By Travis Kliever
Updated April 6, 2024

Employer of Record (EOR) in Germany

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Are you looking for talented German employees to add to your team? You might need to work with an EOR to help you succeed. While Germans have an international reputation as excellent workers, you might find that it’s incredibly challenging trying to recruit them by yourself. In January 2024, employment in Germany was up 0.5% for the same month in the previous year, and the unemployment rate was down to just 3.1% or only 1.38 million people.

It’s clear from the numbers that German workers are highly sought-after, and this is why many international firms contract EORs to help recruit and hire them. In this article, we’re going to look at what a Germany EOR is, how to enter into a relationship with one, and what that relationship entails for you and your employees.

What is a German Employer of Record (EOR)?

An Employer of Record (EOR) is an organization that hires employees on behalf of a client company. While the employee works directly for the client, they are contracted by the EOR and paid a salary by this organization. Therefore, the EOR becomes the sole legal employer and takes on the responsibility for complying with all German labor laws.

This is different from a Professional Employment Organization (PEO), which is essentially an outsourced HR firm. A PEO is only able to act as a co-employer with the client company and this means that the client is required to register German employees. Some roles, especially those that increase the exposure of the company, can leave a client company liable for paying German taxes. With an EOR as the sole employer, however, the client is not required to register their German employees in Germany and can’t be liable for German taxes.

In Germany, the EOR relationship is legally called an AUG license from the Arbeitnehmerüberlassungsgesetz or Temporary Employment Act, which governs this type of relationship. As you can see from the name, this kind of relationship is currently intended as a temporary staffing solution for German workers.

Feature	Germany PEO	Germany EOR
Level of Involvement	Co-employer: Shares employment responsibilities with your company.	Full Employer: Assumes full legal and financial responsibility for employees.
Employee Relationship	You directly manage your employees (performance, training, etc.).	Employees report directly to the EOR.
Flexibility	Offers a wider range of HR services, including recruitment, onboarding, and training.	Focuses primarily on employer of record services like payroll, tax, and legal compliance.
Cost	Generally more expensive due to the broader range of services offered.	Often less expensive than a PEO, but limited to the employer of record responsibilities.
Control	You maintain more control over your employees’ day-to-day work.	You have less direct control over employees, relying on the EOR’s policies and practices.
Scalability	Easier to scale your workforce up or down as needed.	May be more complex to adjust the size of your workforce due to full legal responsibility.
Suitability	Ideal for companies seeking comprehensive HR support and flexibility in managing their workforce.	Best for companies primarily focused on minimizing administrative burdens and legal risks with a clear understanding of their HR needs.

Top 5 Leading Germany EORs

Horizons

Horizons, with its in-depth knowledge of German labor and tax regulations, and with its regional HQ in Berlin, provides comprehensive EOR services in Germany. Horizons can assist with everything from hiring to payroll, ensuring complete regulatory compliance.

Augsight

Augsight offers EOR and payroll-only services throughout Germany and holds an AUG labor leasing license, ensuring complete compliance with German employment laws. They can also help employees get the best German health insurance, and enable global companies to get German work visas for their Germany-based staff.

People2.0

This global workforce platform has earned a reputation for efficient and flexible solutions, with a special focus on supporting contractor hire. People2.0’s understanding of German employment regulations and its focus on compliance makes it a worthwhile option for your German hiring partner.

Lano

Known for its comprehensive global HR solutions, Lano simplifies the complexities of international employment and has a strong presence in Germany. Founded and based in Berlin, Lano’s team of experts and efficient software ensures compliance and streamlined HR operations.

Remote

Remote excels through its focus on compliant EOR solutions in Germany and elsewhere through its ‘Direct EOR’ business model. Their SaaS platform ensures that all employer tasks, from onboarding to offboarding, comply with German labor regulations.

How a Germany EOR Works

In Germany, EORs enter into agreements with both client companies and employees. They act as the bridge between these two parties and also take on the role of the sole legal employer of hired workers. Each party has its responsibilities as follows:

The Employee

While the employee is contracted directly by the EOR, they can negotiate terms of work and compensation directly with the client company. According to German law, they must be paid at least in line with permanent workers. The employee performs work only for the client company and never for the EOR directly. However, their day-to-day activities and responsibilities are still guided by the client company, while HR concerns fall to the EOR.

The Employer of Record

In this relationship, the EOR plays the role of an intermediary. Their responsibilities generally include recruiting, hiring, and onboarding employees, as well as producing their contracts. They also handle payroll, paid leave, as well as tax and other deduction management on behalf of the client. The EOR is the sole legal employer in this relationship and, therefore, bears full responsibility for compliance with all regulations. Issues between the client and the employee also fall to the EOR to settle appropriately. In addition, any organization wishing to act as an EOR must have an employee leasing license issued by the German Labor Agency.

The Client Company

The client company is a foreign company that does not need a registered entity in Germany. It contracts the EOR to perform outsourced HR functions on its behalf, including hiring temporary employees. The client works with the EOR to define the role of the employee, put together an appropriate compensation package, and produce a contract with agreeable terms. The client then pays the EOR for all salary and mandatory contributions for the employee and adds a management fee for the EOR’s services.

Pro Tip: When choosing a German EOR company, look for providers with an AUG license. This is a requirement for any company in Germany providing a labor leasing service.

Germany Labor Law

Labor laws in Germany are robust and highly protective of workers’ rights. It’s crucial to follow both these national laws and, because Germany is a member state of the European Union, EU labor laws as well. While the EOR is ultimately responsible for compliance, it’s still very useful for client companies to have some basic understanding of German labor law to understand what they should provide for their employees.

Contracts

EOR companies are currently only allowed to hire workers on behalf of their client companies for a temporary period of 18 months. After this, you would need to hire the employee directly if you continue to desire their labor.

Working Hours

In Germany, the typical work day is eight hours long, though this can be pushed to ten hours for short periods or through collective bargaining agreements. The work week is normally 40 hours and can extend to a maximum of 48 hours.

Overtime

Unlike in other countries, overtime compensation is not nationally stipulated. It’s up to each employer to offer overtime compensation at a level acceptable to their employees.

Breaks and Rest Periods

German workers are entitled to a 30-minute break after working not more than six hours as long as they work a period of between six and nine hours. If working more than nine hours, they become entitled to a 45-minute break. In Germany, breaks are not considered working time and, therefore, are not paid.

In addition to breaks, German workers must be given rest periods of at least 11 hours between shifts before they can work again.

Annual Paid Leave and Holidays

Every German employee is entitled to 20 days or four weeks of annual leave. The possible time of this leave may be negotiated with the employer on an individual or group basis. Workers are also entitled to holidays that can number from 9 to 14 days, depending on the state where they work.

Parental Leave

Mothers are entitled to six weeks before delivering and eight weeks after. Fathers or second parents are granted ten days of leave starting in 2024.

Benefits of a Germany EOR

With German talent so highly sought-after, there are a lot of benefits to entering an EOR relationship rather than trying to hire employees directly. An EOR is usually able to complete the recruitment, hiring, and onboarding of a new employee in a matter of days. As the sole legal employer, the EOR also uses its expertise in German law and HR to maintain compliance with all applicable laws. EOR can also save organizations the high costs of setting up local entities in Germany or maintaining HR departments dedicated to supporting German employees.

Downsides of a Germany EOR

The main downside of hiring employees through an EOR relationship is they can only be employed for a maximum of 18 months. After this time, the client company would have to hire them directly and register them in Germany, either on its own or working with a PEO. For outsourcing HR functions and legal responsibilities to the EOR, the client company needs to pay fees that can greatly increase the cost of hiring an employee.

Choosing a Germany EOR

When you’re looking to contract an EOR in Germany to hire employees on your behalf, you need to find a company that you can trust. To help you sort through the hundreds of companies offering EOR services and find the best option for you, consider these factors:

Reputation

If a company has been constantly criticized and badly reviewed, this is probably evidence of a lack of professionalism. It can indicate problems with both clients and employees or show a history of fines for non-compliance. Choosing a company with a great reputation will help you reduce the risk of issues in the future.

Services Offered

Make sure that the EOR you are looking at contracting will offer all the services that your business needs. These will typically include hiring, onboarding, payroll, deductions, and HR management but there may be other services you require.

Experience

New companies may lack experience working with German employees. Instead, look for an experienced company that will solve problems before they even arise.

Legality

Does the EOR have its entity set up in Germany, or will it contract another third-party company to act as the employer on its behalf? Using another organization adds an extra layer of complexity to an already complex relationship and introduces additional and unnecessary risk.

Price

Normally, the best EORs don’t offer the cheapest service. Ask for a clear and complete quote for your needs, and any reputable EOR should be able to provide you with one quickly and accurately.

The tax year in Germany runs from 1st January to 31st December. It is essential to be aware of the deadlines for employee tax filing, which typically falls on July 31st of the following year, although working with a professional tax adviser may extend the deadline.

Employer Tax Responsibilities

Employer tax responsibilities in Germany include:

Pension contributions: The current rate is 9% with an annual income ceiling of EUR 84,600.
Health insurance contributions: Employers typically contribute around 50% of the employee’s health insurance premium.
Long-term care insurance contributions: Employers contribute 7.3% to long-term care insurance.
Unemployment insurance contributions: Calculated at a rate of 2.4% of the employee’s earned income, with a contribution assessment ceiling in place.

Understanding and meeting these employer tax responsibilities can help you maintain compliance with German employment laws and create a stable and supportive work environment for your employees.

Employee Tax Responsibilities

Employee tax responsibilities in Germany encompass income tax rates, social security contributions, and potential double taxation treaties. Income tax rates for employees in Germany are progressive, ranging from 14% to 45%, depending on the individual’s income level.

Social Security Contributions for employees in Germany are typically split between the employer and the employee, with the contribution rate being approximately 14.6% of the employee’s gross salary, and both the employer and the employee contributing 7.3% each.

Employees need to be cognizant of their tax responsibilities and should ensure timely payments to evade any financial penalties or legal issues.

Avoiding Common Pitfalls with German EORs

When employing a German EOR, adherence to local labor regulations and competent management of remote personnel and independent contractors are important. By doing so, you can avoid potential legal issues and ensure a seamless experience for both you and your employees.

To differentiate between contractors and employees, you must understand their distinct legal definitions and the purpose they serve in your business. Converting a contractor to an employee can safeguard your company from potential penalties, enhance the employee experience, and facilitate collaboration between both parties. Knowing when to hire employees instead of relying on contractors can be crucial for your business’s success.

Ensuring Compliance with Local Labor Laws

HR compliance in Germany is crucial for guaranteeing that your company’s policies and procedures adhere to German law and all relevant regulations concerning employment and work practices. A German EOR can help ensure compliance by managing all compliance-related matters, assuming liability, and providing localized employment contracts.

Keeping abreast of the following can help you evade potential legal issues and foster a supportive work environment for your employees in Germany:

Protections against unfair dismissal
Written employment contracts
Notice periods and severance pay
Statutory holiday entitlement
Anti-discrimination laws

Managing Remote Workers and Independent Contractors

When managing remote workers and independent contractors in Germany, it is essential to consider potential legal liabilities and the advantages of utilizing an EOR. Engaging remote workers as independent contractors in Germany is likely to violate German and applicable country employment laws, potentially resulting in fines for unpaid holiday pay, sick pay, social welfare payments, paternity benefits, maternity benefits, or other legal measures.

An EOR can alleviate these concerns by:

Taking care of the legal and administrative requirements of hiring and onboarding
Managing payroll and adhering to labor laws
Offering support and acting as a local contact

This allows you to focus on building your business while ensuring a positive and compliant experience for your remote workers and independent contractors in Germany.

Summary

In conclusion, a German Employer of Record can be a game-changer for businesses looking to expand into the German market without the hassle of setting up a local legal entity. By understanding the intricacies of German employment laws and regulations, taxation and social security contributions, and the hiring process with a German EOR, you can successfully navigate the complexities of hiring and managing employees in Germany. With the right EOR provider by your side, you’ll be well-equipped to focus on growing your business and fostering a supportive and compliant working environment for your employees in Germany.

Germany Business Guides

FAQ

How does a Germany EOR differ from a Germany PEO?

In Germany, a PEO co-hires an employee working as an outsourced HR department for a client company. However, the client is the legal employer. In contrast, a client company can hire an EOR to manage an employee on its behalf. The EOR acts as the sole legal employer in this case.

Article By

Travis Kliever

Travis is a global business development advisor. He has spent the last 14 years supporting business establishment and development in North America, Southeast Asia, and throughout the world. With multiple degrees from the University of Oregon, Travis currently splits his time between the US, and Bali, Indonesia. At RemotePad, Travis writes about remote work, hiring internationally and PEO/EOR business models.

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Employer of Record (EOR) in Germany

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