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Germany PEO (Professional Employer Organization)

Key Takeaways

  • A Germany PEO can help a company hire German employees in a matter of days.
  • PEOs handle HR functions on behalf of a client company in a co-hiring relationship.

Recruiting German talent can be a real challenge, but a Germany PEO can make things a lot easier. Germany has long been known as a center of quality work and employees from this country are prized for their precision, punctuality, and dedication. Employment in Germany took a major hit from 2020-2021. However, numbers are back up. The labor market is currently healthy with 45.7 million people employed and the unemployment rate down to just 3.1% by the end of January 2024. 

These numbers reveal that German workers are in demand, and competition to employ them is very high. Professional Employment Organizations in Germany can help your company connect with, hire, and manage German employees by using their professional experience and knowledge of German Law and Recruiting Practices.

Germany Professional Employer Organization

A Germany Professional Employer Organization (PEO) is a company that is contracted to perform HR functions for a client company. PEO can also stand for “professional employment outsourcing,” which describes the role of the PEO in a relationship between a company and an employee. A PEO will normally recruit and hire workers in addition to paying their salary, benefits, and mandatory deductions to various social schemes.

This is a slightly different situation from a Germany Employer of Record (EOR). While a PEO acts as a co-employer with the client company, an EOR is the sole legal employer of a worker. However, in Germany, an EOR can only employ a worker for a maximum of 18 months. This follows the German Arbeitnehmerüberlassungsgesetz or AUG which translates to “Temporary Employment Act” and stipulates the rules of EOR hiring

To avoid this 18-month limitation, a client company can work with a PEO to hire German workers on a long-term or permanent basis. Unlike in other countries, a company doesn’t need to own an entity in Germany to work with a PEO. However, this means that the foreign client company must register employees in Germany. They also have to be wary of the roles they hire German employees to play, as some would make them liable for taxation in Germany.

How a Germany PEO Works

The fundamental operating principle of a PEO in Germany is similar to PEOs in other parts of the world. They form a co-employment relationship with the client company. The PEO becomes the employer of record for tax purposes and compliance with labor laws, while the client company continues to manage the employees’ daily activities.

The PEO takes care of tasks like payroll administration, compliance with employment regulations, tax filings, and provision of employee benefits. They ensure that the client company is compliant with German labor laws, which are known for being comprehensive and stringent. The PEO also handles all the administrative tasks related to employee management, allowing the client company to focus on its core business operations.

ResponsibilityDescription
Benefits for Your Business
Legal Employer of Record (EOR)Acts as the legal employer for your German employees, assuming all legal and compliance obligations.
Reduces your administrative burden and minimizes legal risks.
Payroll & Tax ManagementHandles all payroll processing, deductions, and tax payments for your German employees.
Ensures payroll accuracy and compliance with German tax regulations.
Benefits AdministrationAdministers health insurance, social security, and other employee benefits programs.
Provides attractive benefits packages to attract and retain qualified personnel.
Work Permit & Visa SupportAssists with obtaining work permits and visas for your foreign employees.
Simplifies the hiring process for international talent.
HR Services & ComplianceProvides HR support on topics like recruitment, onboarding, performance management, and termination.
Ensures adherence to German labor laws and best practices.
Risk Management & InsuranceOffers risk management expertise and liability insurance to protect your business.
Minimizes your exposure to potential legal and financial risks.
Local Expertise & GuidanceProvides in-depth knowledge of German employment laws, regulations, and cultural nuances.
Helps you navigate the complexities of operating in Germany.
Scalability & FlexibilityAllows you to easily expand or contract your workforce in Germany without establishing a branch or subsidiary.
Enables you to adapt to changing business needs and market conditions.

 

A PEO in Germany enters into a three-way relationship with a client company and an employee, acting as the intermediary between the other two. Each partner has a specific role to play in this relationship.

Role of the Client Company

A foreign company looking to hire German employees must own a registered entity in Germany. Once it does, it can contract employees directly. It can use a PEO to outsource HR functions, including recruiting, hiring, onboarding, payroll, and more. However, it is the sole legal employer and must ensure compliance with all German labor laws.

Role of the PEO

On behalf of the client company, the PEO recruits appropriately skilled employees to be hired by the client. They then handle most HR responsibilities, including paying salary and deductions, managing paid leave and official holidays, and even playing a role in dismissals. They also help the client company to create contracts and attractive and appropriate compensation packages for employees. The PEO is essentially a co-employer and HR manager for the client company, using its knowledge of German and EU law to ensure compliance with labor laws.

Role of the Employee

In this tripartite relationship, the employee will be recruited by the PEO but contracted directly by the client company. They, therefore, have to negotiate their work and salary conditions directly with the client company. While their salary payment and HR management are functions performed by the PEO, the employee works directly for the client under that company’s management for day-to-day responsibilities.

Germany Labor Law 

If you know a bit about German bureaucracy, you won’t be surprised that labor law is very precise and strictly controlled in this country. Employment rules are monitored by the Federal Employment Agency, known as the BA (Bundesagentur für Arbeit). There’s a lot to know about employee rights and regulations but here’s an overview of some major points.

Working Hours

Germans typically work eight hours per day, but this can be extended to ten hours for short periods. The maximum a German employee can work is 48 hours a week and workers must receive at least 11 hours of rest between shifts. Overtime compensation is not officially mandated and is typically decided on an individual basis or agreed on through collective bargaining.

Breaks

Breaks in Germany are not considered working time and are therefore unpaid. A worker must receive a 30-minute break after not more than six hours of work. After nine hours, they must receive a 45-minute break.

Holidays and Paid Leave

German employees are entitled to 20 days, or four weeks, of paid leave per year. This doesn’t include the 11 national holidays that Germans are entitled to during the year.

Maternity/Paternity Leave

German mothers are entitled to 14 weeks of maternity leave, six before delivering and eight after. In the case of multiple births (twins, triplets), this increases to 18 weeks. Starting in 2024, fathers or second parents receive just ten days of parental leave after a child’s birth. 

Employee Social Contributions

German employees are required to make significant social contributions for health insurance (7.3% of salary), pension insurance (3.6-9.3%), long-term care insurance (1.525%), and unemployment insurance (1.3%). These contributions are matched or exceeded by the employer and are capped by contribution ceilings.

Choosing a Germany PEO

With so many firms scrambling to attract talented German employees, it’s crucial that you’re able to choose the best PEO to help you compete. To ensure that you find a PEO that you can rely on for your HR outsourcing needs, keep these considerations in mind.

What are your needs? – It’s important to define the HR functions that you need to have performed and then find a PEO that can fulfill all of them. This can include recruitment, hiring, onboarding, payroll, taxes and social contributions, reprimands and dismissals, and much more.

What are the PEO’s fees? – Many PEOs are reluctant to post their prices or offer clear quotes, instead adding on hidden fees for their services. Look for a PEO that can give you a clear and complete quote that also falls within your budget.

Does the PEO have any bad reviews? – While errors are bound to happen, organizations that receive frequent bad reviews and ratings from employees and client companies generally lack professionalism. They may have made costly mistakes that resulted in companies being fined or pushed employees into positions they weren’t qualified for.

How much experience does the PEO have working in Germany? – New companies may struggle to keep up with the demands of their clients. They might also lack full knowledge of labor laws leading to compliance issues. Established PEOs will be able to provide more reliable service.

Benefits of a Germany PEO?

So many companies choose to work with German PEOs because of the clear advantages they offer. The PEO acts as a local HR organization which means that the client company doesn’t need to expend valuable resources filling out a local HR team. PEOs have extensive knowledge of German and EU labor law and use this to ensure that workers are treated appropriately and all laws are followed. One of the biggest benefits of using a PEO in Germany is the speed at which they can help you hire and onboard staff. The whole process can be completed in just a few days, helping you to fill positions with great efficiency. Unlike using an EOR, co-hiring staff with a PEO 

Germany PEO benefits are numerous

PEOs in Germany offer numerous advantages:

Compliance

Germany has complex labor laws and regulations. A German PEO ensures that your business remains compliant, mitigating the risk of penalties or legal complications.

Efficiency

PEOs streamline HR processes, enabling businesses to focus on core operations instead of administrative tasks.

Cost Savings

PEOs often provide services at lower costs than hiring full-time, in-house HR professionals.

Access to Expertise

German PEOs employ experts in local labor laws, payroll, and HR, providing a wealth of knowledge and experience to client companies.

Employee Benefits

PEOs can offer a wider range of employee benefits than small businesses might afford on their own, attracting and retaining quality talent.

Downsides of a Germany PEO

The main challenge of working with a German PEO is that your company is the legal employer. Although you’re able to leverage the PEO’s knowledge of local law, the ultimate responsibility for compliance rests solely on your company. Hiring staff directly for some roles could also make your company liable to pay German taxes.

Top 5 Leading Germany PEOs

Horizons

Horizons, with its in-depth knowledge of German labor laws and HR practices, provides comprehensive PEO services. Horizons can assist with everything from hiring to payroll, ensuring complete regulatory compliance.

Augsight

Augsight offers PEO, payroll outsourcing and EOR services in Germany. It holds an AUG labor leasing license ensuring complete compliance with German labor and tax laws. Augsight can also support employees to get the best health insurance, and enables international companies to hire employees through German work visas

People2.0

This global workforce deployment platform has earned a reputation for efficient and flexible solutions. People2.0’s understanding of German employment regulations and their focus on compliance makes them an excellent PEO choice.

Lano

Known for its comprehensive global HR solutions, Lano simplifies the complexities of international employment, including in Germany. Their team of experts and efficient software ensures compliance and streamlined HR operations.

Remote

Remote excels in providing a tech-driven PEO service. Their robust platform ensures that all employment tasks, from onboarding to offboarding, comply with German laws.

Germany Business Guides

FAQs

A PEO can handle HR for a client company in Germany but the client company contracts employees directly and takes on the responsibility for compliance with all labor statutes. An EOR can hire employees directly who will then work for the client company and can perform this and other HR services. In this case, the EOR is the legally responsibility entity.

PEO relationships in Germany make the client company the entity that becomes the legal employer of German employees. Essentially, the PEO works as just an outsourced HR department specializing in German law. Unlike the EOR system (also known as the AUG license in Germany), which limits hiring to a maximum of 18 months, PEO co-hiring has no time limit.

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