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. Benefits include:
- National Minimum Wage
- Holiday entitlement
- Working hours
- Termination, dismissal and severance regulations
- Maternity and paternity allowances
- Social insurance
Other considerations can include health and accident insurance, plus annual and vacation bonuses.
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. German authorities can apply severe sanctions and financial penalties.
Managing benefits and compensation comprises a key element of Human Resources management. Bradford Jacobs’ thorough understanding of these sectors of German employment law ensures all requirements will be met in a trouble-free process.
What German Compensation Laws exist?
- • 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.
Employees’ Contributions % Deduction Salary Ceiling (West German original states)*
Pension 9.3% €82,800
Unemployment 1.2% €82,800
Health Insurance 7.3% €82,800
Long-term Care 1.525% €82,800
Contributions are matched by the employer. * The ceiling for former East German states is €77,400.
Employed persons earning more than €62,550pa have the option of remaining in the statutory scheme or taking out private insurance.
In addition, 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.
Payroll Taxes - Social Insurance
Employer’s Contribution %
Health Insurance 7.3%
Long-term Care 1.525%
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
- Employees benefit from the National Minimum Wage, set at €9.35 per month in 2020
- 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 – funded by social insurance contributions by employer and employee – 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.
Other major benefits include:
• Maternity / paternity allowances and benefits under the Maternity Protection Act. Mothers are entitled to six weeks pre-natal and eight weeks post-natal, with allowances at a maximum of €13 per day plus 65% of their most recent salary
• 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 as set by the Federal Vacation Act. In effect, employers often give between 25 and 30 days
Bonuses in Germany
The criteria for bonus payments vary. Performance-based bonuses reward employees for individual results. 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
Companies planning expansion into Germany, either through establishing a subsidiary or by migrating staff, face a mass of complex laws, regulations and strict compliance issues. German employment law is not based on a single code but on a mix of legislation, tax law, collective bargaining, trades union and works councils’ agreements. These all add to the difficulties. Compensation and benefits, statutory costs, social insurance payments, health insurance and bonuses are issues that cannot be overlooked for the smooth transition of your operation in Germany. Be on top of these issues by working with Bradford Jacobs to utilize our Employer of Record payroll services – with 100% solutions to all these questions. Contact us now