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Employment and Social Insurance in Germany

Germany is Europe’s largest employment market. It offers flexible employment models. Social insurance contributions in Germany are roughly shared equally by employer and employee.

A company's success very much depends on its employees. Germany offers a very well-trained workforce. There are various ways of recruiting staff in Germany. In some cases, even public funding for hiring employees can reduce the operational costs when starting a new business.

But what considerations need to be addressed once employees are found? How is employment regulated? What rules apply to wages, working hours and vacation entitlement? What do employers need to know about the German social security system? How can an employment contract be terminated? And what is the role of works councils in Germany?

  • Finding Suitable Staff

    Generous support from the Federal Employment Agency as well as the services of private recruitment agencies help to improve the process of finding suitable staff in Germany.

    Workforce in Germany

    Germany’s well-educated and trained workforce includes an economically active population of more than 46 million people. More than 81 percent of the working population has successfully completed some form of vocational training. Dual programs in vocational education and training are of particular importance. In addition, each year, more than 500,000 students graduate from universities in Germany. Graduates in matematics, natural sciences and engineering represent 35 percent of the academic population.

    Recruitment Services      

    In Germany, a wide array of public and private agencies supports both domestic and foreign companies in finding suitable staff. The Federal Employment Agency (Bundesagentur für Arbeit) provides a highly professional service to meet supply and demand. The agency, which can be found in all municipalities in Germany, provides its services free of charge. Additionally, the Federal Government’s official Make it in Germany information portal assists employers in recruiting qualified professionals from abroad and foreign nationals in moving to Germany.

    Private recruitment agencies – typically members of the Federal Employers’ Association of Personnel Service Providers (Bundesarbeitgeberverband der Personaldienstleister e.V.) - are also available. These agencies normally charge the hiring company – under no circumstances the employee - for providing their recruitment services. In general, this fee does not exceed an amount of around two gross monthly salaries of the respective employee.

    Companies looking for personnel can also advertise their open positons in newspapers and journals or on company websites and online job platforms. Local newspapers are essential in finding unskilled or semi-skilled labor. However, sourcing skilled labor usually requires some form of advertising in national newspapers and professional journals or online.

    Public Support

    In Germany, a broad range of labor-related incentives helps in the development of qualified staff. Under certain conditions, even wage subsidies administered by the Federal Employment Agency can be disbursed. 

  • Flexible Models of Employment

    There are various employment models in Germany that provide expanding companies with flexible, employment solutions - especially in the starting phase of the business.

    Regular Employment

    Regular employment contracts are unlimited in time and can be terminated by a written letter of termination - provided a mandatory notice period has been observed. In companies with more than 10 employees, a justified reason is required for regular termination. In a regular employment contract, employer and employee usually agree upon a six-month probationary period during which the contract may be terminated by either party at any time with two weeks notice.

    Fixed-term Contracts

    Companies are free to offer fixed-term contracts to new employees without a justified objective reason for the fixed term. Such fixed-term contracts expire automatically on a specific date. A termination is not required for this type of contract - unless the contract needs to be terminated before expiring. It is for the employer to decide whether to renew the contract or not. This category of fixed-term contracts is generally limited to a maximum of two years. A fixed-term contract may be extended up to three times, provided the total duration of contract does not exceed the maximum of two years. During the first four years of a company’s existence in Germany, employment contracts may be limited or extended several times up to a total duration of four years.

    Apart from fixed-term contracts for a specific duration, it is also possible to use fixed-term contracts for specific justified objective reasons. This may, for instance, be the case if the employee is hired to fill in for another temporarily absent employee.

    In order to be effective, any fixed-term employment agreement must be provided in writing.

    Temporary Employment

    Temporary employment means that a company can hire staff without concluding an employment contract. Instead, the company leases staff from a temporary employment agency. The employee is legally employed and paid by the temporary employment agency, as no contractual relationship exists between the user company and the employee. The user company pays a certain fee to the temporary employment agency as set out in the service contract.

    The duration and the conditions of termination of the leased employee in the user company are stipulated in the service contract. Generally, leased employees may be engaged by the same company for a period of no longer than 18 months. Exceeding this maximum duration may result in a permanent employment relationship between the temporary employee and the user company.

    The general working conditions - such as weekly working hours and wages - are usually determined in collective agreements between unions and the respective employers associations of the temporary employment industry. These collective agreements may, to some extent, alter the "equal treatment" policy between a company's leased and permanent employees.

  • Terms of Employment

    The employment contract - as well as EU and German laws and regulations - determine employment conditions. 

    A contract of employment setting out the terms and conditions of the employer-employee relationship is usually drawn up in writing. Collective agreements between employer associations and trade unions apply only to those employers and employees who are members of an employer association or a trade union. An exemption applies for agreements that have been declared universally applicable by the Federal Ministry of Labor and Social Affairs. An overview of universally applicable collective agreements is available on the German Customs Authority’s website. Some employment regulations do not allow any deviation by way of employment contract and/or collective agreement. Below we provide a brief overview of German minimum wage regulations, working times and vacation rules as well as sick leave.

    The German General Act on Equal Treatment - often referred to as the "Anti-Discrimination Act" - implements EU anti-discrimination regulations. It mandates a general prohibition of discrimination against any person for reasons of ethnic origin, gender, religion or ideology, disability, and age as well as sexual orientation.

    Salaries and Wages

    Wages are generally subject to individual negotiation in Germany. However, a general minimum wage applies. The minimum hourly wage was EUR 12.41 as of January 2024.

    Higher minimum wages must be set in certain industries (e.g. those with universally applicable collective wage agreements). The German customs authority provides an overview of these sector-specific minimum wages online.

    There are also general exemptions from the national minimum wage. For instance, the following group categories are not covered by the minimum wage regulation:

    • Young people under 18 years of age
    • Students completing compulsory internships or other internships for up to three months
    • Long-term unemployed (one year or longer) for the first six months in employment

    Bonuses must only be granted if they have been agreed in the individual employment contracts or in collective agreements. 

    Working Hours

    Working hours in Germany are in line with the EU Working Time Directive. Employees may work eight hours per day (48 hours per week). Saturday is considered a normal working day. The permitted weekly working time in a five-day week totals 40 hours. Most business is conducted from Monday to Friday but retailers and manufacturing industries usually operate on Saturdays as well. Sundays are generally considered to be days off. An extension of the working time to a maximum of ten hours per day is possible under certain conditions. Executive staff are exempted from the scope of the German Working Time Act.

    Overtime has to be compensated for with additional time off. An overtime bonus is possible but is not legally specified. Overtime bonuses only have to be paid when required by individual contracts or in applicable collective labor agreements.

    The statutory amount of work breaks depends on the total number of hours worked per day. Employees are entitled to a break of 30 minutes when working between six and nine working hours per day. Employees are entitled to 45 minutes break when working more than nine hours a day. Breaks may be split up throughout the day, but divisions may not be shorter than 15 minutes. There are statutory breaks of at least eleven hours between shifts.

    Vacation and Public Holidays

    Full-time employees working six days per week are entitled to a minimum of 24 paid vacation days (the equivalent of four weeks) per year. Accordingly, full-time employees working five days per week are entitled to a minimum of 20 days per year.

    The employee is entitled to a pro-rated period of paid vacation when working for less than six months within one calendar year. During the typical six-month probationary period at the beginning of any new employment contract, employees are not normally entitled to take any vacation days.

    The number of public holidays varies from one federal state to another, with a minimum of ten public holidays to a maximum of 13 holidays in some regions of Germany.

    Sick Leave

    Employees are obliged to inform their employer of any sickness requiring an absence from work and the expected duration of this absence as soon as possible (generally on the first day of the sick leave). Where the period of sick leave exceeds three days, employees are obliged to have a general practitioner provide proof of their incapacity to work. Notwithstanding this, employers may also request medical certification of an employee’s incapacity to work beginning on the first day of sick leave. The employer can access the certificate online via the employee's public health insurance provider.

    Employees are entitled to sick pay amounting to 100 percent of the normal salary until the time of recovery limited to a maximum of six weeks.

    Posted Workers

    When expanding to Germany, international companies often second personnel with management or specialist tasks from the parent company abroad to a new German entity for a limited time. Sometimes these employees are posted to Germany based on their existing foreign employment relationship. In such cases, EU and German law prescribe the applicability of certain German minimum employment conditions. The websites of the European Commission on posted workers and of the German Customs’ Authority on  foreign-domiciled employers provide detailed information on rules to consider.

  • Termination of Employment

    A contract of employment can be terminated by the employer or the employee. Both parties have to observe the statutory notification periods.

    Termination of employment requires written form (paper form). Electronic termination (e.g. via email) is not possible. 

    The German Employment Protection Act (Kündigungsschutzgesetz) establishes certain rules for terminations, especially with regard to specific justifying reasons. The Employment Protection Act only applies to companies with a staff of more than ten employees and with respect to continuous employment relationships of more than six months in the same company. If these conditions do not apply, employers generally have a right to terminate employment contracts within statutory notice periods.

    Reasons for Termination

    Where the Employment Protection Act is applicable to an employment relationship (see above), a termination by an employer must be justified by one of the following reasons:

    • Termination for personal reasons (e.g long-term illness with a negative prognosis or an alcohol or drug addiction with no reasonable prospect of successful treatment)
    • Termination for conduct-related reasons (e.g. repeated lateness for work, unjustified refusal to perform certain work, criminals acts or violence at work)
    • Termination for operational reasons (especially if the employee’s job is rendered dispensable due to changes in the business organization such as plant closure, restructuring or insufficient work due to a shortage of orders)

    However, a termination must always remain an option of last resort. Less severe options, such as redeployment of the employee, have to be considered prior to termination. A termination for conduct-related reasons generally requires a prior written warning. In the case of terminations for operational reasons, the business decision to cut back jobs under these circumstances is only limited reviewable by labor courts. Before terminating an employee for operational reasons, the employer is obliged to apply certain social criteria in order to determine which employees are to be terminated. However, employees essential for the company (with special knowledge, skills, achievements or to secure a balanced personnel structure) can be exempted from the social criteria assessment.

    Notification Periods

    When terminating permanent contracts of employment, certain notice periods are required by law. The determination of the minimum statutory period depends on whether the employee or employer is seeking to terminate the contract.

    Employer and employee usually agree on a probation period of up to six months, during which either side may terminate the employment with only two weeks notice.

    In other cases, an employee must submit a notice with a minimum notice period of four weeks, effective either on the 15th or end of a calendar month.

    For the employer, the minimum notice period depends on the duration of employment. After the probationary period of a new employment contract has ended, the initial notice period is four weeks to the 15th or to the end of a calendar month. This continuously increases in several steps to seven months after 20 years of job tenure in the same company.

    Individual notice periods can be agreed upon, but these must comply with minimum statutory notice period requirements. Notice periods for the employee must not be longer than for the employer.

    Every notice of termination must always be issued in writing - notice of termination in electronic form is insufficient.

    Extraordinary (Immediate) Termination

    Immediate termination of employment may be considered in cases of serious misconduct rendering it unacceptable for either party to continue the employment relationship.

    It is not sufficient for the termination be regarded as necessary, it must be immediately imperative. Accordingly, the legal period of notice does not apply in these cases.

    Exemplary reasons for the employer:

    • Continued non-performance of agreed work
    • Disturbance of the general working environment
    • Theft
    • Disclosure of sensitive information
    • Non-authorized competitive engagement

    Exemplary reasons for the employee:

    • Non-payment of wages
    • Unlawful working

    Immediate termination is only effective if the terminating party terminates the employment relationship within two weeks after obtaining knowledge of the reasons.

  • Employee Representation

    Works councils are in-house committees representing the interests of the employees within a company.

    A works council may be established in companies with five or more employees. Works council members are elected for four years by the employees in direct and secret elections. Candidates do not have to be union members.

    In certain companies (e.g. stock corporations or limited liabilty companies) that have more than 500 employees and a supervisory board, at least one third of the supervisory board members must be representatives elected by the employees.

    Functions and Rights of Works Councils

    The rights and functions of works councils are governed by the German Works Council Constitution Act (Betriebsverfassungsgesetz). Works councils have informative and advisory rights relating to company internal policy and organization. Specifically, they can negotiate rules pertaining to organizational and social issues, and must be consulted regarding specific personnel decisions. Apart from the rights defined by statute, the works council is generally prohibited from becoming involved in corporate governance.The employer and works council can negotiate rules on matters such as:

    • end and beginning of daily working hours (not the duration as such)
    • vacation schedules
    • internal order and rules of conduct
    • safety issues (accident prevention)
    • installation of equipment designated to monitor employees
    • mobile work
    • general company wage structures (but not individual salaries)
  • Social Insurance System

    Social insurance contributions in Germany are roughly shared equally by employer and employee. The employer withholds and distributes them to the social insurance institutions. 

    In marked contrast to some other industrialized countries, core social security provision in Germany is financed collectively by means of a process of redistribution. The current social security costs (e.g. for pensioners, sick people and/or those in need of nursing care and unemployed people) are paid directly from contributions by employees and employers.

    Social security contributions are made up of:

    • Health insurance
    • Nursing care insurance
    • Pension insurance
    • Unemployment insurance
    • Accident insurance

    Generally speaking, social security contributions are roughly shared equally by employer and employee. Only the costs for accident insurance are exclusively borne by the employer. In total, the employer's share of social insurance contributions amounts to approximately 21 percent of the employee's gross wage. A common fund exists for all social security components. Only the health insurance provider can be chosen individually by the employee. Employees in Germany receive a net wage or salary from which tax and social security contributions have already been deducted. The employer withholds the tax that the employee is required to pay and transfers the money directly to the tax office (Finanzamt). Accordingly, all employees must be registered with the local tax office. Social security contributions are also withheld by the employer after calculation of the gross wage and transferred to the employee's health insurance company (which then distributes all of the contributions excluding accident insurance to all relevant parties). The employer separately has to pay the contributions for the accident insurance to the relevant Employers' Accident Insurance Association (Berufsgenossenschaft).

    Social Insurance Contributions

    Social Insurance Components1

    (in % of gross wage)

    Employer/Employee Share

    (in % of gross wage)

    18.6% pension insurance9.3% employer
    9.3% employee
    14.6% health insurance27.3% employer2
    7.3% employee2
    2.6% unemployment insurance1.3% employer
    1.3% employee
    2.4% to 4.0% nursing care insurance1.7% employer3
    0.7% to 2.3% employee3
    1.12% accident insurance1.12% employer4

    1) Plus minor allocations.
    2) Plus additional contribution which each health insurance company individually may impose on employer and employee (equal shares). The average additional contribution for 2024 defined by the Federal Ministry of Health is 1.7%.
    3) The employee's contribution for nursing care depends on the employee's number of children under 25. Specific regulations apply in the federal state of Saxony.
    4) Average accident insurance contribution 2022 according to the German Social Accident Insurance (DGUV).

    Pension Insurance

    Pension insurance is compulsory for employees. The premium is 18.6 percent of the gross wage and is divided equally between employee and employer. The employee’s health insurance company is responsible for collecting these contributions.

    Health and Nursing Care Insurance

    Employees earning a gross wage of up to EUR 69,300 (2024) per year are compulsorily insured by one of the public health insurance providers (Gesetzliche Krankenversicherung - GKV). Employees whose earnings are above this income threshold can choose from both public and private insurance companies (Private Krankenversicherung - PKV). Employee and employer also share the premiums for private health insurance plans.

    The basic flat health insurance contribution rate (public health insurance) amounts to 14.6 percent of the employee’s gross income and is equally shared between employer and employee. Employees and employer pay equal shares of an additional contribution set individually by each public health insurance provider. The average rate of additional contributions for 2024 has been set at 1.7 percent by the Federal Ministry of Health. The German National Association of Statutory Health Insurance Funds (GKV-Spitzenverband) provides a list of all public health insurance providers and their additional contribution rates online.

    Nursing care insurance is organized in more or less the same way as health insurance, with a contribution rate of between 2.4 percent and 4 percent of the gross wage. The employer bears a rate of 1.7 percent of the nursing care insurance. The employees' contribution depends on the employees' number of children under the age of 25. Childless employees pay a rate of 2.3 percent. The contribution for employees with one child is 1.7 percent. The employee's rate decreases by 0.25 percentage points per additional child to a minimum of 0.7 percent for employees with five or more children under the age of 25. The premiums are deducted in the course of payroll accounting and transferred to the nursing care insurance company via the health insurance company. Specific regulations apply in the federal state of Saxony.

    Unemployment Insurance

    The premium for the mandatory unemployment insurance is 2.6 percent of the gross wage and is shared equally by the employer and employee. Contributions for unemployment insurance are collected by the health insurance company of the employee, which transfers the money to the Federal Employment Agency (Bundesagentur für Arbeit).

    Accident Insurance

    Statutory accident insurance provides coverage if an employee suffers an accident at the workplace or on the way to work. In contrast to the other four obligatory forms of insurance, the costs for accident insurance are exclusively borne by the employer.

    All employers must inform the relevant statutory accident insurance association  (Berufsgenossenschaft) about the establishment of their business and register with this organization. The accident insurance rate is determined on the basis of the company’s total remuneration sum and the hazard category of the work concerned (the hazard category is determined by the relevant accident insurance association). According to the German Social Accident Insurance (DGUV), the average accident insurance contribution in 2022 was 1.12 percent. DGUV provides detailed information on the individual calculation of accident insurance contributions online. 

    International Coordination of Social Insurance Systems

    In order to facilitate the international transfer of employees, Germany has signed social insurance agreements with countries including e.g. Australia, Brazil, Canada, China, India, Israel, Japan, South Korea, Turkey, and the USA.

    Within the EU, the dispatch of employees is facilitated by EU regulations on social security coordination. This allows transferred employees to remain within the national social insurance of their home country, if they are posted to Germany for a certain time. In this case, the employer does not have to pay German social security contributions for the employees temporarily located in Germany.


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