Germany: Employee Benefits

The German Flag in front of a government building in Germany.

Germany is one of the industrial powerhouses of the world and is known for high-end, reliable products. This is made possible by good work culture, government policies, technological innovations, good industrial practices, and, most importantly, a highly skilled workforce.      

Germany ranks consistently high on global polls of skilled workers and the skill level of these workers. Hence, hiring talent in Germany presents an exciting opportunity for foreign employers. However, companies interested in engaging German employees must also adhere to the country’s local labor laws, which include providing mandatory benefits.

Employee Benefits in Germany

A few things you should understand before diving into the actual employee benefits are:

  • Every full-time employee in Germany is eligible for these benefits. A full-time employee is described as anyone working four days a week or 30 hours a week (at least) for your company.

  • Independent contractors and freelancers may not be eligible for employee benefits.

  • Employees may not have access to all of their benefits during the probationary period.

  • There are both mandatory and optional employee benefits in Germany. The mandatory benefits are part of the rights of your employees and are defined under labor laws. The optional benefits can help you attract top talent in the country.

The mandatory employee benefits in Germany are:

Pension Plan

In Germany, the pension system stands on three pillars, one of which is the mandatory employee and employer contributions to the government-mandated pension plan. It’s currently 18.6% of an individual’s salary. The contributions are equally shared between the employee and employer, so the business has to contribute 9.3% of an employee’s salary towards their pension, with an equal percentage coming from the employee. This is a mandatory benefit all full-time German employees get.

Health Insurance

Just like the pension plan, Employers in Germany have to match the 7. contributions their employees make towards mandatory health insurance. The total contributions are 14.6% of their annual salary. However, there is a provision that allows individuals earning a salary higher than a predetermined cap (EUR 66,600 in 2023) to opt out of these contributions in favor of a private health plan. The employer may also have to pay supplementary insurance premiums for any medical expenses not covered by the state insurance agency.

Other Insurance

In addition to health insurance, German employees are also entitled to unemployment and accidental insurance. The statutory unemployment insurance is 2.5% of the total income. The employer pays half of it while the employee covers the other half. The accidental or statutory occupational accidental insurance, on the other hand, is completely covered by the employer, and the employee makes no contributions, making it a relatively unique insurance benefit. The premiums for this insurance may vary based on the hazardous nature of the job.

Annual Leaves and Holidays

There are about nine national/regional holidays on which most employers give their employees the day off. Not all of these holidays are government mandated per se, but the practice is prevalent in almost all working domains in Germany.

As for annual leaves, it depends on the type of work week an employee has.

  • Employees working five days a week should at least get 20 annual leaves.

  • Employees working six days a week earn at least 24-25 annual leaves.

The number of leaves a German employee may be entitled to (by the employer) is usually 30 for persons under the age of 16.

Sick Leave

German employees are eligible for about six weeks of paid sick leave. If employees can produce the right doctor’s note, they are eligible for up to six weeks of paid leave. The compensation may range between 70% to 90% (in some cases, 100%) of your regular compensation. Once the six weeks pass and you still can’t return to work, the insurance may take over and will fill the employer-funded compensation gap, assuming you have paid into it.

Maternity/Paternity Benefits

The maternity/paternity employee benefits in Germany cover more than just the three years of maternity or paternity leave they are entitled to after the birth of their child. Both parents can take this leave simultaneously and even defer part of this leave (about one year) to a future date until their child gets to the age of eight, with the consent of their employers. This leave is unpaid, but the employer cannot terminate their employees for these three years, and they may rejoin the work at any time.

The maternity benefits are more comprehensive. Mothers get maternity benefit income for 14 weeks – six weeks before birth and eight weeks after it. They also get dismissal protection from the beginning of their pregnancy to four months after birth. This may get rolled into maternity leave.

Caregiver Benefits

German employees also get access to unpaid time off if they need to care for a close relative, a term that’s not explicitly defined under German law. This is divided into two categories – short-term leaves of up to ten days and long-term leaves that may last up to six months in extreme circumstances.

Final Words

It’s important to understand that these benefits are only a small part of employee rights in Germany. Employee rights are a much broader umbrella, which includes wage protection, minimum wage, termination protection, and joining a union.

As a business expanding to or opening in Germany, it’s imperative to understand these rights if you plan on hiring local employees. The country has ample protections in place for employees. As an employer, you must understand what they are and what benefits your German employees are entitled to, or you may get in legal/regulatory trouble that’s why when expanding to a new country, there are several reasons to consider an EOR, even if you are establishing a local presence. With an EOR like Engage Anywhere, you can access benefits beyond typical EOR services. Engage Anywhere offers guaranteed compliance, talent visibility and comprehensive employee management services.

For more information regarding benefits, global compliance, regulations, and labor laws, check out the Global People Strategist blog!

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