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AUG licensing requirements for an EOR in Germany
Germany has strict laws about labor leasing. Companies hiring individuals to work on behalf of other companies in Germany are legally required to have a temporary agency license, which is referred to as an AUG (Arbeitnehmerüberlassungsgesetz) license.
Hiring in Germany
When negotiating terms of an employment contract and offer letter with an employee in Germany, it may be useful to keep the following in mind.
Employment contracts in Germany
It is legally required to have a locally compliant employment contract in Germany. The contract should spell out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Germany should always state the salary and any compensation amounts in euros rather than another currency.
Working hours in Germany
The average working week in Germany is between 36 and 40 hours. Full-time jobs in Germany are 8 hours a day, 5 days a week, with an hour or 30-minute break at lunchtime. In Germany, there are strict legal limits on working hours. Employees are not permitted to work more than 8 hours per day. This can be extended to 10 hours per day if, within 6 months or 24 weeks, the overall average working time does not exceed 8 hours per day.
Holidays in Germany
Germany celebrates 9 national public holidays as well as additional public holidays that vary by federal state:
- New Year
- Good Friday
- Easter Monday
- Labour Day
- Whit Monday
- Day of German Unity
- St. Stephen’s Day
Vacation days in Germany
The statutory minimum paid leave for a 6-day workweek employment contract is 24 days, and 20 days for a 5-day workweek. In practice, most full-time employees receive 25 to 30 days of paid leave per year in Germany. Paid leave is not reduced by the time taken for sick leave or public holidays.
Germany sick leave
Employees are entitled to at least 6 weeks of sick leave at full salary if the employee can present a medical certificate from their doctor. This does not have to be mentioned in the offer letter or employment agreement since this is a matter of law in Germany.
After 6 weeks, the employee will receive sickness benefits directly from their health insurance company. The reimbursement rate for the employee is 70% of the gross salary (until the social security ceiling) but no more than 90% of the net salary.
Maternity leave in Germany
Maternity leave for pregnant employees consists of 6 weeks before the birth and 8 weeks after, all at full pay. For premature births or births of multiples, employees receive 12 weeks of paid leave after the birth.
Either parent is entitled to parental leave until the child turns 3 years old. During parental leave, parents may choose not to work or to work part-time for up to 32 hours per week. Parents of premature babies receive additional parental leave.
A program funded by federal taxes also allows direct subsidies to new parents (Elterngeld) for the first 12 to 14 months of the child’s life. The amount of the subsidy is based on the primary caretaker’s income.
Health insurance in Germany
The German social security system consists of 7 components:
- Pension insurance
- Health insurance
- Unemployment insurance
- Nursing care insurance
- Accident insurance
- Maternity insurance
- Insolvency insurance.
The contribution to those insurances is split equally between the employer and the employee, except for the accident insurance, maternity insurance, and insolvency insurance, which are covered by the employer only. In total, employers can expect to contribute about 20.7% on top of the employee’s salary to social security.
However, social security deductions have a maximum limit. In 2023, the maximum amount is EUR 7,300 (West) and EUR 7,100,00 (East) per month for statutory pension and unemployment insurance, and EUR 4,987.50 for statutory health insurance.
Germany supplementary benefits
Companies offer supplementary benefits depending on Collective Bargaining Agreements (CBAs), corporate culture, and the nature of the industry.
A bonus or commission program is discretionary on top of salary. There is no mandatory 13th-month or 14th-month salary payment in Germany.
Termination and severance in Germany
Terminating employment in Germany can be complex. In the event of an “ordinary” dismissal, the employer must observe the statutory minimum notice period, which depends on the length of employment:
- During a probationary period of up to 6 months: 2 weeks’ notice
- After or without a probationary period: 4 weeks’ notice, effective on the 15th or the end of a month
- After 2 years’ service: 1 month notice, effective at the end of a month
- After 5 years’ service: 2 months’ notice, effective at the end of a month
- After 8 years’ service: 3 months’ notice, effective at the end of a month
- After 10 years’ service: 4 months’ notice, effective at the end of a month
- After 12 years’ service: 5 months’ notice, effective at the end of a month
- After 15 years’ service: 6 months’ notice, effective at the end of a month
- After 20 years’ service: 7 months’ notice, effective at the end of a month
Both employment contracts or CBAs can call for more favorable periods.
A termination for just cause is immediately effective. However, it is difficult to provide just cause, and employees are empowered to challenge terminations in court as they are strongly protected by the Protection Against Dismissal Act.
During the notice period, an employer must continue to pay full salary, but they can place the employee on garden leave. Payment in lieu of notice is not permissible in Germany. The notice period can only be waived by signing a mutual agreement.
There is no statutory obligation to pay any severance in the case of an individual dismissal, irrespective of whether the dismissal is valid or not. Different terms apply to collective dismissals or redundancies. However, employees have the right to claim unfair dismissal. For the employer, it is often hard to prove the termination is justified and in accordance with the Protection Against Dismissal Act. In practice, employers and employees usually agree on a severance payment through a settlement agreement. Severances are negotiated between employers and employees based on seniority and termination reason.
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