With its mix of emerging and booming economies, political uncertainty and extreme contrasts in business customs, European jurisdictions can never be categorised as one homogeneous whole.

With such contrasts economically, politically and in business customs, European jurisdictions can never be categorised as one homogeneous whole. However for regional and global HR and payroll managers there are some commonalities. Let's take a closer look at HR and payroll in Germany.

Social security system

  • German employers and employees make monthly contributions towards a mandatory social security system that provides pension, health, unemployment benefits and nursing care.
  • The maximum annual salary on which health and long-term care contributions can be levied is €50,850 per year. For unemployment and pension contributions the maximum annual salary is €64,800 per year (East Germany) and €74,400 per year (West Germany).
Social Insurance Fund Employer Contribution (% of salary) for 2016 Employee Contribution (% of salary) for 2016
Health fund 7.300% + x 7.300%
Long-term care fund 1.175% 1.175% (Employees with child)
1.425%* (Employees without child)
Unemployment fund 1.500% 1.500%
Pension fund 9.350% 9.350%
Total 19.325% + x 19.325% - 19.575%

Hiring/retrenchment issues

  • Employment contracts can be of a fixed (maximum period of two years per employee) or indefinite duration.
  • The German Civil Code states either the employee or the employer can terminate an employment contract by giving a notice of at least four weeks to the 15th or to the end of the calendar month.

- It ranges from one to three months for employees who have worked for two to eight years.

- Employees who are dismissed for reasons of redundancy are generally entitled to a severance payment of at least 50% of one month's salary per year of service, up to 12 months' salary.

Foreign personnel

  • Foreign nationals belonging to the European Economic Area (EEA, comprising the EU, Iceland, Liechtenstein and Norway) are in general not required to hold a residence permit or a work permit to live and work in Germany. Exceptions still apply to Romania/Bulgaria and Croatia as well as new EU countries.
  • Foreign nationals not belonging to the EEA are required to obtain a residence permit and a work permit to live and work in Germany.
  • Work permits are issued taking into account the local labour market conditions and the availability of German or EU nationals to fill the position.

Work permits

  • A foreign national must first apply for a three-month entry visa at the German Consulate in his/her home country.
  • The employer is required to simultaneously submit a work permit application, since the visa request is referred by the Consulate to the local authorities of the foreign national's intended place of residence.
  • Foreign nationals belonging to Andorra, Australia, Canada, Israel, Japan, Monaco, New Zealand, San Marino and the US can enter Germany as visitors and can subsequently apply for residence and work permits.

Annual leave

  • By law, employees working five days per week are entitled to a minimum paid annual leave of 20 days, while those working six days per week are entitled to a minimum paid annual leave of 24 days.
  • Employees are entitled to a paid sick leave for six weeks, subject to the submission of a doctor's certificate; thereafter the health insurance will cover the salary payments (around 80%).

Payroll cycles

  • There is a statutory minimum wage of €8.50 per working hour in Germany.
  • Overtime payment regulations are regularly stated in collective and company bargaining agreements. Employers can choose to give time off instead of additional pay to employees for working overtime.

HR legislation

Employment in Germany is governed by several legislations.

  • The Civil Code: Governs employment contracts
  • The Works Constitution Act: regulates co-operation between employers and employees
  • The Collective Agreements Act: governs collective bargaining agreements.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.