Germany’s economy needs well educated specialist in all economic areas. Since there is a substantial shortage of German specialist more and more Germany companies are employing foreign staff. Expatriates who want to work in Germany have good chance to find a decent paid job. However, they have to cope with new topics. There are certain issues in regard to Germany’s labour, tax and social security law. These issues are of importance if expatriates start their negotiations with potential German employers.
The following issues cover predominately topics related to German labour law and certain topics which especially expatriates should observe if negotiating any type of labor contract.
No. 1: Trial period
It is common practice to agree on a trial period in a labour contract. In general this period lasts for 6 months. The provisions of Germany’s dismissal protection law are not in force for the trial period. This means that the employer can terminate the employment contract without giving any reason.
For expatriates who move to Germany in order to enter into a new working relation this is an economical risk. If the contract will be terminated within this period the employee cannot challenge such a termination in court and is not entitled to any mandatory compensation. The expatriate might be forced to return to his home country if he cannot find any other respective employment. Therefore it is advisable to agree on the reimbursement of costs triggered by the necessity of returning home because of the termination by the employer. It is also advisable to agree on a compensation payment for losing the job within the trial period.
No. 2: Job description, workplace, working hours
In this regard German employment contracts do not differ from labour contracts in other parts of the world.
The usual working time is 40 hours a week. In certain business sectors you may find reduced working times between 35 and 38 hours a week however, whether overtime is compensated depends very much on the business sector and the employer. There is no general rule on this. Some employers offer flexible time saving accounts.
No. 3: Reimbursement of work related expenses
In general a German employer is obliged to reimburse all expenses an employee spends on behalf of his employer. However, there is one exception from this general rule:
German tax law allows the standard deduction for additional expenses for food and drinks consumed at a business travel. The standard allowance is:
|Duration of travel||Standard allowance
|8 to 24 hours||12|
|more than 24 hours||24|
There are special allowances for business travels abroad.
Note: The employer is only obliged to reimburse these amounts if this has been specificartly agreed on in the labour contract.
No. 4: Salary
The salary level depends on the business sector and on the region in Germany. The salaries in the west are in most cases higher than the ones in the east. For most business sectors you can find statistics on the internet showing ranges of salaries, wages etc. for certain business sectors depending on qualification, region and other factors.
The predominant form in Germany is the fixed salary. However, you may also find flexible bonification systems or other incentive schemes (such as stock option programs).
No. 5: Benefits in kind
There is a wide range of benefits in kind. Some of them can be paid by the employer at a beneficial tax rate, others are tax free.
Usual benefits in kind:
- Private use of a company car
- Private use of IT, telephones
- Contribution to private health insurance, live insurance and pension insurance schemes
- Contributions to job tickets and other costs for travelling between home and workplace
- Kindergarten allowances
- and many more
Germany provides a wide range of tax-privileged retirement and pension schemes. However, the schemes are for various reasons not appropriate for expatriates except if they intend to stay in Germany for a long term.
No. 6: Relocation expenses
Usually German employers reimburse the following relocation expenses:
- Shipping costs
- Travelling costs
- Costs to find accommodation in Germany
- Cost for paying rent in two countries at the same time
- Costs for additional tuition of children caused by the relocation
Invoices and other documents are required for proof.
In addition to aforementioned expenses you can deduct the following general allowances without proof (figures for 2015):
Note: In general German employers do not reimburse these amounts. However, expatriates can claim the amounts as work-related expenses.
For more information see here.
No. 7: Holidays/vacation
The usual vacation period in Germany is 30 days.
No. 8: Termination of the labour contract
In general the period of notice is 4 weeks. However, a German employer can terminate the employment contract only under very special circumstances. Dismissal protection regulations in Germany are still quite strict.
No. 9: Applicable law
In General, German employers sign a labour contract only if German law is applicable. However, this is not obligatory.
If German law is agreed all German social and work protection regulations are applicable to the employment agreement.
No. 10: Social security obligations
In general expatriates working in Germany are subject to the German social security system. Half of contributions have to be paid by the employer the other half by the employee.
Expatriates are often confused by the fact that tax authorities and public social security agencies are totally independent from each other. Therefore wage taxes are paid to the tax office and social security contributions to various agencies. Germany does not know social security taxes.
Expatriates who are privately health insured can avoid German social health insurance if their income exceed a certain income level and their private insurance provides sufficient cover of medical treatment and costs.
More information see here.
If a foreign company sends its employee to Germany special rules have to be observed in respect to this assignment. In the following situation expatriates can remain in the social security system of his or her home land. German social security law requires the following.
- The employee moves to another country on instruction of his employer.
- The employee continues to work for his employer while being abroad.
- The employee remains part of the employer’s organization.
- The employer keeps his right to give instructions.
In general this means that the expatriate is still employee of the foreign employer. It is advisable to draft an additional assignment agreement. This should state aforementioned topics and the period for which the employee has been assigned to Germany.
Note: If an expatriate has been send to Germany under a proper assignment agreement, one may find the result confusing. German salaries and other remunerations are subject to German income tax but not subject to German social security liabilities. The latter have to be declared and paid in the home country.
|Dismissal protection law||Kündigungsschutzgesetz|
|Flexible time saving account||Zeitarbeitskonto|
|Standard allowance for food and drinks||Verpflegungsmehraufwendungen|
|Benefits in kind||Sachbezüge|
|Holidays / vacation||Urlaub|
|Social security agency||Sozialversicherungsträger|
|Assignment of staff||Arbeitnehmerentsendung|
Author: Peter Scheller, Steuerberater – Master of International Taxation