How to hire employees in Germany through an employer of record (EOR) [2025]

Hiring in Germany? This European Union member state has a robust economy and a lot of financial incentives for startups and businesses planning an expansion, not to mention a skilled, English-speaking workforce.

Many companies expanding overseas to Germany start by hiring German independent contractors and sending them international payments. But, if you want to hire full-time employees, you’ll need to either establish a legal entity or hire through an EOR.

Registering a legal entity in Germany can take anywhere from five to seven weeks, and that’s only if you complete all the steps correctly. The German bureaucratic system is known for being extremely complex, and any mistake can earn you financial penalties and headaches.

Alternatively, you can use an “employer of record” (EOR), which handles German payroll, tax, and compliance considerations.Learn more about What is an Employer of Record (EOR)?

Here’s a step-by-step guide for hiring through an EOR in Germany.

Step by step: How to hire through an Employer of Record in Germany

Step #1: Decide between a German EOR and a legal entity

Should you hire German employees through an EOR or set up your own entity? The answer depends on your company’s resources, size, and expansion plans.

• Legal entity in Germany. Setting up a legal entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws. You’ll also need to make a notary appointment, apply for a Chamber of Commerce (IHK) check, and wait for your company to be registered in the official commercial register (Handelsregister) before you can start paying employees.

• German EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. As well as allowing you to hire full-time German employees, EORs handle all the legal requirements for complying with German laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.

Step #2: How to choose the best employer of record for your business

• Is the EOR active in the countries in which you need to hire? The first, and perhaps most obvious consideration when choosing an EOR for global expansion.

• Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.

• How does the EOR protect your sensitive and confidential information? It is vital that your EOR has the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information.

• Does the EOR offer automated solutions? You may want to look for an EOR that automates the busy work like onboarding and benefits enrollment and other common HR and IT tasks.

• What is the EOR’s support model? It’s essential that your EOR has support staff that are both easy to contact and experts in the regulations of the countries in which you are hiring.

Get the full checklist in our guide: What is an EOR?

Step #3: How to hire and onboard your German employees

So, you’ve chosen the right EOR in Germany. Now, it’s time to start the onboarding process for your German employees by collecting the following information:

• Name, date of birth, and start date with your company

• Which Tax Class they belong to*

• Whether or not the employee is a member of an official religious organization and is responsible for paying church tax**

*Germany has six Tax Classes; employees are assigned to Tax Class 1-6 based on their marital and family status. Knowing which Tax Class an employee belongs to will ensure you adjust the amount of tax you take out of their paychecks each month accordingly. Tax Class does NOT determine an employee’s tax rate. It’s just intended as a helpful tool.

**If you belong to an official religious institution in Germany, like the Catholic Church, you owe church tax at a rate of 8% or 9% of your monthly income, depending on where you live.

Next, you need to send out an employment contract that clearly states key working conditions both you and the employee have agreed to. An EOR can automatically localize and distribute employment contracts. Every German hire will have a legally compliant contract offering statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies like severance pay and notice periods.

Step #4: Run payroll

For the A-to-Z on global payroll, read our comprehensive guide to running international payroll for employees in Germany.

Once you’ve collected a new hire’s information and both parties have signed employment contracts, an EOR will pay your German employees in euros (EUR),while withholding legally required taxes from salaries. This includes contributions to:

• Income taxes

• Social insurance taxes (e.g. pension schemes, health insurance, unemployment insurance, and long-term care)

• Church tax, if applicable

• Workers’ compensation insurance

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Frequently asked questions about hiring through an employer of record in Germany

How much does an EOR cost?

Prices for EORs vary depending on how many people you’re employing through the entity. Typically, you’ll either pay a fixed monthly fee per employee or a percentage of payroll plus any taxes. You’ll also be responsible for paying any administrative fees, the costs of additional features, and onboarding charges.

Remember: You don’t have to use an EOR for your whole workforce. You can use it for a select number of employees, and you’ll only pay for those.

What is the difference between an EOR and PEO?

A professional employer organization (PEO) acts as a joint employer of a company’s workforce. They offer administrative services including filing payroll taxes, paying workers, and ensuring the company is compliant with local laws. With a PEO, you must set up a local entity if you wish to hire employees in other countries.

An EOR, on the other hand, allows you to hire in other countries without setting up a legal entity. They’ll also assume all responsibility and liability for the employees they work with and act as the sole employer.

Does an EOR protect your sensitive and confidential information?

To ensure you’re protected from the risks that come with sharing data with third-party vendors, seek out EORs in Germany that prioritize data protection. They should offer things like:

• Compliance with industry-standard privacy regulations in different countries

• Secure infrastructure with around-the-clock maintenance

• Carefully vetted personnel

As an additional safety net, draft a data processing agreement (DPA) with a payroll service provider. This will give you legal protection in the event of a breach.

What are the mandatory benefits for German employees?

Through a series of Acts, Codes, and Agreements, Germany’s government has cobbled together the following list of statutory benefits for employees:

• Retirement pension

• Unemployment insurance

• Paid sick leave

• Vacation entitlements

• Public holidays

• Workers’ compensation insurance

• Health insurance

• Maternity and parental leave

• Long-term/nursing care

Keep in mind that these are the minimum benefits employers should provide to German employees. You can certainly offer more, and many companies do.

For more information on mandatory benefits in Germany, read our complete guide.