Employee Benefits in Germany: Clear Guide for US Employers

Germany is a country full of hard workers with an excellent command of English. Tapping into this talent pool can be a great way to secure strong employees.

But German labor laws can be complex. Knowing what you’re legally required to provide and what’s expected on top is key to securing talent in Germany.

In this guide, you’ll get a clear overview of the statutory employee benefits and additional fringe benefits common in Germany.

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Who Should Receive Employee Benefits in Germany?

In Germany, the workforce is divided into employees and contractors.

Employees are considered full-time if they work a minimum of 30 hours per week. If they work less than 30 hours per week, they're considered part-time.¹

Contractors and the self-employed are those who aren’t engaged in any self-employment

All full-time and part-time employees in Germany are entitled to receive statutory benefits. For some part-time employees, they may receive benefits on a pro rata basis.

Employees also typically need to work a minimum number of weeks to be eligible for certain benefits. This can be anywhere from 6 months for paid vacation benefits to 4 weeks for sick pay.

However, contractors aren’t entitled to receive most statutory employee benefits. That said, they’re required to have health insurance. Contractors can also make voluntary contributions to statutory state pension insurance.

Types of Statutory Employee Benefits in Germany

Here’s an overview of the main statutory employee benefits in Germany.

Vacations and Overtime Pay

The maximum number of working hours is 8 hours per day from Monday to Saturday. Working on public holidays and Sundays is typically prohibited.

After a day of work, employees are entitled to a minimum uninterrupted rest period of 11 hours.²

Employees who work a 5-day work week are entitled to a minimum of 20 days paid vacation per year. If they work a 6-day week, this increases to 24 days of paid vacation per year.

Typically, most companies will offer more than the minimum amount of paid vacation. This is usually between 25 and 30 days per year. This is in addition to the 10 to 12 public holidays employees are entitled to every year. Keep in mind that public holidays vary depending on the federal state.³ ⁴

For employees with severe disabilities, they’re entitled to receive an extra 5 days of annual vacation after having worked for a minimum of 6 months.⁵

Sick Leave

Your employees in Germany are protected in the event they fall ill.

After being employed for a minimum of 4 weeks, employees are entitled to sick pay.

If an employee becomes sick, you have to pay them their full salary for up to 6 weeks. If their illness continues after 6 weeks, their health insurance will take over and continue paying them a prorated salary.

If your employee falls sick again within the same year but with a different illness, they’ll be entitled to another 6 weeks of fully-paid leave.³

To qualify for paid sick leave, employees are required to get a sick note (arbeitsunfähigkeitsbescheinigung) from a doctor after three days.¹

Maternity and Parental Leave

If your employees become pregnant, it’s important to know that they’re entitled to a minimum of 14 weeks paid maternity leave.

This can be taken up to 6 weeks before the due date, with the remaining 8 weeks taken after childbirth. If your employee has a miscarriage or multiple births, the 8 weeks is increased to 12 weeks.

During maternity leave, mothers are entitled to their full salary, based on their average net income of the previous 3 months. This is paid partly by their insurance and partly by you, their employer.

Their health insurance will pay a maximum of €13 EUR per day. You’ll be required to make up the difference between the payout and their actual daily wage.⁶

While paternity leave doesn’t currently exist, this is expected to change in 2024 to two weeks for fathers.

However, both fathers and mothers are entitled to up to 3 years of parental leave (Elternzeit). This is per child and applies up until the child turns 3 years old.

Parents enjoy job protection during parental leave, preventing them from being fired.

During parental leave, you’re not required to pay your employee. Instead, they can apply for a parental allowance (Elterngeld) from the government. This gives them 60-67% of their average salary for a maximum of 12-14 months.

Health Insurance

Health insurance is mandatory for anyone living and working in Germany.

If your employees make less than €5,775 EUR per month ($69,300 EUR per year), they’ll need to enroll in a public health insurance fund.

In Germany, there are hundreds of public health insurance funds your employees can choose from. They each come with different benefits and contribution rates. Contribution rates are typically between 15-17%, split equally between the employee and employer.

If your employees earn more than the threshold, they’re able to enroll in a private health insurance fund. These are also split equally in contributions between the employee and employer.⁷

Social Security Contributions

In Germany, employers are responsible for withholding social security contributions from the employees’ salary.

Social security contributions are split equally between the employee and employer, and are made up of:

• Pension insurance—18.6%
• Unemployment insurance—2.6%
• Health insurance—14.6%
• Long-term nursing care insurance—4%

Keep in mind that long-term nursing care insurance (Pflegeversicherung) is the only contribution not split equally between employer and employee. For example, as of 2024, employers contribute 1.7% while employees contribute 2.3%.⁸

Most employees are enrolled in the German state pension program (Gesetzliche Rentenversicherung). This is a pay-as-you-go contribution system that all employees must be enrolled in.

Additional Employee Benefits in Germany to Attract Talent

To avoid legal problems, it’s crucial that you provide your German employees with the correct statutory employee benefits. But there’s more to a happy workforce than simply providing the bare minimum.

To ensure high productivity, retain employees and attract talent, you’re going to need to offer your employees additional benefits. These aren’t legally required, but in most cases they’re expected.

Keep in mind, however, that employee fringe benefits are strictly regulated. While some are tax-free, others can incur a tax liability.

Here’s an overview of some of the common additional benefits that employees enjoy in Germany.

Private Medical Insurance

All employees are required to have public health insurance. But you can also offer your employees a competitive private health insurance plan.

Private health insurance can entitle your employees to advanced treatments, a wider selection of doctors and hospitals, and more immediate appointments.

Retirement Plan

The German public pension insurance scheme is typically not enough to fund your retirement

Another problem of the scheme is that pensions are paid to the elderly using the premium payments of the current working generation. As the number of pensioners has increased in comparison to the number of people working, it’s put strain on the German state pension system.

Companies often offer their employees an additional pension scheme, known as _Betriebliche Altersversorgung _(bAV).

As an employer, there are different bAV schemes you can offer to your employees, including:

• Pension fund (Pensionskasse)
• Direct Insurance (Direktversicherung)
• Direct Commitment (Direktzusage)
• Pension Scheme (Pensionszusage)
• Support Fund (Unterstützungskasse)⁹

These pension plans are normally tax-deductible. They’re also portable, meaning they can transfer with your employee if they change jobs.

Company Car

Access to a company car is a common employee benefit in Germany. This is particularly for those in higher level company positions, such as managers.

For other employees, a transportation allowance is often issued. This can cover the cost of a train ticket, gas or any other eligible costs.

Some companies also offer leases for bikes or fully subsidize the payment of bikes.

Gym Membership

Fully subsidized gym memberships or a certain monthly allowance is another benefit offered to German employees.

Some companies also offered a prepaid debit card that goes toward health and wellness purchases.

Flexible Working

Since the Covid-19 Pandemic, many companies in Germany have embraced hybrid working and work from home arrangements.

It’s common that employees can work from home for 1-2 days of the week on designated days.

In some cases, they can also work from abroad for a certain number of weeks per year. However, this is typically restricted to countries within the European Economic Area (EEA) to avoid tax and labor compliance issues.

Extra Vacation

It’s commonplace that most employees in Germany receive a minimum of 30 days annual vacation. That’s 10 days more compared to the statutory minimum of 20 days.

13th Month Pay

Many employees across Germany enjoy a 13th month pay bonus. This is usually given in December, and is equivalent to an extra whole month’s salary.

Discover Wise Business: The Easy and Low-Cost Way to Pay Employees in Germany

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That’s where a Wise Business account can come to the rescue.

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With a Wise Business account, you can hold more than 40 currencies, all in one place. When paying employee benefits in Germany, your money will be exchanged at the mid-market rate. This can save you a significant amount on hidden fees and markups.

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Sources:

1. 10 Important Employee Benefits in Germany (+ Common Perks)
2. Working conditions & Working hours in Germany | L&E Global
3. Employee benefits in Germany | L&E Global
4. The complete guide to offering employee benefits in Germany | Rippling
5. employment law overview GERMANY 2021-2022
6. German Maternity and Parental Leave Benefits | Profion
7. Health Insurance for Employees
8. Germany – Increased Social Security Contribution Thresholds for 2024
9. Understanding Betriebliche Altersvorsorge (bAV): A Guide to Workplace Pensions in Germany | Internago: International payroll services with digital edge

All sources checked April 2024.