German Employee Benefits 

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What are the Employee Benefits in Germany? 

Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Germany might not all be familiar to you yet. By using our PEO and EOR service, we can provide compliant labor contracts for employees in Germany including local benefits.

When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Germany, benefits can be guaranteed by labor law and national legislation, as well as collective agreements with trade unions or workers’ councils.

Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into Germany.

What German Compensation Laws exist?

Statutory benefits and compensation for German employees cover a wide area and require a thorough understanding for any foreign companies planning to establish a subsidiary or move staff into the country. 

Added complications arise from Germany not having a unified employment code. The high level of worker protection is based on collective bargaining, trades union and works council agreements as well as individual contracts between employers and employees. In all these agreements, however, the following entitlements must be included:

  • National Minimum Wage – is set at €9.35 per hour in 2020. From January 1 2021 the minimum wage will be €9.50 an hour and is planned to be increased to €10.45 per hour by July 1 2022.

  • Social insurance contributions – are covered by the Social Code, deducted from salaries and paid jointly by the employer and employer. From January 2020 the following total percentages, cover pension (18.6%), unemployment benefits (2.4%), health (14.6%) and long-term care and nursing (3.05%).

  • Notice periods – depend on the employee’s length of service, ranging from four weeks for less than two years’ service up to seven months for over 20 years’ service.

  • Redundancy, termination and severance – are governed by the Employment Protection Act and generally an employee is entitled to severance compensation for dismissals based on operational reasons. The maximum payment stipulated by law equals 12 months' salary. This rises to 15 months' salary for employees aged 50 or older, with at least 15 years of continuous service, and to 18 months' salary for employees aged at least 55 and with at least 20 years of continuous service.

  • Working hours and rest periods – hours are generally restricted to between 36 and 40 hours over a six-day period, but should not exceed 48 hours per week averaged over six months. Rest periods vary between 30 and 45 minutes depending on the hours worked.

  • Sick leave - German law requires that employees are paid 100 per cent of salary or wages by their employer during the first six weeks. Thereafter, employees are entitled to statutory / private insurance sickness benefits up to 70% of normal pay over a maximum of 78 weeks.

  • Holiday / vacation leave – is governed by the Federal Vacation Act (Bundesurlaubsgesetz - BUrlG). Full-time employees are entitled to a statutory minimum of 20 days’ annual paid holiday, based on a five-day working week, or 24 days based on a six-day working week. Part-time employees’ holiday leave is calculated pro rata, based on weekly working hours. Employers regularly grant more than the minimum vacation and between 25 and 30 days per year is common. Holiday due is detailed in the work contract.

  • Maternity / paternity leave – is covered by the Maternity Protection Act (Mutterschutzgesetz - MuSchG). Female employees are entitled to paid maternity leave, six weeks before and eight weeks after giving birth. Maternity leave after the birth is 12 weeks in case of multiple births, premature births and disabled children. The maternity allowance is determined by the salary of the last cleared calendar months before beginning maternity leave to a maximum of €13 per day plus 65% of their most recent pay. The employer pays the difference between the maternity allowance and previous salary.

Social Security in Germany

German employees are subject to the compulsory social security system, with the employer withholding the employees’ share from wage and salary payments. The deductions are made up to a ceiling of earnings. Expatriates working in Germany are also subject to social security deductions but can benefit in the same way as German citizens. Employer and employee social security contributions are split like so:

Employer’s Social Security Contributions

  • Health Insurance: 7.3%
  • Additional Individual TK (health insurance) contribution rate: 0.6%
  • Pension Insurance (RV): 9.3%
  • Unemployment Insurance (AV): 1.2%
  • Long-term Care Insurance (PV): 1.525%
  • Additional Long-Term Care Insurance (for childless individuals): 0.25%
  • Insolvency Charge: 0.12%
  • Accident Insurance: Depends on industrial sector and the accident risk of the job

Employee’s Social Security Contributions

  • Health Insurance (KV) – General Contribution Rate: 7.3%
  • Additional Individual TK (health insurance) contribution rate: 0.6%
  • Pension Insurance (RV): 9.3%
  • Unemployment Insurance (AV): 1.2%
  • Care Insurance: 1.525%

The employee's salary ceiling in West German states are €82,800, and €77,400 in former East German states. 

Employed persons earning more than €62,550pa have the option of remaining in the statutory scheme or taking out private insurance.

Occupational accident insurance (Unfallversicherung) offers protection and assistance after workplace accidents or job-related illnesses. The contributions for statutory accident insurance are funded entirely by the employer, with no contributions by the employee. The insurance covers:

  • Medical treatment and rehabilitation
  • Benefits and training support for re-integration into the workforce
  • Compensation for employees and dependents

Statutory Employment Costs in Germany

  • National Minimum Wage: The German national minimum wage, from January 1 2021, is €9.50 an hour and is due to increase to €10.50 per hour by July 2022. All employees are entitled to the national minimum wage, but the minimum wages of a role vary according their sector and industry.

  • Social Insurance: All employers and employees in Germany must contribute to social insurance. 

What Benefits are guaranteed in Germany?

  • Vacations: Employees on a six-day week are entitled to 24 vacation days a year, with 20 days for those on a five-day week.

  • Public holidays: Employees are entitled to eight national paid public holidays a year, though the total can be between nine to 13 depending on regional and state variations.

  • Unemployment insurance: This benefit is covered by social security contributions as part of the Social Code and accounts for 2.4% of the total, jointly paid by the employer and employee.

  • Health and long-term care insurance: Also covered by the social security contributions from employers and employees and together account for 17.65%.

  • Accident insurance: This is a mandatory contribution from employers, with no contribution from employees, covering accident or illness due to work,

  • Sick leave: German law dictates employees are paid 100 per cent of salary by their employer during the first six weeks of illness. Thereafter, employees are entitled to statutory/private insurance sickness benefits to 70% of normal pay over a maximum of 78 weeks.

  • Maternity/paternity allowance and benefits  are governed by the Maternity Protection Act. Mothers are entitled to paid maternity leave, six weeks before and eight weeks after giving birth.

    Maternity leave after the birth is 12 weeks in case of multiple births, premature births and disabled children. The maternity allowance is determined by the salary of the last cleared calendar months before the beginning of leave to a maximum of €13 per day plus 65% of their most recent pay with the balance made up by the employer.

What Restrictions exist on Benefits and Compensation in Germany?

  • Unemployment benefit (Arbeitslosengeld): is restricted to 60% of the previous average wage (or 67% if the unemployed person has children), up to a maximum of €6,900 per month in original West Germany states and €6,450 in former East German states. Benefit payments are subject to taxes and social security contributions, just like a regular wage.

    The duration of unemployment benefit is restricted by the age, length of service and amount of social insurance contributions made by the applicant. In the case of voluntary resignation the Federal Employment Agency may refuse to make benefits payments for three months after the date of resignation.

Health Insurance and other Benefits in Germany

Statutory employee benefits in Germany include retirement, unemployment insurance, healthcare and long-term nursing care. Common supplementary employee benefits include retirement, life insurance and lump sum disability.

Statutory health insurance is funded by social insurance contributions by employer and employee, and generally applies to all residents provided their earnings are below a certain threshold. Above that level employees can opt for private health insurance. The mandatory health insurance covers health, accident and long-term care insurance and applies to 90 per cent of the population.

Also, occupational accident insurance (Unfallversicherung) offers protection and assistance after workplace accidents or job-related illnesses and is funded entirely by the employer.

Bonuses in Germany

The criteria for bonus payments vary. Performance-based bonuses reward employees for individual results, whilst profit-sharing bonuses are generally restricted to management and reflect the company’s success. Other incentives include holiday or anniversary bonus packages and a 13th month’s salary, usually paid in December.

Employers are governed by federal laws regarding incentives and bonuses, in that they cannot offer an incentive and then change the conditions for qualifying for it. Neither can employers reduce the value of the agreed bonus and must honor the agreement. Bonuses are taxed as salary.

Work with Bradford Jacobs

Negotiating employee benefits is a complex process for employers in Germany. The mix of mandatory regulations, collective agreements and individual contracts creates many compliance issues. Compensation, benefits, social security contributions and health insurance must be attended to swiftly and efficiently to ensure a smooth transition for your staff. Get ahead of these issues by working with Bradford Jacobs’ Employer of Record (EOR) services.

Contact us today to learn more!