When an employee falls ill, a clear process applies. They tell the employer straight away, and from the fourth day of illness they need a medical certificate, the Arbeitsunfähigkeitsbescheinigung, which now flows to the employer and insurer electronically. An employer can ask for the certificate from the first day if it wants to.

• Notify the employer on the first day of illness
• See a doctor and obtain the electronic sick note
• Provide it by the fourth day, or earlier if the employer requires
• Keep the employer updated if the illness continues

Employer sick pay applies once the person has been employed for at least four weeks.

For the first six weeks of an illness, the employer pays the employee’s full salary. This is the Entgeltfortzahlung, and it means an employee off sick sees no drop in pay for up to six weeks, funded entirely by the employer rather than the state.

The six weeks run per illness. A short absence uses only part of the window, and the employee keeps the balance for later in the same period, which matters when an illness comes and goes.

If an illness runs past six weeks, the employer’s obligation ends and the statutory health insurer takes over with a benefit called Krankengeld. It is paid at 70 percent of the employee’s gross salary, but capped so it never exceeds 90 percent of their previous net pay.

Krankengeld can run for up to 78 weeks in total for the same illness, counted across a three-year window and including the six employer-paid weeks. So the employer covers the start and the insurer covers the long tail of a serious illness.

The six-week rule resets in limited circumstances. If a new, unrelated illness begins, a fresh six weeks of full employer pay applies. For the same illness returning, the employer only owes a new six-week period once the employee has been back at work for a set time, or enough time has passed since the first absence.

These rules stop a recurring condition from resetting the clock every few weeks, and they are the part most likely to be miscalculated in payroll if no one is watching the history of absences.

As the legal employer, we manage sick pay end to end. We apply the six weeks of Entgeltfortzahlung correctly, track the absence history so the six-week rule is applied right, and coordinate the handover to Krankengeld with the health insurer when an illness runs long.

For you, that means an employee off sick is handled compliantly and paid correctly, without your team having to learn the detail of German sick-pay law.

Sources: the Entgeltfortzahlungsgesetz (gesetze-im-internet.de) and statutory health insurer (GKV) guidance on Krankengeld. Rules reviewed July 2026.

There are three main ways a German employment ends. An ordinary termination, the ordentliche Kündigung, is a dismissal with notice. An extraordinary termination, the außerordentliche Kündigung, is an immediate dismissal for serious cause, which is rare and hard to justify. And a mutual termination, the Aufhebungsvertrag, is an agreed exit on terms both sides sign up to.

Most planned exits are either an ordinary termination with proper notice or a negotiated Aufhebungsvertrag, which is often the cleaner route because it settles notice and severance in one agreement.

Statutory notice is set by section 622 of the civil code and rises with length of service. During a probation period it is two weeks. After that the base notice is four weeks, and it steps up as the employee stays longer: one month after two years, two months after five, three after eight, four after ten, and on up to seven months after twenty years of service.

These are the statutory minimums. A contract or a collective agreement can set longer notice, and notice generally runs to the fifteenth or the end of a calendar month.

Germany has no automatic statutory severance for an ordinary dismissal. In practice, though, severance, the Abfindung, is common, because it is the price of a clean exit and of the employee not challenging the dismissal in court.

The usual rule of thumb is around half a month’s salary for each year of service, but it is negotiable and can be higher where the employer wants certainty or the dismissal is weak. In a redundancy handled through a social plan, a Sozialplan, the severance formula is agreed with the works council.

Once the Kündigungsschutzgesetz applies, an employee cannot be dismissed without a valid reason. It applies in businesses with more than ten employees, once the person has been there longer than six months. Below that threshold the protection is lighter, though other rules still apply.

Where it applies, a dismissal has to rest on one of three grounds: a reason in the person, a reason in their conduct, or an operational reason such as redundancy. The employee can challenge the dismissal by filing a Kündigungsschutzklage at the labour court, and they have just three weeks from receiving notice to do so, which is why getting the process right the first time matters.

Take an employee on 70,000 euro a year, roughly 5,830 euro a month, who has been with the business for five years and is being let go for operational reasons. Their statutory notice under section 622 is two months, so the contract runs on, paid, through that period.

If both sides prefer a clean break, an Aufhebungsvertrag might settle an Abfindung of around half a month per year, so about 2.5 months of pay, roughly 14,600 euro, in exchange for the employee not contesting the exit. The exact figure is a negotiation, and a weak dismissal or a keen desire for certainty pushes it up.

Because we are the legal employer, we run the termination to German rules on your behalf, from the notice calculation to the settlement paperwork. You decide the commercial outcome, and we make sure the process holds up.

Misclassification means treating someone as a self-employed contractor when, in law, they are really an employee. In Germany this is called Scheinselbstständigkeit, bogus self-employment, and it is judged on how the work actually happens rather than on what the contract says.

The distinction matters because an employee comes with social insurance, paid leave, notice protection and payroll tax, while a genuine contractor does not. If a relationship is dressed up as freelance to avoid those duties, the authorities can look through it and treat the person as the employee they always were.

The key question is whether the person is genuinely independent or is integrated into your business and working under its direction. The German pension authority, the Deutsche Rentenversicherung, can run a formal status check, the Statusfeststellungsverfahren, to decide.

It looks at whether the person takes instructions on how, when and where they work, whether they are woven into your organisation, whether they carry their own entrepreneurial risk, and whether they work more or less exclusively for one client. The more the answers point to a dependent working relationship, the more likely it is to be ruled employment.

Some patterns make a freelance arrangement look like disguised employment. If several of these are true, it is worth a closer look before the authorities take one.

• The person works mainly or only for your company
• They keep set hours or are expected to be available like staff
• They use your equipment, systems and email
• They take instructions on how the work is done, not just what is delivered
• They have no real business of their own, no other clients and no staff

None of these on its own is decisive, but together they build the picture the Deutsche Rentenversicherung looks for.

If a contractor is reclassified as an employee, the bill lands on the employer. You become liable for the unpaid social contributions, and crucially for both the employer and the employee share, going back as far as four years, or up to thirty years where the misclassification is found to be intentional. Late-payment surcharges are added on top.

There is also criminal exposure. Withholding social contributions is an offence under section 266a of the criminal code, which can apply to the responsible people in the business. Reclassification also brings the employee the rights they should have had, including paid leave and notice protection.

An employer of record takes the question off the table. When we employ the person on our German entity, they are a genuine employee from day one, on a proper Arbeitsvertrag with full social insurance, payroll tax and statutory rights. There is no contractor status to challenge.

This is often why companies move a long-standing freelancer onto an EOR. It turns an uncertain, high-risk arrangement into a compliant employment relationship, without the company having to open its own German entity to do it.

The cost of an employee in Germany has three parts. The first is the gross salary you agree with the person. The second is the employer social contributions, which come to roughly 21 percent of that gross and fund pension, health, long-term care and unemployment insurance, plus small levies.

The third part depends on how you employ. If you run your own German entity, it is the overhead of that company, from a Steuerberater to filings and admin time. If you use an employer of record, it is a flat monthly fee instead. The salary and the 21 percent are the same either way.

Take a single, childless employee on a gross salary of 70,000 euro a year, on tax class one with no church tax. The employer adds social contributions of roughly 21 percent, which brings the total employer cost to about 85,200 euro a year.

From the employee’s side, income tax and their share of social contributions come off the gross, leaving a net take-home of somewhere around 42,000 to 42,500 euro a year, or about 3,500 euro a month. The exact figures move with the health insurer’s supplementary rate and the employee’s tax class, but this is the shape of it.

The 21 percent is not uniform across every salary, because social contributions stop at fixed ceilings. For 2026, pension and unemployment contributions are only charged up to a salary of 8,450 euro a month, and health and long-term care up to 5,812.50 euro a month.

The practical effect is that the higher the salary, the lower the effective percentage of employer on-cost, because a growing part of the pay sits above the ceilings. On a very high salary the employer overhead as a share of gross is noticeably below 21 percent, while on a modest salary it sits close to the full figure.

Payroll is the biggest cost but not the only one. A realistic budget for a German hire also allows for the things that sit around the salary.

• Paid leave, at least 20 days and often 25 to 30
• Sick pay at full salary for the first six weeks
• Equipment, software and any home-office allowance
• Recruitment and onboarding time
• If you run your own entity, the Steuerberater and filing costs

Most of these apply whichever way you employ. The entity overhead in the last line is the one an employer of record removes, replacing it with a single fee.

For the third part of the cost, the choice is between a flat EOR fee and the running overhead of your own GmbH. The comparison is clearest side by side.

Sources: 2026 social contribution rates and ceilings from Deutsche Rentenversicherung and GKV publications. Worked example reviewed July 2026.

The Mindestlohn is the statutory minimum wage that nearly every employee in Germany is entitled to. It is an hourly figure, set by an independent body called the Mindestlohnkommission, and it applies regardless of sector or region.

A few narrow groups sit outside it, such as apprentices, who have their own training pay, the Ausbildungsvergütung, some mandatory interns, and the long-term unemployed during their first months back in work. For the vast majority of hires, though, the minimum wage is a hard floor.

For 2026 the rate is 13.90 euro an hour, and it rises again to 14.60 euro in 2027. Because German pay is quoted monthly, the hourly figure has to be turned into a salary using the contracted hours.

On a full-time 40-hour week, 13.90 euro an hour works out at roughly 2,410 euro a month, or about 28,900 euro a year. Fewer contracted hours mean a proportionally lower monthly figure. There is no 13th month on top, so the annual number is simply twelve equal payments.

The minimum wage is exactly that, a minimum. For most roles that involve any skill or experience, the market rate sits well above it, and pitching an offer at the floor will lose you good candidates.

Collective agreements, the Tarifverträge that cover many sectors, often set their own minimum pay above the statutory figure, and where one binds your business it takes precedence. Treat the Mindestlohn as the legal line you cannot cross, not as a guide to what a role should pay.

The minimum wage applies to part-time staff in the same way, on a per-hour basis. It also sets the ceiling for a Minijob, the marginal form of employment, because that threshold is linked to the minimum wage and rises whenever the wage does.

Temporary and agency work is covered too. Staff placed through Zeitarbeit or Arbeitnehmerüberlassung have to be paid at least the minimum wage, and often more where a sector agreement applies. There is no category of ordinary work where an employer can pay below the floor.

Most breaches are not deliberate. They happen when unpaid overtime drags the effective hourly rate below the minimum, when deductions eat into pay, or when someone is misclassified as an intern or working student who should be on the full rate.

Germany also requires employers in certain sectors to record working hours, so that compliance with the minimum wage can be checked. The safest approach is to track hours, keep the effective rate above the floor at all times, and review pay each time the rate steps up. This is one of the routine checks we run as an employer of record.

Sources: the Mindestlohnkommission decision of June 2025 and BMAS publications on the statutory minimum wage. Figures reviewed July 2026.

Every month, German payroll takes the gross salary and works out three things: the income tax to withhold, the employee’s share of social insurance, and the employer’s share on top. The net amount goes to the employee, and the rest is paid to the Finanzamt and the health insurer, which distributes the social contributions.

A German payslip, the Lohnabrechnung, sets all of this out line by line.

• Gross salary for the month
• Lohnsteuer, plus solidarity surcharge and church tax where they apply
• The employee share of pension, health, long-term care and unemployment
• Net pay actually transferred
• The employer contributions shown for transparency

Lohnsteuer is the income tax withheld from wages. How much comes off depends on the employee’s tax class, the Steuerklasse, of which there are six. Class one is the default for a single employee with no children. The class sets the allowances the payroll applies before tax.

The 2026 tax-free allowance, the Grundfreibetrag, is 12,348 euro for a single person. Above it the rate starts at 14 percent and rises with income, reaching 42 percent from about 69,879 euro and 45 percent at the top. A solidarity surcharge of 5.5 percent of the income tax applies only above a threshold, so most ordinary salaries pay none of it, and church tax of 8 or 9 percent applies only to registered members of a church.

On top of income tax, the employee pays their half of the four social insurance branches. For 2026 the employee shares are pension at 9.3 percent, health at 7.3 percent plus a supplementary contribution of around 1.45 percent, long-term care at 1.8 percent, and unemployment at 1.3 percent.

There is one twist on the care contribution. Employees aged 23 and over with no children pay an extra 0.6 percent surcharge, so a childless employee pays 2.4 percent for care rather than 1.8. Taken together, the employee social deductions come to roughly 20 percent of gross, before income tax.

The employer pays its own share on top of the gross salary, and for the main branches it broadly matches the employee. The employer shares are pension at 9.3 percent, health at 7.3 percent plus about half of the supplementary contribution, long-term care at 1.8 percent, and unemployment at 1.3 percent.

The employer also carries a few levies the employee does not, including the U1 and U2 levies that fund sick-pay and maternity reimbursement, and a small insolvency levy. Added up, employer on-costs come to roughly 21 percent of gross.

Social contributions are not charged on unlimited salary. Each branch has a ceiling, the Beitragsbemessungsgrenze, above which no further contributions are due. For 2026 the pension and unemployment ceiling is 8,450 euro a month, which is 101,400 euro a year. The health and long-term care ceiling is lower, at 5,812.50 euro a month, or 69,750 euro a year.

The practical effect is that on higher salaries the percentage on-cost falls, because the contributions stop growing once pay passes each ceiling. The east and west split that used to apply to these figures was removed, so a single set of ceilings now covers the whole country.

Once the deductions are worked out, the employee receives their net pay by bank transfer and a payslip that itemises the gross, each deduction and the net. The employer files the monthly Lohnsteuer-Anmeldung with the Finanzamt and pays the social contributions to the employee’s health insurer, which forwards the pension and unemployment shares.

German salaries are quoted as an annual gross paid over 12 equal months. There is no statutory 13th or 14th salary, though some employers or collective agreements add a bonus month by agreement. Getting all of this right every month is exactly the part an employer of record takes off your plate.

Sources: 2026 contribution rates and ceilings published by Deutsche Rentenversicherung, the statutory health insurers (GKV) and the Federal Ministry of Labour and Social Affairs (BMAS). Figures reviewed July 2026.

Before any paperwork, decide how the person will be employed. There are three routes. You can employ them through your own German entity, usually a GmbH, which means forming and running a company. You can use an employer of record, where we employ them on our German entity and you skip the setup. Or you can engage them as a contractor, which carries the risk of Scheinselbstständigkeit if the work really looks like employment.

The rest of this guide assumes the direct route through your own entity, so you can see everything that involves. If you would rather not run it yourself, an EOR collapses steps two through six into a single service agreement.

To employ anyone in Germany you first have to exist as an employer in the eyes of the authorities. That means obtaining a Betriebsnummer, the employer number, from the Bundesagentur für Arbeit. Without it you cannot report an employee to social insurance.

You also register with the Finanzamt to run wage tax, which is where the monthly Lohnsteuer-Anmeldung will be filed, and you set up cover with the relevant Berufsgenossenschaft, the statutory accident insurer for your sector. These are one-off steps, but they have to be in place before the first payroll.

Next the employee goes into the social insurance system. You confirm their statutory health insurer, the Krankenkasse, and submit the joining notification through the standard DEÜV reporting process. That single enrolment covers health, long-term care, pension and unemployment insurance.

For this you need the employee’s social insurance number, the Sozialversicherungsnummer, and their tax details. From that point the monthly contributions, split between employer and employee, flow to the health insurer, which passes the pension and unemployment shares on.

The employment contract, the Arbeitsvertrag, has to set out the written terms the Nachweisgesetz requires, including pay, working hours, leave, notice and place of work. It can be fixed term or open ended, within the limits German law puts on fixed-term contracts.

Check whether a collective agreement, a Tarifvertrag, applies to the role or the sector, because it can set minimum pay, hours and leave above the statutory floor. If one binds your business, the contract has to respect it.

German law sets minimums the contract cannot fall below, and getting these wrong is where employers most often trip up. The main ones are straightforward once you know them.

• Minimum wage of 13.90 euro an hour in 2026, rising to 14.60 in 2027
• At least 20 days of paid leave on a five-day week, with 25 to 30 the market norm
• Notice periods under section 622 of the civil code, rising with length of service
• Sick pay at full salary for the first six weeks under the Entgeltfortzahlung rules
• Mutterschutz and Elternzeit rights for parental leave

These apply whether or not they are written into the contract, so the safest approach is to state them clearly and make sure your terms meet or beat them.

With everything registered, payroll runs each month. You calculate the Lohnabrechnung, withhold Lohnsteuer and, where they apply, the solidarity surcharge and church tax, and deduct the employee social contributions. You add the employer contributions of roughly 21 percent and pay both halves to the Finanzamt and the health insurer.

Alongside the monthly Lohnsteuer-Anmeldung and social insurance reports, there are year-end filings and records to keep. Most companies doing this directly retain a Steuerberater to keep it right. With an employer of record, all of this sits with us, and you receive a single monthly invoice instead.

The first option is to open your own German entity, almost always a GmbH. You form the company, put in the share capital, register it, and become the direct employer of your staff. From then on the payroll, tax and compliance are yours to run.

The second option is an employer of record. We employ your staff on our own German GmbH, so you get a compliant German employee without forming anything. You direct the work and we carry the employment. The trade-off is a monthly fee against the cost and effort of running your own company.

A GmbH starts with share capital of 25,000 euro, of which at least 12,500 has to be paid in when the company is formed. On top of that come the formation costs, roughly 500 to 1,000 euro or more for the notary, the Handelsregister entry and the trade-office registration, and then ongoing costs for a Steuerberater to keep the books and file returns.

With an employer of record there is no capital to lock up and no formation bill. You pay the actual salary, the employer social contributions of around 21 percent, and our flat fee of 499 euro per employee a month. For a small number of hires that total is usually well below the cost of forming and running a company.

Forming a GmbH takes time. The articles have to be notarised, the company entered in the Handelsregister, the business registered with the trade office and the Finanzamt, a bank account opened and a Betriebsnummer obtained before anyone can be paid. In practice that runs to somewhere between two and six weeks, and sometimes longer.

An employer of record is already set up. Because we hold the entity, the Betriebsnummer and the payroll, a hire can start within days of the service agreement being signed. If speed matters, that gap is the whole point.

Owning a GmbH is not just the setup. Every year there are accounts to prepare and file, tax returns to submit, and payroll to run correctly each month. Most companies keep a Steuerberater on retainer for this, and someone internally has to own it. If a site grows, a works council, the Betriebsrat, may come into the picture with its own rights.

With an employer of record those duties sit with us. We run the monthly payroll, keep the employment compliant as the rules change, and handle the filings that come with employing someone. Your side stays focused on managing the person and the work.

The trade-offs line up cleanly once you see them together.

There is no single right answer, but the pattern is fairly consistent. An employer of record usually fits when one or more of these is true.

• You are hiring a small number of people in Germany
• You want them working in days, not weeks
• You are testing the market before committing
• You would rather not run German payroll and filings yourself

Your own GmbH tends to win once the headcount is larger and settled, or when you need the entity for other reasons such as invoicing German customers or holding local assets. Many companies start with an EOR and move to their own entity later, once the numbers justify it.

This is the question that matters most, because a lot of providers do not employ anyone in Germany themselves. They pass your hire to a local partner and add a margin. That means an extra link in the chain, less control, and a contract you cannot see the bottom of.

We employ your staff on our own German GmbH, registered in the Handelsregister. That entity also holds an Arbeitnehmerüberlassung licence from the Bundesagentur für Arbeit, which is the permission a provider needs to place employees with a client company on a lawful basis in Germany. Not every EOR operating here holds one, and it is a fair thing to ask any provider to show you.

German payroll is not a place for guesswork. Lohnsteuer, the solidarity surcharge, church tax where it applies, and the four social insurance branches all have to be calculated correctly every month and reported to the right bodies. A provider that runs this in-house tends to be faster and more accurate than one that outsources it.

We run German payroll ourselves under our own Betriebsnummer. That means when a question comes up about a deduction or a contribution ceiling, you are talking to the people who actually run the calculation, not a call centre relaying it to someone else.

Employment law in Germany is detailed and it changes. The written-terms rules under the Nachweisgesetz, the notice periods in section 622 of the civil code, and the risk of Scheinselbstständigkeit if a contractor is really an employee all sit on the employer. A good EOR keeps pace with these and tells you when something affects your hire.

Ask how a provider handles works councils as well. Larger sites can have a Betriebsrat with genuine rights over working conditions, and a provider who has dealt with one before will save you from missteps that are hard to undo.

When you employ someone in another country, the difference between a good month and a bad one is often who picks up the phone. Some providers give you a ticket queue. That is fine until a payslip is wrong or an employee has a question that needs a real answer.

We give each client one dedicated Germany specialist who knows your account and your hire. You are not re-explaining your setup to a new person each time, and your employee has a named contact for anything about their pay or their contract.

Pricing is where the differences between providers show up fastest. Some charge a percentage of salary, which quietly rises as your employee’s pay rises. Others advertise a low headline rate, then add currency conversion spreads, onboarding fees or deposits on top.

Our fee is a flat 499 euro per employee a month, the same for a junior hire and a senior one. It sits alongside the actual salary and the employer social contributions of roughly 21 percent, and there is nothing hidden behind it. If a quote you are comparing is hard to pin down, ask for the all-in monthly cost for a named salary and see how quickly you get a straight number.

Put together, the five questions sort providers quickly. Here is what a good answer looks like against a warning sign.

Everything starts with a short service agreement between your company and ours. It sets out the role, the salary you have agreed with the employee, the start date, and our flat fee of 499 euro a month for carrying the employment. There is no minimum headcount, so a single hire is enough to begin.

This is the point where we confirm the German specifics of the role, such as the working hours, any probation period, and the notice terms, so the contract we issue next matches what you and the employee expect.

Next we collect what German payroll and social insurance need from the employee. This is a routine step, and we guide the person through it so nothing is missed.

• Personal and address details, and a photo ID
• Their Steuer-ID, the tax identification number
• Their social insurance number, the Sozialversicherungsnummer
• Their chosen statutory health insurer, the Krankenkasse
• Bank details for salary payment
• Tax class and any relevant family or church-tax status

With those in hand, we can register the employee correctly and make sure the first payslip reflects the right tax class and deductions.

We then issue the German employment contract, the Arbeitsvertrag, with the written terms the Nachweisgesetz requires, including pay, working time, leave and notice. The employee signs with us as the legal employer.

Alongside the contract we handle the registrations that make the employment official. That means registering the person with their Krankenkasse, reporting them to the Deutsche Rentenversicherung for social security, and running the payroll under our Betriebsnummer from the Bundesagentur für Arbeit.

At the end of the first month we run the Lohnabrechnung. We withhold Lohnsteuer and, where it applies, the solidarity surcharge and church tax, and we deduct the employee share of pension, health, long-term care and unemployment contributions.

On top of the gross salary we add the employer contributions, which come to roughly 21 percent, and we pay both halves to the Finanzamt and the social insurance funds. The employee receives a clear German payslip and their net salary in their account, and you receive one invoice covering the salary, the on-costs and our fee.

After the first payroll the employment simply runs. We keep the monthly payroll going, track statutory leave against the 20-day floor and whatever you have agreed above it, and handle sick pay at full salary for the first six weeks under the Entgeltfortzahlung rules.

When things change, we handle them. That covers pay rises, parental leave, and eventually offboarding, where German notice periods under section 622 of the civil code apply by length of service. You tell us what you want to happen and we make it compliant.

The split of work is the same at every stage. You keep the relationship with your employee. We carry the German employment.