Hiring talent in Germany represents an exciting opportunity for foreign employers. However, companies wishing to hire German employees must also comply with the country’s local labor laws, which provide for mandatory social benefits.
Beyond the mandatory benefits, employers should also provide additional benefits to their employees in Germany if they want to attract and retain top talent.
Read this guide to learn about mandatory and common benefits in Germany and how to deliver these benefits in a compliant way to your remote workforce.
What are the typical social benefits in Germany?
Mandatory social benefits in Germany include national health insurance, national pension, unemployment insurance, long-term care insurance and work injury insurance. In addition, German employees generally receive additional benefits, such as a private pension, supplementary health insurance, and supplementary life insurance and disability benefits.
Mandatory social benefits in Germany
German labor law requires employers to provide several legal benefits to employees in Germany. Below are the mandatory benefits required by law.
Learn more: What are statutory benefits?
German law requires everyone working or living in Germany to be covered by health insurance, and most benefit from public health insurance schemes. Companies interested in hire employees in Germany must contribute to their health insurance premiums.
The flat-rate contribution rate for statutory health insurance is 14.6% and is shared equally between employee and employer. People who earn more than €64,350 per year can opt out of public health insurance and take out private health insurance.
The German pension system has three components: company pension schemes, private pension investments and the public pension insurance system (social security). Company pension schemes generally supplement the public pension system.
The German social security system is compulsory for all employers and employees, and both must contribute. The current contribution rate for the public pension is 18.6% and is shared equally between employee and employer.
Although company pension schemes are not compulsory, many companies provide a pension to help cover the shortcomings of the public pension insurance system.
Long-term care insurance, or nursing care insurance, covers employees who need ongoing treatment or care due to accident, illness or old age. The contribution rate for long-term care insurance is 3.05% and is shared equally between employee and employer.
All German employees who work at least 18 hours a week are entitled to unemployment insurance. Employees who have been employed for at least 12 months in the last two years receive the compensation from the first day of their dismissal or 12 weeks after the resignation. The unemployment insurance contribution rate is 2.5% and is shared equally between the employee and the employer.
Occupational accident insurance
Also known as workers’ compensation, workers’ compensation insurance covers employees who are victims of work-related accidents or occupational diseases. Contributions are paid by the employer and cover payments for medical care and services necessary for the reintegration of employees into working life. The contribution rates depend on the branch of activity and the employees’ risk of accident.
Compulsory leave in Germany
German companies must provide three types of mandatory leave: annual leave, parental leave and sick leave.
German employers must grant employees 20 days of paid leave per year based on a five-day workweek (and 24 days of leave for employees working a six-day workweek).
Although not included in the right to paid leave, German employers generally grant their employees paid leave for the following national holidays:
- New Year’s Day
- Good Friday
- Easter Monday
- work monday
- Ascension Day
- Whit Monday
- German Unity Day
- the day of Christmas
- St. Stephen’s Day
Public holidays in Germany also vary by region, so some employees can expect to receive time off for region-specific holidays in addition to national holidays.
Maternity and paternity leave
German labor law requires employees who give birth to be granted six weeks of paid leave before the expected date of delivery and an additional eight weeks after delivery. Employees who have premature or multiple births are allowed up to 12 weeks.
Additionally, German employees who become parents can take up to 24 months of leave within three years of the birth, the cost of which is covered by the government. Companies cannot fire employees during parental leave.
German employers must grant their employees six weeks of paid sick leave after four weeks of employment. However, employees must present a doctor’s note to their employer for sick leave that extends beyond three days.
Learn more about Statutory benefits and employment law in Germany.
Common benefits in Germany
In addition to the mandatory benefits above, many German companies offer additional benefits to attract new talent. Below are several common benefits that give employers a competitive edge.
Learn more: What are additional benefits?
Private pension plan
As noted, many companies offer private employee pension plans to supplement the public pension system. Employees could see a decrease in social security benefits in the future, making private pensions an attractive benefit for German employees.
Additional life and disability insurance benefits
Life insurance is another common additional benefit that German employees typically receive. Life insurance benefits are typically twice the employee’s survivor pensionable salary and are subject to income tax.
Supplementary benefits in Germany often include long-term disability (ILD) or total permanent disability (TPD) benefits. The TPD benefit is generally a lump sum and is equivalent to twice the pensionable salary, while the LTD benefit is an annuity of approximately 20% of the pensionable salary. The pension is usually payable until recovery, retirement or death. In addition, both disability benefits are subject to income tax.
Complementary health insurance
While 90% of employees in Germany are eligible for public health insurance, employees earning more than €64,350 can choose to purchase private health insurance instead. Private health insurance typically offers broader coverage than statutory health insurance, making it an attractive benefit for talents who want or need more comprehensive health benefits.
Additional benefits to attract top talent to Germany
Companies that want to attract and retain top talent in Germany should consider adding benefits as part of their employee benefits. Benefits often focus on quality of life and can range from extra time off to providing employee welfare funds.
Below are some common benefits that German employees receive:
- Additional PTO. Companies can choose to offer more paid annual leave to employees as benefits (beyond the 20 days required by law).
- Housing and child support. Housing subsidies can attract talent who needs to move for work. Child grants generally reimburse employees who pay for child care.
- Stock-based compensation. Award equity bonuses to employees gives them a small stake in your business, which encourages employee engagement and retention.
- Travel allowance. A typical travel allowance covers employee travel to and from work. For example, an employee can receive an allowance of €0.30 per kilometer.
- Gym membership or wellness fund. Wellness funds are growing in popularity and typically cover the cost of a gym membership.
Learn more: What are benefits?
Is there a 13th month salary in Germany?
Although it is not compulsory to offer 13th month salary in Germany, many companies choose to offer an additional month’s salary to employees, usually paid in November.
Delivering Compliant Employee Benefits in Germany with Velocity Global
Companies wishing to hire employees in Germany should be aware of all mandatory and common benefits to maintain compliance and gain a competitive advantage in the market. Fortunately, you don’t have to go it alone when you partner with Velocity Global.
OUR Global Benefits Solutions helps companies to offer competitive benefits in Germany that go beyond the minimum requirements. Trust our team of experts to create market-specific reward packages that meet local legal requirements and stand out from the competition.
Gain a competitive advantage among employers and build a leading remote team with competitive global advantages. Contact Velocity Global to start.