Doing Business with a Germany PEO & Employer of Record
The Federal Republic of Germany, with a population of 83 million (International Monetary Fund, 2019), remains to be an economic powerhouse and is one of the most attractive countries for foreign investment on the European continent. Europe’s largest economy continues to offer an excellent infrastructure, a highly-developed corporate and services sector, its system of higher education, and, most importantly, it’s capacity to deliver technological innovations.
For international companies looking to expanding their business in Germany, a professional employer organization (PEO), also referred to as an employer of record (EOR) provider, could be a convenient way to test the German market and establish a core executive or professional team onsite.
The following article will detail on to discover the benefits of using a PEO in Germany and get rankings of the best local German PEOs/EORs.
Why use a PEO in Germany?
Using a Germany PEO can support foreign companies in the effort to overcome many of the legal and regulatory challenges of doing business in Germany. Instead of setting up an entity in Germany in form of a GmbH (Germany’s well-known form of a Limited Liability Company), foreign investors can look to partner with a PEO that already has a registered entity in Germany, enabling them to hire, onboard, manage, pay, and renew or terminate contracts compliantly all under one roof without the expense of setting up themselves.
PEOs are especially attractive solutions for temporary business activity in Germany or for those wishing to prove the viability of business expansion without making a more significant commitment. In the event that you begin your foreign operations with a Germany PEO but decide you would like to switch to your own entity in the future, some PEO providers will be able to provide transitioning services to simplify the process.
How to Hire in Germany
Companies who employee workers in Germany are legally required to provide employees with formal employment contracts. German employment contracts should include the terms of employment, such as the termination rules, and any additional compensation or benefits.
Because it can be difficult to terminate an employee’s contract, it can sometimes be a safer option to provide the employee with a temporary contract. This move is typically going to be the better situation for the employer, but it is important to keep in mind that employees will be hesitant to sign a temporary contract if they feel that they may be able to secure a full-time offer elsewhere.
Additionally, both employers and employees in Germany must pay towards the employee’s social security account, which covers their pension, healthcare coverage, unemployment insurance, and additional benefits included in the social security fund. Employers are also required to provide coverage for accident insurance.
Because of the fact that expanding into a new culture can present unique hiring challenges for foreign companies, taking advantage of the recruitment channels with the highest potential is especially important for the process of hiring talented professionals in Germany. This is an area of opportunity where your company can likely benefit from working with a PEO in Germany that already possesses expertise in the local regulations.
It can also be valuable to partner with a recruitment agency that can simplify and expedite the process of hiring professionals in-country. Global PEOs will sometimes have an in-house recruitment agency that can provide assistance with the process of recruiting in Germany. There are several benefits of using a recruitment agency, which include:
- Being able to access local recruitment experts who are familiar with the German markets and the most effective hiring practices.
- Connecting with a company that is designed to understand the specific goals of your business and that can create a recruitment search process that is designed to fulfill your unique needs.
- Taking advantage of the recruitment agency’s local legal expertise to ensure that your business is compliant with the local laws and regulations in regards to employment.
When you partner with a Germany PEO that also offers recruitment coverage, your company is able to receive ongoing support that includes the hiring and onboarding management, HR and payroll services, and more valuable resources in addition to those provided in the initial recruitment phase.
We have listed our expert picks for the 4 Best Germany PEOs and Employers of Record below. These organizations all have outstanding reputations for being able to hire and manage talented professionals in Germany as well as ensure full compliance with local employment regulations.
Best Germany PEOs & Employers of Record
Horizons is known as one of the most respected PEO organizations in Germany. Businesses of virtually all sizes, from small businesses to startups to Fortune 500 companies, all trust Horizons with their PEO services and place a high value on the company’s ability to hire talented professionals in Germany within days, as opposed to the usual months.
Horizons offers a full suite of business services; from contract drafting in German and English to sourcing, hiring, onboarding, and setting up social security and handling local disputes.
GlobalizationPedia identified some of Horizons’ key advantages compared to its competitors:
- A 100% Horizons-owned entity in Germany that is fully AÜG licensed.
- A team of local HR experts in Berlin, who can meet your employee face-to-face.
- Berlin is the headquarters of Horizons’ European operations, so you can be sure that Horizons’ service in Germany is top-notch.
- Horizons’ founders are German & French, and have a deep understanding of German labor law.
Global PEO offers a comprehensive suite of services for businesses looking to do business in Germany. With local offices in Berlin and Munich, the company might be the perfect fit when hiring employees without having to set up a German subsidiary. They also have an in-house recruitment team, making it easier to streamline your recruitment efforts, as opposed to needing to work with a separate agency.
In addition, the company is well-known for maintaining strong relations to the German Chamber of Commerce offices around the globe.
The employment agency Universal Hires stands out as the leading established PEO organization in Germany, as well as the only Germany PEO with actual headquarters in Germany. Companies from all over the world trust Berlin-based Universal Hires with their employment services in Germany. The company has been continuously delivering its Employer of Record solutions to enable foreign corporations to hire staff within days, as opposed to the usual months when going through a lengthy and costly GmbH-setup procedure.
Universal Hires offers a full variety of services – from contract drafting in German and English and employee onboarding to setting up social security and paying income taxes. Unlike other companies in this business, Universal Hires has a local German team taking care of its clients’ German staff. When foreign businesses let UH hire staff on their behalf, their AÜG-licensed German entity will absorb all local employment liabilities – making it a straightforward and easy process for foreign companies looking for a true ‘one-stop-shop’ for Employer of Record services in Germany.
It’s important to keep in mind that similar to other global PEO providers such as Velocity Global, Globalization Partners, PEO Worldwide, and Papaya Global, NN Road is likely to subcontract the employment contract, hiring procedure, and monthly payroll administration to a local third-party payroll provider in Germany. Therefore, your company might end-up hiring staff through Universal Hires even though you’re contracting with a global PEO.
Why are Deel, Remote, or other companies missing?
Deel, Remote, and other market-leading EORs are fine companies – but they may not be the best choice for hiring in Germany due to several factors:
- Such companies often prioritize hyper-growth, driven by investor demands for rapid expansion, over ensuring compliance with local regulations and protecting the interests of their customers. This can lead to potential legal and financial risks for companies utilizing their EOR services.
Example: A company focused on hyper-growth might encourage employers to hire de-facto employees as contractors, opening the client up to employee misclassification risk unnecessarily.
- In the past, we’ve seen that such ‘young & tech-driven’ providers may not meet the necessary license requirements for providing EOR services in Germany – as may take years to apply for – further jeopardizing compliance.
Example: Any company offering a Germany PEO should be fully AÜG licensed. This process is intense for companies, and needs to be renewed occasionally via audit by the German government. You should confirm with any Germany PEO you engage that they have successfully passed an audit in the past, and if they have any AÜG license audits upcoming. If a Germany PEO were to fail an AÜG license audit, it would be a disaster for their clients.
- Relying on a virtual-only support team can make it challenging to address any issues or concerns that may arise, potentially causing delays or disruptions in operations.
Example: If there are no local support staff in-country, your German employees may be left without answers to their important questions. If you go with a company that outsources their support staff to another time zone or to non-HR specialists, you risk losing candidates, or worse, employees.
As such, it is recommended to carefully evaluate EOR providers based on their track record of compliance, experience in Germany, and support capabilities, rather than solely on their growth and pricing potential.
Request a PEO Proposal
If your company is interested in expanding your business operations into Germany, GlobalizationPedia can connect you with a PEO that best fits your needs at a cost-effective price. Fill out the form today and we’ll use our extensive database of strategic partnerships to provide you with a full rundown of the best potential Germany PEO matches for your company.
Below are a few of the reasons why it may make sense for your business to partner with one of our recommended Germany PEOs / Employers of Record.
- You are working with an independent contractor who is currently located overseas and you want to convert them to an internal employee while having them continue to work in Germany. Using a Germany PEO and employer of record can simplify the process of transitioning the employee into your own network, as opposed to doing it on your own by setting up your own legal entity.
- Your company is currently in a type of professional relationship with your independent contractor that is not compliant with local laws and regulations. The Germany PEO will take the necessary measures to fix these issues and have your business operating in a compliant manner.
- The level of risk and potential financial strain that come with managing a foreign entity is becoming too high to justify the benefits that your business could see from the endeavor in the long term. Switching to a Germany PEO is one of the simplest ways to cut costs while also transferring some of the legal risk onto the PEO provider.