Employer of Record Germany

• FMC Group hires employees on your behalf through its legal entity in Germany, streamlining the process of hiring employees quickly and efficiently.
• This enables companies to enter the German market quickly without the complexities of setting up a local entity, ensuring adherence to local labor laws.
• Engaging FMC Group as Employer of Record (EOR) in Germany simplifies hiring as we manage payroll, taxes, employee benefits, and legal compliance.
• As your legal employer, FMC Group assumes full responsibility for compliance with local labor laws, including taxes, payroll, and employment contracts, ensuring a positive experience for your workers.
• Choosing the right EOR provider is crucial, as they must hold a valid AUG license (Erlaubnis zur Arbeitnehmerüberlassung) – FMC Group GmbH in Germany holds the required license.

The German “Act on Temporary Agency Work” (Arbeitnehmerüberlassungsgesetz —AUG) regulates the activity of an employer of record. The AUG is very strict and states that providers of this activity must hold a permit from the Federal Ministry of Labor (Erlaubnis zur Arbeitnehmerüberlasung) and follow certain standards and rules. Collective bargaining agreements also play a significant role in shaping labor laws and employee protections in Germany, influencing terms of employee leasing and minimum wage compliance.

As FMC Group GmbH in Germany, we hold this license and operate in comlinace with the rules of the AUG.

Unfortunately, the AUG has a big drawback: There is a time limit of 18 months. An employee can only be deployed to the same client for a maximum duration of 18 months. And the criteria is “the same client,” so switching between different eor providers will not solve this issue. After 18 months, the employee needs to take a “cool down period” of a minimum of 3 months plus 1 day. After that, the employee can be assigned again for 18 months.

Some providers operate without a valid AUG permit or try to circumvent the 18-month period by working with “consultancy agreements.” These approaches come with a high risk, as there are high penalties for the provider and the client.

German employment laws encompass various aspects of employment, such as discrimination, maternity benefits, and minimum wage. Local companies must strictly adhere to these laws. As an EOR provider, the German Federal Ministry of Labor periodically audits us. Statutory benefits, including health insurance, public pension plans, and unemployment insurance, are crucial aspects of employee entitlements, ensuring legal compliance and attracting talent.

In Germany, a written employment contract that complies with local regulations is a legal requirement. This contract should clearly outline the working conditions, compensation, benefits, and termination conditions.

Typically, employment contracts in Germany are open-ended or for an unlimited duration. However, it is possible to have a fixed-term contract, provided that the duration is agreed upon in writing before the employment begins. A fixed-term contract automatically concludes without requiring written notice when its specified term expires.

To justify a fixed-term employment relationship, objective grounds must exist, some of which are outlined in statutory law (e.g., temporary workload increase, substitution of an employee during parental leave).

In cases where no objective grounds exist, a fixed-term employment contract can last a maximum of two years as long as there was no prior employment contract with the same employer. If the parties decide to continue the employment beyond the fixed-term contract’s expiration, the agreement is considered to be for an indefinite period.

Employment contracts for EOR employees need to fulfill additional criteria. For example, they need to state that the purpose of employment is employee leasing (“Arbeitnehmerüberlassung”) and educate the employee about his rights arising out of this.

The maximum probationary period for an unlimited employment contract is six months. An extension is only possible under certain conditions (e.g., prolonged illness).

The probation period must be proportionate for a fixed-term contract. A guideline is 1/4 to 1/3 of the contract duration (e.g., 3-4 months probation for a 12-month contract).

During probation, the employee and employer can terminate the employment relationship with 2 weeks’ notice.

Full-time employees typically work 35 to 40 hours weekly (Monday to Friday). The limit is 8 hours per day, 6 days per week (Monday-Saturday). Working on Sundays and on public holidays is permitted in exceptional cases only.

Working up to 10 hours on certain days is possible, but overtime needs to be compensated by time off (8 hours per day must not be exceeded in a six-month average).

Employers are generally required to record their employees’ working hours.

The statutory minimum wage in Germany is 12.41 Euro per hour. It will rise to 12.82 Euro at the beginning of 2025.

Germany is part of the European Union. Citizens of European Union states can work in Germany without needing a visa or work permit.

Citizens from other countries need to obtain a work permit. The process for obtaining a work permit depends on the job profile and nationality of the employee.

Germany’s income tax system operates on a slab-based structure, where specific tax rates apply to the income difference between one tax bracket and the next, rather than taxing the entire income at a single rate.

Taxable Income (EUR) Tax rate( %)  2024 0 – 11,604 0% 11,604– 66,760 14% – 42% 66,760– 277,825 42% 277,825+ 45%

German corporate tax law has an implications for foreign entities operating in Germany, especially in the context of employee leasing. Certain employee tasks can trigger tax obligations and may lead to the establishment of a permanent establishment, bringing the foreign entity under German tax regulations.

German employees must be registered with the German social security system. Contributions to these benefits are shared equally between the employer and the employee. The components of the social insurance system in Germany are:

• Pension Fund
• National Health Insurance
• Unemployment Funds
• Long-Term Care
• Accident Insurance (Note: Only employers make contributions to this fund.)

Social security contributions are automatically deducted through the monthly payrol.

Employees earning above a certain salary can opt out of national health insurance and register with private health insurance instead. Employers then pay the National Health Insurance amount as a contribution to the employee.

Optional benefits in Germany depend on the industry and the job profile, e.g. performance bonus, 13th salary, etc.

Depending on the federal state, employees in Germany benefit from 10 to 12 public holidays per year.

In Germany, the statutory minimum paid leave is 20 days for a 5-day workweek and 24 days for a 6-day workweek. However, most full-time employees typically enjoy between 25 to 30 days of paid leave per year.

In the event that an employee is absent from work for more than three consecutive days due to illness, they are required by law to provide their employer with a doctor’s note as documentation. For absence below 3 days, there is no general requirement to provide a medical certificate. However, employers can request one from day.

The Continued Remuneration Act (Entgeltfortzahlungsgesetz) in Germany provides employees with six weeks of statutory sick pay if they have been employed for at least 4 weeks. During these initial six weeks, employees receive their full salary from the employer.

Following the initial six weeks, employees will receive sickness benefits directly from their health insurance company. These benefits typically equal 70% of the gross salary (up to the social security ceiling) but no more than 90% of the net salary.

Maternity leave for pregnant employees in Germany comprises 6 weeks before the expected birth date and 8 weeks after the birth, all paid at full salary. In cases of premature births or the birth of multiples, employees are entitled to 12 weeks of paid leave following the birth.

Either parent is eligible for parental leave until the child reaches 3 years of age. During this parental leave period, parents can either not work or work part-time for up to 32 hours per week. Parents of premature infants receive additional parental leave.

It is against the law to terminate the employment of an employee during pregnancy and up to four months after the child is born in Germany, providing protection to pregnant employees and new mothers.

The German Employment Protection Act (Kündigungsschutzgesetz) oversees employment terminations and safeguards employees by ensuring that dismissals are well-founded. During the probation period, the contract can be terminated with a notice of 2 weeks without providing a reason.

After the probation period, the following notice periods apply:

• Below 2 years employment – 4 weeks to the 15th or to the end of the month
• 2 years of employment – 1 month to the end of the month
• 5 years of employment – 2 months to the end of the month
• 8 years of employment – 3 months to the end of the month
• 10 years of employment – 4 months to the end of the month
• 12 years of employment – 5 months to the end of the month
• 15 years of employment – 6 months to the end of the month
• 20 years of employment – 7 months to the end of the month

Ordinary terminations must be socially justified, and employers must provide a valid reason for the termination. There are three possible reasons: behavioral, personal, and operational.

Behavioral reasons include, for example, serious misconduct by an employee. Personal reasons are related to the employee’s (changed) skills and not to his behavior. An example could be a driver who lost his driver’s license. Operational reasons can be diverse, like restructuring, streaming processes, or a severe drop in sales. A special requirement for operational terminations is that employers must make a social selection of which employee to terminate.

Another option is extraordinary termination, where the employer terminates without notice. This is limited to exceptionally severe cases like fraud.

There is no general legal entitlement to pay severance in the event of termination. Rather, it is a voluntary benefit of the employer. An exception applies to operational dismissals. The employer has the possibility to offer the dismissed employee a severance payment, provided that the employee waives the right to file a dismissal protection claim before the labor court. A typical severance amount is a half to one monthly salary per year of employment.

Do EOR providers in Germany need an AUG license?

Yes, they do.

Does FMC Group hold a AUG license (Erlaubnis zur Arbeitnehmerüberlassung)?

Yes, FMC Group GmbH in Germany has a valid license from the German Federal Ministry of Labor in Nürnberg. Our License number is 60101/010923/11901.

What is the time limit in months for using an EoR in Germany?

The time limit for using an Employer of Record (EOR) in Germany is 18 months. After that employees need to take a “cool down period” for 3 months plus 1 day before they can be assigned for 18 months again.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third-party provider that hires employees for a company, handling all aspects of employment such as payroll, benefits, taxes, and legal compliance. This arrangement allows businesses to focus on their core operations while ensuring adherence to employment regulations.

What are the benefits of using an EOR in Germany?

Utilizing an EOR in Germany significantly minimizes compliance risks and reduces administrative burdens while offering flexibility in hiring and compensating employees according to local regulations. This approach allows companies to navigate the complex work environment more efficiently.

What are the mandatory employee benefits in Germany?

In Germany, mandatory employee benefits encompass retirement pensions, unemployment insurance, healthcare, long-term nursing care, and workers’ compensation. These benefits are essential for ensuring employee welfare and security.

How does an EOR manage payroll taxes in Germany?

An EOR effectively manages payroll taxes in Germany by accurately calculating them and ensuring timely submission to the local tax authority, thereby avoiding potential penalties. This diligent process safeguards compliance with legal obligations.