If your company is looking to hire in Germany, you must know that the country has one of the most regulated labor markets in the world. Germany’s labor laws are designed to preserve employee rights. With these strict rules and guidelines in place for employers, German employees know what to expect when they apply for a position.
Here are five mandatory benefits your team will expect you to offer when you hire them.
1. Statutory healthcare
Germany has a statutory healthcare and social insurance system. Contributions to these systems are about 12 percent on top of the total cost of employment. These must be withheld from an employee’s salary by the employer and paid to the respective institutions.
Membership of statutory health insurance is not compulsory. In 2009, for example, employees with an income of less than EUR€400 or more than EUR€48,150 (EUR€43,200 in the case of private insurance holders) were not required to join the statutory health insurance scheme. These workers are free to join a private entity instead of public insurance. The employee’s spouse and children are eligible for statutory health insurance coverage under the family insurance scheme.
Most employers also provide a supplementary healthcare allowance to reimburse the cost of supplementary health coverage.
2. Paid leaves
Holidays and vacations
The market norm regrading number of vacation days for full-time employees in Germany is 25 to 30 days per year plus 12 public holidays.
Employees are entitled to at least six weeks of sick leave at full salary if they can present a medical certificate from their doctors. After six weeks, employees are paid by their health insurance.
Maternity and paternity leave
Mothers are entitled to a fully paid maternity leave of six weeks before birth and eight weeks after birth. In the case of premature or multiple births, the leave is increased to 12 weeks after birth, which are paid partly by the statutory health insurance provider and the employer.
Paternity leave falls under parental leave. After a child’s birth, both parents are entitled to a maximum of 36 months (about 3 years) and can be divided between the two of them. They can also decide to work part-time, up to 30 hours per week. This leave is unpaid.
3. Car allowance
Employers in Germany usually provide managers, sales reps, and technical support teams with a car allowance that is taxable to the employee as a fringe benefit of employment. Car allowances range widely, from EUR€400 to EUR€1,000 per month.
Employees can also negotiate for a company car, which they can also drive for personal use. This is a payment-in-kind, has a material value, and is part of the employee’s remuneration. It is subject to taxation and social security contributions.
4. Termination and severance payments
Terminating an employee in Germany is not easy, as most employers are subject to the German Termination Protection Act.
After six months of employment, employers must have proof of a reason to terminate an employee.
The employee has 21 days after being terminated to contest his or her dismissal in a labor tribunal. In about 80 percent of cases, there is a settlement to pay the person a severance fee above the market norm. The employer must provide a justified reason and proper notice — it is crucial that employers deliver a written notice at least four weeks prior to dismissal. The notice period increases depending on the length of employment. If an employee has worked for 10 years or more, the notice period can go up from five to seven months. If the employers fail to notify the employee’s dismissal, they must pay a mandatory severance.
The minimum settlement or severance pay a company can expect to pay is equal to half a month’s salary for each year of employment.
5. Unemployment insurance
Employees working a minimum of 18 hours a week are entitled to unemployment insurance, regardless of whether they were dismissed or they resigned. They receive 60 per cent of the last year’s net earnings, and the duration of the insurance depends on their contributions and age. The minimum duration is six months, and the maximum is 24 months. After this period, they receive a reduced rate (around EUR€350 per month) and a child allowance.
It can be difficult to comply with Germany’s complex labor laws. Globalization Partner’s’ AI-driven, fully compliant global Employer of Record (EOR) platform is powered by our HR experts and allows you to hire in Germany with just a few clicks. We take care of payroll, benefits, and taxes so you can focus on growing your business in this market.