Personnel and Labour
Labour law in Germany is not regulated by a uniform act. It emerged from general contract law and has developed further through a large number of single acts, mostly based on the idea of protecting employees, e.g. on working hours, vocational training, protection against dismissal, company pensions, equal treatment, employee co-determination, works councils, holidays, continued payment of wages in the event of illness, maternity protection, protection of young people, working from home, temporary work (temporary employment), public holidays, etc. To date, none of the governments in the Federal Republic of Germany has had sufficient political power to create a comprehensive set of regulations against the backdrop of strongly divergent social forces. German labour law has therefore also been shaped to a very large extent by the Federal Labour Court (Bundesarbeitsgericht) and is therefore largely case law in many details.
I. Individual employment relationships
1. Labour contract
The conclusion of an employment contract is generally not subject to any formal requirements and a contract can therefore also be concluded verbally. However, the employer must issue the employee with a written version of the main terms of the contract no later than one month after the agreed start of employment. The vocational training contract must contain certain provisions, but these are not prerequisites for the validity of the vocational training contract.
Open-ended employment contracts are the rule. However, a three-to-six-months probationary period with shorter notice periods is typical. The length of the probationary period is limited by law to up to six months.
The employment contract can also be limited to a specific period of time but must then generally be based on a specific event or a specific purpose. If an employment contract is being concluded for the first time, a fixed term without objective grounds is also permissible in exceptional cases, but this may not exceed a total duration of two years. The fixed-term agreement itself must be recorded in writing. In particular in the case of a fixed term for a specific purpose or a condition subsequent, the circumstances of termination must be set out in writing. This also applies to the extension of fixed-term contracts, which is only possible under strict conditions. If the written form requirement is disregarded, the time limit is invalid. In the case of fixed-term contracts, ordinary termination is generally excluded by law, but it can be agreed; the fixed term is then only a maximum term.
Employees who work part-time, i.e. who regularly work shorter hours than comparable full-time employees in the company, must not be treated differently due to their part-time work. They must therefore always receive the corresponding salary and other benefits on a pro rata basis in relation to full-time and part-time work. The right to bridge part-time work introduced in 2019 allows employees to reduce their working hours for a period of one to five years, with a subsequent right to return to full-time work. Under certain conditions and different company sizes, the employer can also reject the employee’s request to reduce working hours.
2. Working conditions
The statutory maximum working time is eight hours a day, i.e. in a 5-day week 40 hours and in a 6-day week 48 hours. The daily working time may not exceed ten hours. Collective labour agreements usually provide for much shorter working hours. Exceptions can be made to the maximum working hours permitted by law.
Flexible working time models, such as mobile working or working from home, have become widespread since the coronavirus pandemic. Employers are obliged to negotiate home office options at the employee’s request (Citizens‘ Benefits Act / Bürgergeldgesetz 2024). Employees do not have a right to work from home unless a corresponding contract has been concluded.
The statutory minimum holiday entitlement for employees aged 18 years and over iswith an agreed 5-day week, is 20 working days and with an agreed 6-day week is 24 working days. Collective agreements generally grant longer holidays. Full holiday entitlement is granted after a waiting period of six months, until then only partial holiday can be claimed. Since 2023, it has been clear that leave that has not been granted and taken due to illness automatically expires after 15 months.
Holiday pay is based on the average earnings of the last thirteen weeks prior to the holiday. The date of the holiday is determined by the employer according to the employee’s wishes, taking into account operational requirements. Holiday not taken in one year can be carried over to the next holiday year. These statutory regulations of the Federal Leave Act (Bundesurlaubsgesetz) are only minimum requirements. Collective agreements usually regulate holiday entitlements differently and generally grant employees longer holiday. For 94 % of employees, the collectively agreed holiday period is at least 6 weeks.
Employees receive continued payment of wages for up to six weeks in the event of illness through no fault of their own. Pregnancy is not considered an illness, but the employer is obliged under the Maternity Protection Act to continue to pay wages during the period in which employment is suspended, unless social insurance is required to make payments. These regulations were amended in certain areas by the new Family Care Leave Act (Familienpflegezeitgesetz) 2024 to give parents more flexibility.
3. Taxes and social security contributions
The employee is obliged to pay income tax on their salary. Wage tax is divided into several classes, depending on the employee’s employment relationship. The classes mean different tax rates.
If the employee has other income, e.g. from capital assets, they must pay income tax on their income. The wage tax paid is then part of the income tax, so that the wage tax classes are no longer relevant.
Social insurance includes health insurance, unemployment insurance, pension insurance and long-term care insurance. The total monthly social security contributions amount to approx. 40% and are borne equally by the employee and the employer. The employer therefore agrees the gross salary with the employee but must calculate the wage tax and the employee’s share of social security contributions and withhold. The employer only pays the net salary to the employee. The employer only pays the net salary to the employee and pays the wage tax to the tax office and the social insurance contributions to the social insurance institution (usually the health insurance fund). The employee must therefore provide the employer with details of their health insurance fund when they are hired. Social insurance also includes statutory accident insurance, but the employer must pay the contributions alone.
In addition to the employee’s contributions, the employer must also pay its share of the social security contributions to the insurance provider. The total costs for the employee are therefore made up of the gross salary plus the employer’s share of social security contributions of approx. 20%.
The employer must always ensure that the contributions are paid on time: the employer’s contribution is its own obligation, whereas taxes and the employer’s contribution are the employee’s money – if the employer fails to pay these, it is a criminal offence of embezzlement.
Payroll accounting is usually carried out by the employer’s HR department, but often also by tax consultant firms and payroll services.
4. Foreign employers
If the employer is not based in Germany but abroad, it can still directly employ staff working in Germany. The employment relationship is subject to German law, including tax law and social security law. Therefore, the foreign employer must also register as an employer in Germany and pay taxes and social security contributions in Germany to the tax authorities and social security institutions (usually the health insurance funds) as part of payroll accounting. Payroll service providers can also take care of the payroll.
By employing an employee in Germany as such, the foreign employer does not become liable to pay tax in Germany. However, if the employee works largely independently and acts in the name and on behalf of their employer and is authorized to represent them, this can lead to the employer establishing a permanent establishment for tax purposes in Germany and thus becoming liable to pay tax in Germany. The employer must then pay tax in Germany on the profit calculated with regard to his functions in Germany. The economic effect is usually minimal, but it does result in additional administrative work.
6. Termination of employment contracts
German law distinguishes between ordinary termination and extraordinary termination when terminating an employment relationship by notice. The written form is mandatory for both types of termination.
The employment relationship of an employee can be terminated with four weeks‘ notice to the 15th or end of a calendar month. If the employment relationship has existed for two years, the notice period is one month to the end of a calendar month. The notice period is extended according to the respective length of employment (2 years/1 month; 5 years/2 months; 8 years/3 months; 10 years/4 months; 12 years/5 months; 15 years/6 months; 20 years/ 7 months). Since a ruling by the ECJ in 2022, periods before the age of 25 have been taken into account when calculating the notice period, as the previous regulation constituted age discrimination. During the probationary period (maximum 6 months), the notice period is 2 weeks; deviating regulations can be agreed in collective agreements, but also in individual contracts.
7. Dismissal protection law
In Germany, employees who work in companies with more than ten employees enjoy special protection against dismissal based on the Dismissal Protection Act (Kündigungschutzgesetz) . This applies if the employment relationship has existed for an uninterrupted period of six months in the same company or organisation. At the heart of the applicable dismissal protection law is the prohibition of „socially unjustified“ dismissal. The employer can therefore only base his dismissal on reasons relating to the person or behaviour of the employee or on urgent operational reasons (dismissal for personal, behavioural or operational reasons). In addition to this general protection against dismissal, there is also additional protection against dismissal for works council members, expectant and new mothers and severely disabled employees. Since 2024, employees have had a simple right to a termination agreement if the employer has seriously violated working time or pay regulations.
a) Termination for personal reasons
In the case of dismissal for personal reasons, the reason for dismissal lies in the person of the employee concerned. This relates to personal characteristics and abilities, such as lack of aptitude or illness. One of the general requirements for dismissal for personal reasons is that, even if one of the aforementioned reasons exists, the interests of the employee concerned and those of the employer must be carefully weighed and it must always be checked whether the employee cannot be employed in another job or under other working conditions. Apart from this, the reason relating to the employee must also be the cause of a specific operational disruption. Furthermore, there must be a reliable presumption substantiated by facts that there will be no change in the employee’s significant periods of incapacity to work due to illness or lack of aptitude in the future, so that the employer can no longer reasonably be expected to adhere to the employment contract (negative future prognosis).
b) Termination for behavioural reasons
In the case of dismissal for conduct-related reasons, the grounds for dismissal lie in the employee’s behaviour. This only refers to behaviour that breaches contractual obligations. The breach of duty must be of some significance and must have been culpably committed by the employee. As a rule, before the employer can declare dismissal for misconduct, he has to issue a warning for such misconduct. If the employee even then commits a significant breach of duty under his employment contract, the employer can dismiss him, possibly after another warning. Prior to any dismissal, regardless of the reason, the employer must check whether the dismissal can be avoided by a less severe means.
c) Termination for operational reasons
The third case in which dismissal by the employer may be socially justified is dismissal for operational reasons. It is only socially justified if it is due to urgent operational requirements that prevent the continued employment of the employee in this company. This is always the case if the employer has made an objectively comprehensible and not obviously arbitrary or unreasonable decision that leads to the loss of jobs. The motives for such a decision may arise from internal circumstances, such as rationalisation measures, production cutbacks, closure of parts of the business, cessation of production or external reasons such as lack of orders, decline in sales, decline in profits, unprofitability, lack of credit and lack of raw materials. These internal or external causes must lead to a permanent loss of employment. This does not necessarily have to be the job of the employee targeted for dismissal; the only decisive factor is that a worker equivalent to the employee’s labour force is no longer needed in the company.
In the case of dismissal for operational reasons, the employer in particular must check whether less drastic measures than dismissal are available to him, such as the introduction of short-time working or a transfer to another job, before giving notice. Finally, the employer must take social aspects into account when selecting the employee to be dismissed. This aspect of social selection serves to protect employees who are particularly in need of social protection, as the employee who is least affected by the dismissal must be selected for dismissal. For example, length of service, maintenance obligations in the family, age and, if applicable, severe disability must be taken into account. If the social selection has not been made or has been made incorrectly, the dismissal is invalid.
If the employee wishes to contest their dismissal, they must file a complaint with the labour court within three weeks of receipt of the dismissal to establish that the dismissal is socially unjustified and that the employment relationship has not been terminated.
d) Extraordinary dismissal
Extraordinary termination is the generic term for all terminations that are not ordinary terminations. Termination without notice, in which the employment relationship is terminated immediately, is primarily understood as extraordinary termination. There must be a special and serious reason for this. According to Section 626 of the German Civil Code (BGB), employees can be dismissed for good cause through extraordinary termination; conversely, employees also have the right to extraordinary termination. To do so, there must be facts on the basis of which the terminating party cannot reasonably be expected to continue the employment relationship until the expiry of the notice period or until the agreed termination of the employment relationship, taking into account all the circumstances of the individual case and weighing up the interests of both parties to the contract. An extraordinary dismissal by the employer must normally be preceded by warnings; the dismissal must be pronounced within two weeks of the offence.
II. Collective labour law
1. Co-determination
In Germany, employees have extensive co-determination rights. Although there is no direct trade union representation in the companies, co-determination is ensured through two different forms.
a) Supervisory Board
Under certain conditions, companies in Germany must include employees on the supervisory board.
Under the One-Third Participation Act (Drittelbeteiligungsgesetz) small corporations are subject to one-third co-determination if they generally have more than 500 employees. They must therefore set up a supervisory board in which at least one third of the employees participate. Company forms covered by the law are
- AG, stock corporation
- KGaA, partnership limited by shares
- GmbH, limited liability company
- VVaG, mutual insurance association
- G., purchase and economic co-operatives.
The One-Third Participation Act does not apply to a GmbH & Co KG.
The German Co-Determination Act (Mitbestimmungsgesetz) provides for employee participation in the Supervisory Board for corporations with more than 2,000 employees as a rule. The employee representatives receive half of the seats on the Supervisory Board (parity co-determination / paritätische Mitbestimmung).
A GmbH & Co KG is generally not obliged to form a supervisory board. However, if the KG has a GmbH as a personally liable partner and the limited partners control the general partner GmbH and both companies together employ more than 2,000 employees, all employees are deemed to be employees of the GmbH, unless the GmbH already has more than 500 employees. If these conditions are met, the supervisory board of the GmbH must be composed of equal numbers of shareholders and employees (so-called co-determination law).
b) Works Council
Under the Works Constitution Act (Betriebsverfassungsgesetz) companies with at least five permanent employees, three of whom are eligible for election, must establish a works council (Betriebsrat). The members of the works council are elected by the workforce for a period of four years. The works council elects its chairman and a deputy chairman. The size of the works council depends on the size of the company; in some cases, separate works councils must be formed for sub-companies and corporate groups. The works council has numerous co-determination rights for social and personnel matters. In particular, it has formal information rights, the violation of which renders planned measures, such as a dismissal, ineffective for formal reasons. In the case of genuine acts of co-determination, these are ineffective as unilateral measures by the employer without the consent of the works council.
In companies with more than one hundred employees, an economic committee (Wirtschaftsausschuss) is formed for economic matters, which only has the right to information on economic matters. Senior executives are not represented in the works council, but are organized in a separate spokesperson committee (Sprecherausschuss) under the Spokesperson Act (Sprecherausschussgesetz).
The Works Constitution Act has been modernised to enable digital works council work. Virtual works council meetings are now permitted across the board under specific conditions.
2. Collective Labour Agreements
The conditions of employment relationships can be regulated collectively and uniformly by the social parties, i.e. employers and employees in the form of their representative organisations, employers‘ associations and trade unions. This takes the form of collective agreements (Tarifverträge). Collective agreements in Germany must be in writing. The focus of collective bargaining in the private sector is on the member unions at regional level, with the exception of the construction industry with national collective agreements. The member organisations of the DGB (German Trade Union Confederation) are responsible for collective bargaining policy in individual areas and sectors. Collective agreements for individual companies in the private sector (e.g. Volkswagen) are exceptions as so-called in-house collective agreements (Haustarif), but there is increasing discussion about opening clauses for independent, deviating rules.
Collective labour law was expanded through the introduction of a mandatory digital collective agreement register in order to create transparency regarding existing collective agreements.
Works councils may not conclude collective agreements but may negotiate works agreements (Betriebsvereinbarungen) with the employer.
III. Employment of foreign employees
Employees from EU member states do not require a work permit to work in Germany in accordance with the principle of freedom of movement for workers within the EU. However, exceptions may apply to nationals of a country during a transitional period of several years following its accession to the EU.
Employees from third countries, on the other hand, generally require a work permit to work in Germany.
Association agreements (Assoziierungsabkommen) exist with some countries, such as Turkey, which also contain rules on the free movement of workers However, freedom of movement, as is the case within the EU states, is not yet possible here. Employment of workers from these countries is nevertheless possible under certain conditions. It should be noted that in the construction sector, the Posted Workers Act of 1996 (Arbeitnehmerentsendegesetz) prohibits the payment of lower wages to foreign workers than the German minimum wage. Violations can result in heavy fines.
The employment of foreign workers has been facilitated by the introduction of the Right of Residence and the Skilled Labour Immigration Act, reformed at 2024 (Fachkräfteeinwanderungsgesetz). Workers from third countries can now obtain visas for employment and training more easily. There are also special regulations for so-called „blue card holders“
1. Contracts for work
Employees can work in Germany under contracts for work and labour. Such work contracts can only be concluded on the basis of intergovernmental agreements within the framework of certain quotas agreed therein. These quotas have so far been negotiated between the governments.
However, German companies also have the option of employing foreign workers directly. This can be done as guest workers within the framework of agreed quotas. However, the use of guest workers is only considered if there are not enough people with the appropriate qualifications available on the German labour market. Guest worker contracts are handled by the Central Placement Office (Zentralstelle für Arbeitsvermittlung) in Bonn.
Work contracts can still be concluded, but since 2021 they have been subject to stricter controls to prevent abuse.
2. Cross-border commuters
Employees from third countries can also be employed as so-called cross-border commuters. However, this is only possible if an examination of the labour market situation by the locally responsible employment agency (Agentur für Arbeit, formerly Arbeitsamt) has shown that the labour demand cannot be met from the local region. Cross-border commuters may only ever work in the districts in which the German employer has its business. These must be districts that touch the German state border. The prerequisite for being a cross-border commuter is a daily return or a maximum stay of two days per week. The employee must apply for a work permit of the local employment agency in Germany. The employer must provide more detailed information on wages and working hours on a so-called confirmation of employment.
3. Seasonal workers
A German employer can also employ foreign workers, even if they are not cross-border commuters or guest workers. The corresponding regulation applies to so-called seasonal workers, who may be employed for a maximum of 3 months per calendar year. There are no quotas or industry restrictions. This seasonal work is also based on a work permit. The corresponding applications must be submitted on forms via to the local employment agency.
4. Information technology specialists (green card)
Since 2000, foreign computer specialists can be employed for up to five years within the framework of a certain quota. A corresponding university or university of applied sciences degree and a minimum annual income are required. However, the „immediate programme to cover the demand for IT specialists“ expired at the end of 2004 and was replaced by the new Immigration Act (Zuwanderungsgesetz). Almost 18,000 skilled workers came to Germany via the green card.
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