Your Guide to Employer of Record (EOR) in Germany

Growing your team internationally can be challenging but it doesn’t have to be. With an Employer of Record (EOR), you can hire employees in Germany without the need to establish a German legal entity. In this FAQ, we outline how EOR services work, when they’re the right solution, and what to expect when hiring in Germany through an EOR like Parakar.

How EOR works: Key questions answered

1. What is an Employer of Record (EOR)?
An Employer of Record is a third-party organization that legally employs staff on behalf of your company in a specific country. While your business manages the employee’s daily tasks and performance, the EOR handles all employment-related responsibilities, such as contracts, payroll, taxes, and compliance with local labor laws. This allows you to hire in countries where you don’t have a legal entity.

2. When should a company consider using an EOR?
An EOR is especially useful when:

• You want to hire talent in a country where you don’t have a local entity.
• You need to hire quickly without going through a long and complex company registration process.
• You want to ensure compliance with local employment laws and tax regulations.
• You’re testing a new market before making a long-term investment.
• You need temporary or project-based hires abroad.

3. What are the benefits of using an EOR?

• Full compliance with local labor laws and tax requirements.
• Faster hiring timelines compared to setting up your own entity.
• Reduced administrative workload for HR and payroll.
• Lower costs and risks compared to establishing a company abroad.
• Access to local HR expertise and guidance.

4. What is the difference between an EOR and a staffing agency / PEO / payroll provider?

• Staffing agency: Focuses on recruiting and placing candidates, often for short-term or temporary roles, but usually does not act as the legal employer.
• PEO (Professional Employer Organization): Offers HR outsourcing services but typically requires you to have your own legal entity in the country.
• Payroll provider: Manages salary payments and related administration but does not take on the legal employer role.
• EOR: Legally employs the worker on your behalf, handling all compliance, contracts, and payroll, so you don’t need a local entity.

5. Who is the legal employer when using an EOR?
The EOR is the legal employer on paper and is responsible for contracts, payroll, and compliance. However, you remain in control of the employee’s day-to-day work, goals, and performance.

6. Is the employee on our payroll or the EOR’s payroll?
The employee is on the EOR’s payroll. The EOR processes salary payments, handles tax deductions, and ensures all statutory contributions are made according to local laws.

7. Can we hire both local nationals and foreign employees through EOR?
Yes. EOR services can cover both local nationals and foreign employees. For foreign hires, additional visa or work permit requirements apply, and the EOR can often support with the application process.

Hiring in Germany through an EOR

1. Can a foreign company hire employees in Germany without setting up a legal entity?

Yes, with EOR services under the German Arbeitnehmerüberlassungsgesetz (AÜG), we can hire employees on behalf of the client and assign them to work for your business. This allows you to enter and test the German market, access local talent, and manage operations without the time and cost of setting up your own legal entity in Germany.

2. What type of employment contracts do you offer under EOR in Germany?

We can always offer fixed-term contracts with a maximum duration of 18 months. If certain requirements are met we are able to offer indefinite contracts as well.

According to newly established case law in Germany, the probation period may never exceed one-third of the total contract length. For example, if the contract is for 12 months, the probation period can be no longer than 4 months.

3. What are the standard working hours and overtime rules in Germany?

In Germany, standard working hours are 8 hours per day (max. 10 with compensation) and 48 hours per week, with at least 11 hours rest between shifts. Overtime is only paid if agreed by contract and can be compensated with time off. Sunday and public holiday work is generally prohibited unless exceptions apply.

4. What is the minimum wage in Germany?

Minimum wage in a labor leasing setup is EUR 14,53 per hour. However, the Equal Treatment Act and Pay has to be taken into account which means that employees with the same job title and description are required to receive the same salary.

5. How is paid time off (PTO) handled under EOR in Germany?

Employees under EOR have to be treated equally to usual employees. This means that they have a minimum of 20 days of vacation entitlement per annum. Public holidays are never included and are granted by law.

Employees receive their usual salary for the first 6 weeks of their illness. After that the health insurance provider covers the costs and the employer does not pay.

6. What are the rules around termination and notice periods in Germany?

Terminations after the probationary period are rather difficult in Germany as the Employee is strongly protected by the Termination Protection Act (Kündigungsschutzgesetz). Statutory notice period is one month but gradually increases with tenure. Depending on the reason of the termination a severance payment needs to be paid.

However, as terminations are very sensitive and case specific, we can advise after receiving the request with all the details.

7. Can you hire contractors or freelancers through EOR in Germany?

In Germany, there is no legal category of “contractors” as found in some other countries, only freelancers (Selbständige). Freelancers must meet specific legal criteria, such as working independently, setting their own schedules, and bearing their own business risk. They cannot be treated as employees, meaning they are not entitled to the same benefits, protections, or supervision as employed staff. For this reason, freelancers cannot be hired through an Employer of Record (EOR) arrangement in Germany.

8. Are there any country-specific compliance requirements for onboarding?

No additional onboarding checks are required beyond the standard employment documentation and processes already in place.

9. How long does onboarding typically take via EOR in Germany?

Depending on whether the candidate is already a local resident or holds a valid residence and work permit, the hiring process in Germany can typically take anywhere from 1 week to 3 months. In some cases, such as when additional documentation is required or government processing times are delayed, the process may take longer than expected.

10. Are there limitations on what roles or industries can be hired via EOR in Germany?

Any industry that involves on-site work or falls under this Collective Bargaining Agreement (CBA) in Germany cannot be supported under an EOR arrangement. This restriction applies in particular to sectors such as construction.

Need EOR support in Germany?

Whether you’re hiring your first employee in Germany or expanding your existing team, Parakar is ready to support you. As your local Employer of Record, we handle employment contracts, payroll, compliance, and day-to-day HR administration allowing you to concentrate on growing your business in the German market.

Contact us to find out how we can help you achieve your hiring goals in Germany.