germany

Leaves

Employees in Germany are entitled to the following leaves: 

• Annual leave – Per the Federal Holiday Act (Bundesurlaubsgesetz), employees who work six days a week are allowed at least 24 working days of leave. The paid vacation period varies with age for young workers. 
• Maternity leave – Per the Federal Parents Education and Parent Allowance Act, employees are allowed up to 3 years of parental leave for their natural or adopted child and care for a newborn until they become three years of age. Both parents can claim this at the same time or separately. 
• Sick leave – The Sick Pay Act (Entgeltfortzahlungsgesetz) governs sick pay leave, and employees get paid sick leave of 6 weeks for each illness that causes them to be unable to work. 
• Parental leave – Per the Federal Parents Education and Parent Allowance Act, employees are allowed up to 3 years of parental leave for their natural or adopted child and care for a newborn until they become three years of age. Both parents can claim this at the same time or separately. 
• Family-related leave – Per the amended Family Nursing Care Statute, taking part­-time family nursing care leave does not necessitate the employer’s approval. 

Public Holidays

The following are the statutory national holidays observed in Germany: 

• January 1 – New Year’s Day 
• April 2 – Good Friday 
• April 5 – Easter Monday 
• May 1 – May Day 
• May 13 – Ascension Day 
• May 24 – Whit Monday 
• October 3 – Day of German Unity 
• December 25 – Christmas Day 
• December 26 – Boxing Day

Other Paid Leave

• Public holidays: Germany recognizes 9 public holidays.
• Sick leave: Employees have access to up to 6 weeks of paid sick leave in accordance with German laws.
• Maternity leave: Females will get six weeks of leave before birth and a minimum of 8 weeks after childbirth.
• Paternity leave: German laws give two years of parental leave to both parents. Parents can use it till their child reaches the age of 3 years.

Taxation

The German income tax structure employees have to follow in Germany is:

• No tax on €0 to €9,000
• 14% tax on €9,000 – €55,961
• 40% tax on €55,961 – €265,327
• 45% tax on over €265,327

Employee Termination in Germany

The German Civil Code governs the termination of an employment contract, which states that an employee may terminate the employment relationship with a 4-week statutory notice effective on the 15th or the end of a calendar month. If the employer wants to conclude the employment contract, the notice period varies per the length of the employment connection.

Global Mobility in Germany

Germany is part of the Schengen Borders Agreement, together with 25 other European countries. 

There are typically two categories of visas: 

• Short-term stays (Schengen visa) – Short-term visas are for stays of up to 90 days, and people are not permitted to work. Generally, these visas are not extendable. Individuals will often require a visa that is valid throughout the Schengen area. 
• Long-term stays – Long-term visas are for individuals who plan to stay for more than 90 days or plan to work. 

Citizens of the European Union, Japan, the Republic of Korea, Canada, the United States of America, Switzerland, Israel, New Zealand, and Australia can apply for a work permit after entering Germany without a visa. Citizens of other countries must apply for and get a work permit from their home country before entering the country. 

For Non-EU Nationals, there are three types of work-related residence permits: 

• Specialist professional 
• General employment 
• Self-employed

Employee Benefits in Germany

The Social Security Code VI (SGB VI) has the primary regulations for statutory pensions. In addition, the Company Pension Act (BetrAVG) is the principal applicable law for occupational pension schemes. 

Social insurance, often known as social welfare, is a government-mandated insurance program that provides financial help to the elderly, disabled, injured, and unemployed.

Some examples of social insurance programs are: 

• Dependents’/Survivors Benefit– The pension amount is a proportion of the deceased spouse/partner’s full statutory pension and is determined by the surviving spouse’s income. Dependent children are entitled to an orphan’s pension until 18 years and can be extended until 27 if they are still studying. 
• Life and Disability Insurance/Benefit – Victims of work-related accidents or illnesses are entitled to occupational accident insurance injury compensation until they can work and receive payment. 
• Unemployment Insurance – An employee is entitled to receive unemployment benefits if a job was held for a minimum of 12 months in the previous three years before the unemployment.