Hiring your first employees directly in Germany is a real milestone. It’s also where many foreign HQs unintentionally step into risk: US‑style “at will” clauses, missing mandatory information under the Nachweisgesetz, poorly drafted probation periods, or overlooking the works council entirely.
This guide is written for General Counsel, Heads of Legal and managing directors of international groups who want to hire directly without an EoR in Germany—with contracts that actually work in practice and stand up in court.
1. Why German Employment Contracts Are Different
From a distance, an “employment contract” looks universal: job, salary, start date, signature. In Germany, however, several features make it structurally different from US/UK style agreements:
- No “at‑will” employment
Termination always requires a statutory ground and compliance with notice rules; “we can end this at any time” wording is simply ineffective and may backfire in litigation. - Strong statutory protection “around” the contract
Collective agreements, works council agreements, the German Civil Code (BGB), the Kündigungsschutzgesetz (Protection Against Dismissal Act) and the Nachweisgesetz sit on top of whatever you draft. - High importance of form & documentation
Certain elements must be in text or written form and handed over within specific deadlines. Failure doesn’t just create admin noise; it can reverse burdens of proof and trigger fines. - Tight link between HR, payroll and tax
Contractual details (working time, allowances, variable pay, company car, remote work abroad) directly influence payroll, social security, and PE/VAT risk—areas where Vectocon’s integrated legal + tax approach is particularly relevant.
If you are moving from an EoR to direct hiring through your German subsidiary, this is exactly the moment to reset your employment documentation to a German‑proof baseline.
2. Mandatory Contract Elements Under the Nachweisgesetz
The Nachweisgesetz (NachwG) implements the EU “Written Statement Directive” and was significantly tightened in 2022. It requires employers to inform employees in writing about key employment conditions within strict timelines.
2.1. Scope and timelines
- Applies to almost all employees in Germany (including part‑timers and fixed‑term staff).
- Essential terms must be provided no later than the first working day or within 7 days/1 month depending on the item.
- Non‑compliance can trigger administrative fines and increases litigation risk because ambiguities are interpreted against the employer.
2.2. Core information that must be documented
In practice, the easiest path is: build all Nachweisgesetz content into your employment contract template and ensure HR always uses the latest version.
Key items typically include (non‑exhaustive):
- Name and address of employer and employee
- Start date, and for fixed terms, the end date and legal basis for limitation
- Place of work and whether work can be performed at different locations / home office
- Job title / brief description of duties
- Composition and amount of pay
- Base salary
- Bonuses/commissions and criteria
- Overtime compensation rules
- Allowances, benefits in kind, company car, etc.
- Working time
- Weekly hours and distribution
- Breaks and rest periods
- Shift work rules, on‑call requirements if applicable
- Annual leave entitlement and reference to applicable policies
- Probation period (if agreed) and its length
- Notice periods for employer and employee, including reference to statutory rules
- Applicable collective agreements or works agreements, if any
- Company pension schemes, if granted
- Information on training entitlements, if contractually promised
- For international assignments / cross‑border work, additional information on applicable social security, currency of pay, etc.
For a digital, multi‑jurisdictional employer, this is where templates easily go wrong: an English‑language “global template” may not capture all Nachweisgesetz points or may refer to policies that aren’t adapted for Germany.
Action point: Have your German contract vetted specifically for Nachweisgesetz completeness and keep a version‑controlled, bilingual template set as part of your corporate secretarial/HR documentation.
3. Structuring a Robust German Employment Contract
Think of your German contract as a modular playbook, not a one‑off document. Key modules you will almost always need:
3.1. Parties, position and start date
- Use the German legal entity as employer (e.g. “XYZ GmbH”).
- Align the job title and seniority with your global grading but ensure German works‑council categories (employee vs. executive) remain clear.
- For managing directors (Geschäftsführer), you need separate service agreements; they are not “employees” under many employment statutes.
3.2. Place of work and remote work
- Define the contractual place of work: office address, region, or “within Germany”.
- If you allow regular cross‑border remote work (e.g. 2 days/week from France), you must coordinate tax, social security and permanent‑establishment risk—this is where integrated legal + tax advice is essential.
- Include clear rules on home‑office equipment, data security and cost reimbursement.
3.3. Working time and overtime
- Specify weekly hours (e.g. 40 hours/week) and reference the German Working Time Act (Arbeitszeitgesetz).
- Define how overtime is ordered and compensated:
- For higher‑paid employees, it is common (and within limits permissible) to agree that a reasonable amount of overtime is covered by the salary; the clause must be precise and not unlimited.
- For lower‑paid employees, you typically need separate payment or time off in lieu.
3.4. Compensation and benefits
- Fix the gross monthly salary in EUR.
- Clearly structure:
- Variable pay / bonus (is it discretionary, target‑based, guaranteed?)
- Commission plans (attach a separate, updateable plan document).
- Benefits: car, mobility budget, lunch vouchers, insurance, employer pension contributions.
- Remember: what you promise in the contract often drives payroll configuration and social‑security treatment. Errors here are expensive to fix retroactively.
3.5. Holidays and leave
- State annual leave entitlement (e.g. “28 working days per calendar year”).
- Clarify how leave is calculated for part‑time employees and how unused vacation is handled on termination, aligned with statutory minimums.
3.6. Policies and side letters
- Instead of overloading the contract, you can reference employee handbooks and policies (IT, travel, expenses, code of conduct).
- For Germany, ensure those policies are:
- Consistent with German law and works‑council co‑determination, and
- Translated or at least understandable for German employees.
4. Probation Period Rules in Germany
A probation period (Probezeit) is standard but not mandatory. It is a highly practical lever for foreign HQs used to more flexible exits.
4.1. Typical structure
- Common length: 3–6 months, maximum 6 months for applying the short 2‑week statutory notice period during probation.
- During probation:
- Either party can terminate with two weeks’ notice (unless you agree on something longer).
- The objective is to test suitability and performance.
4.2. What probation does not do
- It does not completely remove dismissal protection:
- For companies with more than 10 FTE employees and employees with more than 6 months’ tenure, the Kündigungsschutzgesetz applies and requires a justified ground (conduct, capability, redundancy).
- Before the 6‑month mark, statutory protection is lighter, but dismissals must still not be arbitrary, discriminatory, or retaliatory.
Practical implication: If you plan to terminate during probation, make the decision early, document performance reasons and manage the process cleanly. Don’t wait until just after 6 months when full dismissal protection kicks in.
5. Termination Notice Requirements
Unlike at‑will systems, terminations in Germany have to fit into three layers:
- Formal & procedural requirements
- Notice periods
- Substantive justification (especially in larger entities)
5.1. Formalities
- Termination must be in writing with original signature—no email, no scan, no DocuSign.
- Works council (if any) must be heard in advance (see below).
- For employees with special protection (pregnant employees, disabled employees, works council members), additional authority approvals are required.
5.2. Notice periods
- Statutory minimum for employees (after probation): 4 weeks to the 15th or end of a calendar month.
- For the employer, statutory notice increases with length of service (5 years, 8 years, etc.).
- You can agree longer contractual notice periods, but:
- They must not be shorter for the employer than for the employee.
- Very long notice periods may be unenforceable or commercially undesirable.
5.3. Dismissal protection and social justification
- For entities with more than 10 FTE in Germany, most employees become protected under the Kündigungsschutzgesetz after 6 months.
- You then need a socially justified reason for termination:
- Conduct‑related (e.g. repeated misconduct after warnings)
- Performance / capability‑related
- Operational reasons (redundancy, restructuring)
Most international employers underestimate the documentation burden of terminations. HR and line managers need playbooks: warning letters, performance‑improvement plans, works‑council consultation timelines, and severance negotiation strategies.
This is precisely where an integrated employment law + payroll + corporate secretarial setup pays off: you can model headcount changes, costs and notice dates consistently across HR, Finance and Legal.
6. Non‑Compete Clauses: Enforceability and Cost
Post‑contractual non‑compete clauses are possible but highly regulated and often mis‑used in imported templates.
6.1. Requirements for enforceable post‑contractual non‑competes
Under German law (for regular employees; managing directors follow somewhat different rules), a post‑contractual non‑compete must:
- Be in writing and handed over to the employee.
- Be limited to maximum 2 years after the end of employment.
- Protect a legitimate business interest (e.g. trade secrets, customer contacts).
- Be geographically and materially reasonable.
- Provide mandatory compensation (“Karenzentschädigung”) of at least 50% of the employee’s last contractual remuneration for the duration of the non‑compete.
If you skip the compensation clause or overshoot the scope, the non‑compete may be partially or fully invalid, and you might still have to pay.
6.2. When does a non‑compete make sense?
- Senior sales with deep customer relationships
- R&D staff with access to core know‑how
- Key leaders in strategic roles
In many other cases, you are better off with:
- Robust confidentiality and IP‑assignment clauses
- Carefully structured notice/leave‑of‑absence/“garden leave” concepts
- Technical and organizational measures to protect know‑how
Action point: Treat non‑competes as high‑cost, high‑leverage tools, not boilerplate. They should be aligned with your overall DE compensation structure and budgeted together with HR and Finance.
7. Works Council in Germany: What Foreign Employers Must Know
The works council (Betriebsrat) is one of the most common blind spots for foreign HQs.
7.1. When does a works council exist?
- Employees in a given establishment can elect a works council if there are 5 or more employees with voting rights, of which at least 3 are eligible for election.
- You, as employer, cannot prevent or formally “approve” a works council; it is an employee body.
You should clarify early whether your German operations already have or are likely to have a works council, especially when inheriting staff from an EoR or acquisition.
7.2. Information and consultation rights
The works council doesn’t replace the union or your management, but it has strong co‑determination rights in many day‑to‑day HR matters, such as:
- Working time and shift models
- Overtime rules
- Use of technical systems that can monitor employees (e.g. time‑tracking, certain SaaS tools)
- Social matters such as company rules, bonus criteria in some setups
In these areas, you often cannot unilaterally implement policies; you need a works agreement (Betriebsvereinbarung) negotiated with the works council.
7.3. Works council involvement in terminations
Before issuing any individual termination in a works‑council environment:
- You must inform the works council in writing about the reasons.
- The works council can either agree, object or remain silent within statutory timelines.
- Failure to consult correctly can render a termination invalid, even if the underlying reason is solid.
Common mistake: Foreign HR teams push a termination through global workflows without allowing for the works‑council timeline or German formalities, leading to avoidable lawsuits.
8. Common Mistakes When Foreign Employers “Copy‑Paste” into Germany
From Vectocon’s experience with international groups, several patterns repeat when foreign HQs move from EoR to direct hiring or scale their German entities.
8.1. Using US/UK templates with “at‑will” language
- Clauses such as “employment may be terminated by either party at any time, with or without cause” simply don’t work.
- Courts will ignore them and apply German dismissal law; in worst case, the existence of such wording may be used against you as evidence of bad‑faith contracting.
8.2. Missing Nachweisgesetz items
- Global templates often lack specific reference to works agreements, collective agreements or precise working‑time rules.
- This leads to proof issues in court, higher litigation risk around overtime, and potential fines for documentation breaches.
8.3. Overly broad IP and invention clauses
- German employee‑invention law has its own regime; “we own everything you create” wording may be ineffective or incomplete.
- You may need separate processes for employee inventions, especially in R&D and tech.
8.4. Ignoring works council co‑determination
- Rolling out a global HRIS, monitoring tools, or restructuring plans without works‑council involvement can lead to injunctions and delays.
- Even positive measures (e.g. bonuses) can trigger co‑determination.
8.5. No alignment between contract, payroll and tax
- Contract promises (e.g. unlimited remote work from another country, “net salary” arrangements, complex stock plans) may trigger unexpected payroll, social‑security and permanent‑establishment issues.
- Without legal + tax alignment, you risk inconsistent documentation when German authorities audit you.
9. Transitioning from EoR to Direct Hiring in Germany
Many of our clients come to us when they outgrow an EoR solution and want to:
- Reduce per‑head cost
- Build a long‑term German presence
- Improve control over contracts, culture and benefits
A clean EoR → direct‑hire transition requires a coordinated sequence:
- Entity & registration readiness
- German GmbH operational, bank account set, tax and social‑security registrations completed.
- Payroll provider selected (or in‑house setup defined).
- Contract framework
- Draft German‑law employment contracts that meet Nachweisgesetz requirements and reflect your comp/benefits structure.
- Align with global policies and DE‑specific works‑council or collective arrangements.
- Transfer mechanics
- Assess if the move from EoR to subsidiary qualifies as a transfer of undertaking (Betriebsübergang)—this triggers specific employee information duties and protection.
- Coordinate timelines so that EoR termination and new contracts are synchronized and payroll continues seamlessly.
- Payroll & HR operations
- Implement German payroll with correct treatment of salary, benefits, stock plans, and cross‑border elements.
- Ensure HRIS and time‑tracking tools comply with German labor and data‑protection law.
- Works council & employee communication
- Prepare messaging for staff, especially if a works council is present or likely to be formed.
- Where needed, negotiate or adapt works agreements.
Vectocon typically sets this up as a time‑boxed project with a clear roadmap, then moves into an ongoing support model for employment, payroll and corporate secretarial tasks.
10. How Vectocon Can Help: Integrated Employment Law, Payroll and Corporate Secretarial in Germany
For international groups, the main risk is not a single defective clause—it’s fragmentation:
- One firm drafts the contract
- Another runs payroll
- Internal HR manages works‑council topics on its own
- Finance tracks headcount and cost in a separate universe
Vectocon’s model is designed around exactly these cross‑overs.
10.1. Employment contracts & HR playbooks
We provide:
- German‑law employment contract templates (DE/EN) tailored to your industry and seniority levels
- Clause options for:
- Working time & overtime
- Remote work in Germany and abroad
- Variable pay and benefits
- IP, confidentiality, non‑solicitation and (where appropriate) non‑compete
- HR checklists for:
- Onboarding: Nachweisgesetz compliance and documentation
- Probation reviews and termination timelines
- Works‑council consultation steps
10.2. Payroll and employment tax integration
As tax advisors and employment lawyers under one roof, we connect:
- Contract terms → payroll setup, wage tax and social security
- Remote work and travel patterns → PE risk and social‑security coverage
- Bonus and equity plans → withholding, reporting and employee communication
This reduces back‑and‑forth, shortens implementation cycles and makes audits easier to handle.
10.3. Corporate secretarial with HR support
Beyond pure HR, we handle:
- Corporate housekeeping: shareholder resolutions, management changes, Handelsregister filings, cap table updates
- Documents for banks and authorities related to payroll, guarantees, or HR subsidies
- Coordination with notaries and auditors where employment topics intersect with transactions or restructurings
The outcome: you get a single, digital‑first partner helping you run your German subsidiary with predictable compliance, clear documentation and minimal coordination overhead.
11. Practical Next Steps for Foreign Employers
If you are planning to hire directly without an EoR in Germany or to upgrade your current setup, we recommend a short, structured sequence:
- Baseline review (2–3 weeks)
- Review current EoR contracts or legacy templates
- Map headcount, roles, locations, compensation patterns
- Identify works‑council / collective agreement exposure
- Template and process design (3–4 weeks)
- Draft or adapt German employment contracts and key policy references
- Design HR workflows for onboarding, probation, terminations and works‑council involvement
- Align with payroll provider or in‑house payroll configuration
- Go‑live & training
- Implement new templates for all future hires
- Run compact training for HR / line managers on German employment basics
- Set up a Q&A channel / retainer for ongoing cases (warnings, terminations, reorganizations)
- Periodic review (annual or event‑driven)
- Update templates for legislative changes
- Review non‑compete, bonus and remote‑work practices as your German footprint evolves
Ready to professionalize your German employment setup?
Vectocon supports international companies across the full lifecycle of their German operations—from subsidiary setup and corporate secretarial to employment law, payroll and ongoing compliance.
If you are:
- Hiring your first employees in Germany,
- Transitioning away from an EoR, or
- Cleaning up a patchwork of legacy contracts,
we can help you design and implement a coherent, German‑compliant employment framework that your board, HR and employees can rely on.
For a concise assessment of your current contracts and risk profile, feel free to reach out and request a short, no‑obligation review of your German employment documentation.