How Do You Put an Employee on Payroll in Germany?
To put an employee on payroll in Germany, the employer must first obtain the necessary employer registrations, including the Unternehmensnummer from the responsible statutory accident insurance institution and the Betriebsnummer from the Federal Employment Agency. The employee is then generally registered electronically with their chosen health insurance fund with the first subsequent payroll, and no later than six weeks after employment begins; an additional immediate report may be required in certain sectors. Companies without a German entity can use an Employer of Record (EOR) licensed under the German Temporary Employment Act (AÜG), register as a foreign employer themselves, or set up a German GmbH.
Which route fits your company?
In Germany, the route choice has one extra layer: an EOR arrangement generally counts as temporary employee leasing (Arbeitnehmerüberlassung), which brings its own rules.
| Route | Who is the employer | What you need first | Germany-specific catch |
| EOR | The EOR’s German entity | Service agreement with an EOR that holds an AÜG licence | Assignment to the same client is generally capped at 18 consecutive months. Equal treatment, including equal pay, applies from the start; a qualifying collective agreement may permit deviations, generally for the first nine months and, subject to statutory conditions, for up to 15 months. |
| Foreign employer (NRP), no German entity | Your foreign company | Company number (Unternehmensnummer), establishment number (Betriebsnummer) and a payroll provider | Social security obligations apply. Whether German wage tax must be withheld requires a case-by-case assessment, including whether there is a German permanent establishment or permanent representative, a German economic employer or a temporary agency work arrangement. If no withholding obligation exists, the employee generally settles German income tax through an assessment or advance payments. |
| German entity (GmbH or UG) | Your German company | Notarised incorporation, commercial register entry, trade registration, tax number | A GmbH needs €25,000 share capital, of which at least half is paid in at founding |
The 18-month cap means that an EOR in Germany is generally better suited as a market-entry or transitional solution than as a permanent employment model. Companies should plan a timely transition to their own German entity or another compliant direct-employment set-up within that period.
What makes German payroll different
Three features set German payroll apart from most other European countries.
1. The health insurance fund collects all social security. The employee chooses a statutory health insurance fund (Krankenkasse). The employer registers the employee there and pays all social security contributions (health, long-term care, pension and unemployment insurance) to that fund, which passes them on.
2. Wage tax depends on the employee’s tax class. Each employee has a tax class (Steuerklasse I to VI) based on marital status and whether they have more than one job. The employer retrieves it electronically (ELStAM) with the employee’s tax ID. Church tax is also withheld if the employee is a member of a church that levies it.
3. Employers pay extra levies. In addition to social security contributions, employers pay statutory accident insurance contributions, the U2 levy for maternity-related expenses and the U3 insolvency levy. U1 and U2 rates can vary by health insurance fund, whereas the U3 insolvency levy is set uniformly. Employers that regularly have no more than 30 employees generally participate in the U1 reimbursement scheme; special statutory counting rules apply when determining the number of employees.
From signed contract to first payslip
If you employ directly, this is the order of work. With an EOR, the EOR takes care of all of it.
Before the first working day
- Register the company with the statutory accident insurance institution responsible for its sector. This registration provides the Unternehmensnummer generally required to apply for the Betriebsnummer from the Federal Employment Agency.
- Apply for the Betriebsnummer electronically from the Federal Employment Agency, using the Unternehmensnummer issued by the statutory accident insurance institution.
- Register with the tax office (Finanzamt) for wage tax, if you are required to withhold it.
- Collect the employee’s tax ID, social security number, chosen Krankenkasse, bank details and, for non-EU nationals, residence and work permit.
In the first month
- The employee must be registered with the relevant Krankenkasse with the first subsequent payroll, and no later than six weeks after employment begins. In certain sectors, such as construction and hospitality, an immediate report (Sofortmeldung) is additionally required no later than when employment begins.
- Retrieve the employee’s tax class and allowances electronically (ELStAM).
Every month
- Run payroll and provide the employee with a payslip in text form when remuneration is paid. Under section 108 of the German Trade Regulation Act (GewO), a new payslip is not required if the information has not changed since the last correct payslip.
- Submit the electronic contribution statement so that it is received by the relevant collection agency by 0:00 on the fifth-to-last banking day of the month, and pay the social security contributions by the third-to-last banking day of the same month.
- File the wage tax return (Lohnsteuer-Anmeldung) and pay the wage tax, usually by the 10th of the following month.
German employment contract essentials
German law gives employees strong protection, and several formal requirements catch foreign employers out.
| Topic | Rule in Germany |
| Form | The essential employment terms must be documented and provided to the employee within the statutory time limits under the German Documentation Act (Nachweisgesetz). Following the legislative change, the information can generally also be provided electronically in text form if the statutory requirements are met; exceptions apply in certain sectors. A fixed-term agreement generally requires written form with handwritten signatures before the employee starts work; an electronic signature is not sufficient. If the formal requirement is not met, the employment relationship is generally treated as indefinite. |
| Probation (Probezeit) | Up to six months, with a two-week notice period. |
| Dismissal protection | After six months, employees in businesses with more than 10 employees are protected by the Dismissal Protection Act and can only be dismissed for a valid reason. |
| Minimum wage | €13.90 gross per hour in 2026, unless a collective agreement sets more. |
| Holiday | At least 20 days a year for a five-day week; 25 to 30 days is common. |
| Sick pay | In the event of incapacity for work through no fault of the employee, the employer generally continues to pay remuneration for up to six weeks. The entitlement generally arises after four uninterrupted weeks of employment. Special time limits apply to repeated incapacity due to the same illness; once continued remuneration ends, employees covered by statutory health insurance may generally receive sickness benefit from their Krankenkasse. |
| Working time | Normally up to 8 hours a day, extendable to 10 if the average stays at 8. |
In establishments that generally have at least five permanent employees eligible to vote, three of whom are eligible for election, a works council (Betriebsrat) may be elected. The works council has statutory participation and co-determination rights in numerous operational and personnel matters.
What an employee costs on top of gross salary
In Germany, employers of employees covered by statutory social insurance generally pay about 21% of contributory gross remuneration as employer contributions to health, long-term care, pension and unemployment insurance in 2026. The exact percentage depends in particular on the employee’s health insurance fund and, for long-term care insurance, the place of employment. Additional employer costs include levies and statutory accident insurance. Contributions to health, long-term care, pension and unemployment insurance are calculated only up to the applicable contribution assessment ceiling; statutory accident insurance and other charges follow their own assessment rules.
| Contribution | Employer share | Employee share |
| Pension insurance | 9.3% | 9.3% |
| Health insurance | 7.3% of contributory remuneration plus half of the additional contribution set by the employee’s Krankenkasse | 7.3% of contributory remuneration plus half of the additional contribution set by the employee’s Krankenkasse |
| Long-term care insurance | 1.8% | 1.8% for employees with one child; employees without children generally pay an additional surcharge of 0.6 percentage points. From the second child under age 25, the employee contribution is reduced by 0.25 percentage points for each additional child, up to the fifth child. |
| Unemployment insurance | 1.3% | 1.3% |
| Accident insurance (Berufsgenossenschaft) | Varies by sector | None |
| U1, U2 and U3 levies | U1 and U2 vary by health insurance fund; U3 is set uniformly | None |
| Wage tax, solidarity surcharge, church tax | None | Depends on tax class and income |
The contribution rates shown reflect the statutory rates applicable in 2026. The statutory health insurance contribution consists of the general contribution rate of 14.6% and the additional contribution set by the employee’s Krankenkasse; both components are generally shared equally between employer and employee. The officially announced average additional contribution rate for 2026 is 2.9%, corresponding to an average share of 1.45% each. Actual additional contribution rates differ by health insurance fund; the average rate actually charged by the funds was 3.13% at the end of March 2026.
Employers with an annual average of at least 20 jobs are also subject to the statutory employment obligation for severely disabled persons. If the required employment quota is not met, a graduated compensatory levy may apply; the relevant employment data must generally be reported annually.
Frequently asked questions
The contribution rates and procedures described above apply to regular employees covered by statutory social insurance. Minijobs, short-term employment and other special categories of employees may be subject to different tax, social security, registration and contribution rules and should therefore be assessed separately before payroll is set up.
Is EOR legal in Germany? Yes, provided the EOR holds the required licence under the German Temporary Employment Act (AÜG). If a required licence is missing, this may, among other consequences, result in an employment relationship being deemed to exist with the client company.
How long can I use an EOR in Germany? An employee can generally be assigned to the same client for up to 18 months. After that, a different set-up may be required, such as employing them through your own German entity.
Do I need a German entity to run German payroll? A foreign company can obtain a Betriebsnummer and fulfil its employer obligations under German social security law. Whether it must also withhold German wage tax requires a case-by-case assessment. Relevant factors include whether the employer has a permanent establishment or permanent representative in Germany, whether a German company is the economic employer, and whether the arrangement constitutes temporary agency work. If no German wage tax withholding obligation exists, the employee generally settles German income tax through an assessment or advance payments.
What does an employee in Germany cost? Budget roughly 21% on top of gross salary for employer social security contributions, plus statutory accident insurance and levies. Accident insurance varies by sector; U1 and U2 can vary by health insurance fund, while U3 is set uniformly.
Can I hire a freelancer in Germany instead? Only if they are genuinely self-employed. If the person is integrated into the client’s organisation and works under its instructions like an employee, the German Pension Insurance may classify the arrangement as dependent employment rather than self-employment. This can lead to retroactive social security contributions, late-payment surcharges and other legal consequences. In uncertain cases, the parties can request a status determination procedure from the German Pension Insurance.
How Parakar helps companies hire in Germany
Parakar combines an AÜG-licensed EOR solution in Germany with more than 25 years of international payroll and HR experience. We can support companies at every stage of their German expansion: through EOR when they prefer not to employ directly, through NRP payroll services when a foreign company employs staff in Germany without a German entity, or through German payroll services for their own local entity. Our specialists help assess the appropriate set-up, coordinate the required registrations and manage ongoing payroll in line with the chosen employment model.
Planning to hire in Germany? Talk to a Parakar specialist about the employment model, payroll set-up and timeline that best fit your business.
