Doing business in Germany – Labour & Employment Law

Our German labour law team would like to give you an overview of the main features of German labour law. In the following, we would like to present the relevant basis, taking into account current developments in German labour & employment law. Understanding these basics is essential in order to employ employees and Doing Business in Germany.

We develop customised solutions in interdisciplinary teams of experts put together individually for you and advise you comprehensively and competently, taking into account aspects of social security law, tax law and business management. Our main areas of advice include individual and collective labour law.

These include in particular:

  • Contractual arrangements of all kinds, introduction of remuneration systems and working time regulations
  • Advice for start-up companies and foreign investors
  • Introduction and design of mobile offices, home offices and telework places, taking into account co-determination, employee protection provisions, the Working Hours Act and employee data protection
  • Works constitution law, staff representation law, church co-determination, conciliation board proceedings, negotiation of reconciliation of interests and social plan as well as labour court resolution proceedings
  • Litigation in labour, civil and administrative courts

In international matters, we are supported by our international partners in the Mazars Group and the Marcalliance of lawyers.

Germany as a business location

Germany as a location for business

There are many reasons to do business in Germany. As Europe's largest market, Germany is an attractive location for investors from all over the world.

Germany is an innovative leader in many areas of technology, has a highly qualified workforce and an excellently developed infrastructure. Small and medium-sized enterprises in particular benefit from the well-organised business environment and the secure legal climate.

The German legal system

Germany has an efficient legal system that ensures equality between foreign and domestic investors in the establishment and protection of industrial and intellectual property.

Facts and figures

In most sectors of German industry, sales have increased in recent years despite considerable cyclical fluctuations. The German industry generates a high turnover. Export-oriented sectors are particularly responsible for this.

The automotive industry is still the frontrunner with a turnover of 410 billion euros in 2021. Because of its links to other industrial sectors, it also secures turnover for other areas such as the chemical, electrical engineering, steel, metal and textile sectors.

Companies in other sectors also generate high turnover. For example, the healthcare industry generated 391 billion euros, and the electrical engineering and electrical industry sector around 200 billion euros in turnover in 2021.

Also characteristic of the German economy is its innovative strength. This is particularly evident in the patent applications. In 2021, Germany was in first place in a European comparison with 58,568 patent applications.

In order to maintain their innovative strength in the future, Germans invest in research and development. In 2020, Germany spent around 3 % of its gross domestic product on research and development. This is a considerable share in a global comparison.


Germany is one of the most advanced and strongest industrial nations in Europe. The backbone of the German economy is the manufacturing industry ("secondary sector"), especially the chemical, automotive and mechanical engineering industries. The sales of large corporations such as Volkswagen, Daimler, BASF, Bayer or Henkel account for a large part of the total annual turnover in the industry, which is supported by a uniquely high number of innovative and efficient small and medium-sized enterprises (SME).

In addition to these traditional industries, Germany has developed a highly valued high-tech industry.

Like all Western countries, Germany has a broadly based service sector. The banking sector is particularly worth mentioning here. The banking sector includes regional banks (e.g. Landesbanken, Volksbanken, Sparkassen) on the one hand and commercial banks with an international reputation (e.g. Deutsche Bank, Commerzbank) on the other. At the same time, several specialised companies such as mortgage banks, leasing and insurance companies have diversified the finance market.

German labour law

Legal basis

Unlike in some other European countries, such as France and Spain, Germany does not have a comprehensive "Labour Code" that provides a comprehensive overview of the applicable legal provisions. This leads to the fact that in German labour law a multitude of legal sources always have to be taken into account when structuring the employment relationship.

The most important sources of law are

  • the German Civil Code (BGB),
  • the General Equal Treatment Act (AGG),
  • the Occupational Health and Safety Act (ArbSchG),
  • the Working Hours Act (ArbZG),
  • the Federal Leave Act (BUrlG),
  • the Maternity Protection Act (MuSchG),
  • the Works Constitution Act (BetrVG),
  • the Part-Time Work and Fixed-Term Employment Act (TzBfG) and
  • the Dismissal Protection Act (KSchG) and the Evidence Act (NachwG).

In addition, there are collective agreements and work agreements at company level. This list is not exhaustive and, depending on the constellation, other legal sources and ordinances must be consulted. Collective agreements play an important role in the employment of workers in Germany. In 2020, there were more than 81,000 collective agreements in Germany. However, the number of employees covered by collective agreements has fallen from 68 % in 2000 to 51 % in 2020. Overall, a decline in the number of employees covered by collective agreements can be observed. The number of establishments covered by collective agreements has also fallen, from 44 % in 2000 to 26 % in 2020. It remains to be seen what the further development will be. Overall, however, a decline in the validity of collective agreements can be assumed.

In addition, there are some principles to be observed. Among them is the so-called primacy of application, according to which EU law takes precedence over German law. Below German laws there are the legal ordinances. Below legal ordinances are collective agreements and company agreements.

Within this principle of precedence, the favourability principle applies, according to which, of several applicable norms, the one that is objectively most favourable to the employee is always to be applied.

Since 2005, Germany no longer distinguishes between salaried employees and workers. Since then, the term "employee" has been used consistently.

The recruitment of employees

General information on recruitment

In addition to the contractually agreed remuneration, employers also incur costs in the context of hiring employees.

Salaries and wages in Germany depend to a large extent on the employee's qualifications. Decisive factors are professional experience, any additional qualifications and further training.

The content of the job advertisement

A job advertisement should contain information about the company, a description of the advertised position, a profile of requirements for potential applicants, information about the required application documents, remuneration, if applicable, and contact details. However, this information is not binding and is merely a recommendation on our part.

However, it is mandatory to ensure that job advertisements are non-discriminatory. As an employer, you may be liable to pay damages to applicants if job advertisements are discriminatory in nature.

An example from case law on this:

One of the questions under discussion was whether forgetting the third gender constitutes discrimination. However, this was negated by case law, assuming that the tenderer did not deliberately omit it. The sole addition of "m/f" was to be understood as including all genders.

The transition from a non-discriminatory to a discriminatory job advertisement can be fluid in individual cases and special caution is therefore required.

The job interview

Strict attention must also be paid to avoiding discrimination of any kind during the interview. Particular caution is required with regard to the questions asked. The question about pregnancy, among others, is generally inadmissible. The applicant may answer this with a lie without any consequences for her. The question about a disability or severe handicap, if irrelevant for the job to be performed, is also generally inadmissible in the contract initiation phase and in the first six months.

On the other hand, questions about education, qualifications and professional experience are permitted, as well as questions about language skills, as long as they are relevant to the employer. Furthermore, questions about time flexibility, willingness to transfer and willingness to work shifts are also permitted.

If applicants disclose a fact relating to their racial or ethnic origin, gender, religion or belief, disability, age or sexual identity (Art. 1 AGG) without being asked, it should be pointed out in the interest of the employer that this fact is irrelevant for the recruitment. It should then also be refrained from making a corresponding note about this in the interview.

Data protection in the application procedure

Data protection already plays an important role in the application process. Employers must ensure that application documents are carefully stored and handled.

Application documents must be deleted if no employment relationship is established. This also applies to records made during the interview as well as to the already completed personnel form if the employment relationship is not established after all. However, with the consent of the applicant, the records may also be stored for a further application procedure.

Employment opportunities

If the choice has fallen on an applicant after an interview, various types of employment are open to the employer and he has to observe various formalities. In addition to permanent full-time employment, the following options can also be considered.

Employees and freelancers

In contrast to employees, freelancers are not bound by instructions and do not perform work in an externally determined, personal dependency. However, when concluding freelancer contracts, there is a risk that they will be qualified as employment contracts by the labour courts afterwards. The mere designation as a "freelancer contract" does not prevent German courts from a different legal qualification as an employment contract. When concluding such a contract, you should therefore always seek legal advice.

Recruitment of marginally employed persons and mini-jobbers

Employees whose remuneration does not exceed 520 € per month (as of December 2022) are referred to as marginally employed. These employees are not subject to social security contributions. Mini-jobbers are employees who receive a salary of between € 450.01 and € 1,600 per month (as of December 2022). The wages of mini-jobbers, however, are subject to social security contributions. The share that employees have to pay is 4 % for a salary of € 520 and increases to the full amount if the employee receives a salary of € 1,600 per month. The employer pays the full amount in each case.

Transfer of employees

The employment of temporary workers can be a means, for example, to cover short-term staffing needs. According to the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG), employers can provide their workers to third parties (hirers). The lender and the hirer must conclude a written contract in which the supply of temporary workers is explicitly designated as a supply of workers. 

No employment contract is concluded between the hirer and the temporary worker. However, the situation is different if the hirer does not have the required permit to hire out workers.

The same worker may not be assigned to the same hirer for more than 18 consecutive months. In addition, the hirer is obliged to inform temporary workers about the jobs to be filled at the hirer's premises.


In contrast to the employment of already trained employees, the acquisition of practical knowledge and experience in preparation for a professional activity is in the foreground with interns.

In Germany, interns must generally be paid according to the Minimum Wage Act. However, this does not apply if the internship is a so-called "compulsory internship" or if the internship is completed for a period of up to three months. The designation as "intern" is irrelevant for the legal qualification.

Temporary employment relationships

Employment contracts may be concluded on a fixed-term basis for a maximum of two years without an objective reason. Within these two years, fixed-term contracts may be extended a maximum of three times. However, this limitation to a maximum of two years is only permissible if a fixed-term or unlimited employment relationship has not previously existed with the same employer.

The situation is different when a company is founded: In the first four years after foundation, a time limit of up to four years may be imposed without reason.

Otherwise, a fixed term is possible on the basis of objective reasons, such as temporary operational need for work, replacement of an employee, reasons relating to the person of the employee, etc. The employee is entitled to a fixed term on the basis of his or her personal circumstances.

Working conditions

Employers are obliged under the Verification Act (NachwG) to record the essential terms and conditions in writing no later than one month after the agreed start of the employment relationship, if a written employment contract containing all essential terms and conditions is not already concluded at the start. These include the name and address of the contracting parties, the date of commencement of the employment relationship, the place of work, the agreed working hours and the termination of the employment relationship.

We have listed below which conditions apply in particular to employment in Germany.

Working time

The working hours of employees in Germany are regulated by the Working Time Act. The working day in Germany is generally eight hours. Work may be carried out six days a week, i.e. up to 48 hours. Working hours may be extended up to a maximum of 60 hours per week with appropriate compensation.

Employers in Germany are obliged to record the working time of their employees. This time recording can be done electronically or manually, the only important thing is that the employer checks whether the recording is actually done. Whether this regulation also applies to executive employees has not yet been finally decided. It may not exceed eight hours per day and may be extended to up to ten hours if an average of eight hours per working day is not exceeded within six calendar months or within 24 weeks.

Rest time

As in other member states of the European Union, the rest period for workers is eleven consecutive hours. Attention must be paid to the observance of rest periods.

Agreement on a probationary period

In employment contracts under German law, a probationary period of no more than six months may be agreed. During the probationary period, the employment relationship may be terminated by either party with two weeks' notice. Notice of termination only has to be received within the agreed probationary period, but the end of the notice period can also be after the end of the probationary period.

Minimum wage

Since 1 January 2015, a statutory minimum wage has been in force in Germany in accordance with the Minimum Wage Act (MiLoG). Since 1 October 2022, it has amounted to € 12.00 per hour. The minimum wage applies to all employees over 18 years of age working in Germany, regardless of whether they are nationals or foreigners or are employed by a German or foreign company. In principle, the minimum wage also applies to interns; however, this does not apply if the internship is compulsory under school or university law.

Equal Pay

The principle of "equal pay for equal work" is foreign to German law. There is no duty of equal treatment if the employer pays individual employees higher wages than others for the same work on the basis of freely negotiated contracts and does not follow a general principle.

However, the limit to unequal treatment is regularly exceeded by the employer if he favours in remuneration according to a certain principle and does not do so in the same way for all. The same applies to salary increases. There must also be no unequal treatment between full-time and part-time employees.

Remuneration Transparency Act

Employees in companies and departments with more than 200 employees are entitled to individual information on the average monthly gross pay and up to two pay components of comparable employees.


In Germany, employees are entitled to 24 working days of holiday per year based on a six-day week. If you employ your workers only five days per week, the holiday entitlement is 20 working days per year. The employee will continue to be paid during the entire holiday. The full holiday entitlement arises for the first time after a waiting period of six months. If the employee falls ill during his/her recuperation leave, the days of illness are not counted towards the annual leave if he/she proves his/her inability to work by means of a medical certificate. It is also not uncommon in Germany for employers to grant additional days of "contractual leave".

The period of leave shall be determined in agreement with the employer, taking into account the operational requirements and the personal wishes of the employees. In principle, leave must be granted and taken in the current calendar year. Carry-over to the next year is only possible if justified by urgent operational reasons or reasons relating to the employee. If this is the case, the leave must in principle be granted and taken in the first three months of the following calendar year.

Sick leave

Employees are obliged to notify their employer immediately of their incapacity for work and its expected duration. This notification by the employee must be made on the first day during the first working hours. The employee does not have to provide information on the nature of the illness. However, there is an exception if the nature of the illness requires immediate intervention by the employer. This is the case with contagious diseases where protection of other workers is required. In particular, the Corona pandemic should be considered.  If the employee is unable to perform his/her work due to illness and is not at fault, he/she is entitled to continued payment of his/her remuneration for a period of up to six weeks. However, this entitlement only arises after four weeks of uninterrupted employment.

Protection of pregnant women and parents

Maternity protection

In Germany, mothers are under special protection. This is regulated in the Maternity Protection Act. For employers, this means that they are not allowed to employ pregnant women during the last six weeks before delivery. The calculation of the period is based on the expected date of delivery, which is determined by a doctor or midwife. After the birth, the employer may not employ a woman until eight weeks have elapsed. Before the birth, the pregnant woman may waive her maternity leave, but this is not possible after the birth.

A pregnant woman receives maternity benefit from her statutory health insurance fund during the six weeks before the birth and the eight weeks afterwards. Employers pay a supplement to the maternity allowance. A pregnant woman is entitled to the full amount of her leave and it is not reduced.

The Maternity Protection Act also provides for special protection against dismissal. Dismissal is inadmissible

  1. during pregnancy,
  2. up to four months after a miscarriage that occurred after the 12th week of pregnancy as well as
  3. up to four weeks after delivery.

This only applies if the employer had knowledge of the pregnancy, the miscarriage after the 12th week of pregnancy or the delivery at the time of receipt of the notice of termination or up to two weeks thereafter.

Parental leave and parental allowance

In Germany, it is also possible for both parents to apply for parental leave and parental allowance. The entitlement to parental leave exists until the child reaches the age of three. It may be spread over three periods, or more with the employer's consent. During parental leave, the employment relationship is suspended, i.e. the employer is released from the obligation to pay the salary and the employee is released from the obligation to perform the work. After parental leave, employees are entitled to continued employment and remuneration under the terms of their employment contract. Employees on parental leave also enjoy special protection against dismissal, as the employer may not terminate the employment relationship until the end of the parental leave.

Parental allowance is a benefit paid by the state. The amount of parental allowance depends on the income from gainful employment before the birth and is usually 67 % of this.

Co-determination by employee representatives

In Germany, works councils can be elected in companies with at least five employees. The works council represents the employees. It is obliged to cooperate with the employer in a spirit of trust. All employees who have been with the company for at least six months and are at least 18 years old may stand for election. In turn, all employees who have reached the age of 16 may vote. Depending on the size of the company, the German Works Constitution Act stipulates how many members the works council must have. For example, in a company with 21 to 50 employees, the works council has three members. The works council's term of office is four years.

The works council in a company has various responsibilities. Its general tasks include monitoring compliance with the regulations that apply in favour of employees, such as enforcing equality between women and men, promoting older employees in the company and implementing occupational health and safety measures. The works council must be informed by the employer in a timely and comprehensive manner when it comes to tasks to which the works council is entitled under the Works Constitution Act. Works councils also have a right of co-determination in numerous matters of workplace organisation.

Works councils can also conclude company agreements with the employer on various topics, such as the recording of working time, occupational health and safety, conduct towards customers or mobile working. Works agreements are also referred to as the "law of the workplace".

For the sake of a well-functioning workplace, good cooperation between employers, works councils and employees should always be worked towards.

Termination of the employment relationship

Employment relationships can be terminated both by ordinary and extraordinary notice of termination as well as by concluding a termination agreement.

Protection against dismissal

Employees are protected by law against dismissal under the Dismissal Protection Act (KSchG). The law applies to all employees who have worked at a company continuously for at least six months and if the employer regularly employs more than ten workers.

The issuing of an ordinary dismissal then requires the existence of a social justification, i.e. a reason. 

A distinction is made between reasons for dismissal based on personal reasons, behavioural reasons and operational reasons.

Personal reasons: illness, imprisonment, reduction of work performance by at least 30 %.

  • Behavioural: unexcused absences, refusal to work, insults
  • Operational: closure of the company, individual departments, if there is no possibility of continued employment

The ordinary termination

In principle, an employment relationship in Germany can be terminated by either party with four weeks' notice to the 15th or to the end of a calendar month. During the probationary period, both parties can terminate with two weeks' notice.

The period of notice for the employer is extended the longer the employment relationship exists. It can also be extended in the same way for the employee in the employment contract. After two years, the statutory notice periods for termination by the employer are extended as follows:

2 years: one month to the end of a calendar month

5 years: two months to the end of a calendar month

8 years: three months to the end of a calendar month

10 years: four months to the end of a calendar month

12 years: five months to the end of a calendar month

15 years: six months to the end of a calendar month

Extraordinary and ridgeless termination

Extraordinary termination usually takes place without observing a period of notice. This is referred to as extraordinary termination without notice. However, it can also be given with a period of notice, which does not have to correspond to the statutory or agreed period of notice.

The existence of an important reason is always required for an extraordinary dismissal. This includes particularly serious conduct by employees such as theft, sexual harassment, alcohol abuse, etc.

The termination agreement

The parties to the employment contract can also terminate the employment relationship by concluding a termination agreement. When concluding a termination agreement, the employer and the employee are neither bound to observe notice periods nor to any official approvals.

Severance pay

Severance payments are not generally payable with each termination of an employment relationship. Severance payments are paid upon termination of employment in the following cases:

  • the employment contract provides for a contractual severance payment,
  • the parties agree on a severance payment (judicial or extrajudicial) to settle a termination dispute,
  • the court terminates the employment relationship against payment of severance pay if it determines that, despite the invalidity of the termination, the continuation of the employment relationship would be unreasonable for the employer or the employee, or
  • if a social plan provides for severance pay in the case in connection with a mass dismissal.

Social security and tax

Social security system

Social insurance is the most important institution of social security in Germany and consists of a total of 5 branches:

  • Statutory health insurance
  • Long-term care insurance
  • Pension insurance
  • Unemployment insurance
  • Statutory accident insurance

Contributions are usually paid equally by employees and employers. An employee's salary is subject to social security contributions, which are paid equally by the employee (withheld by the employer) and the employer. The employer's share is about 20 % of the employee's salary, but is limited to about € 1,000 per month. Special rules apply to employees earning € 520 or less.  Students are exempt from certain social security contributions. Accident insurance contributions are paid by the employer alone.


In Germany, income remains tax-free up to the basic tax-free amount. This is to ensure that the subsistence level is not further reduced by tax deductions and that the living conditions are not additionally burdened. If the earned income exceeds the currently applicable basic exemption amount, the initial tax rate of 14 % applies. Since income tax has a linear progressive tax burden, the tax rate increases with each additional euro earned. The top tax rate is 42 %. The income components above the limit of the top tax rate are then taxed at the rate of 42 %. This then applies up to the income limit of the so-called wealth tax rate. This is then 45 %.

If you have any questions, please do not hesitate to contact us.