Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Germany can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Germany, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Germany.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Germany is not the same as paying workers in your own country. Employees have to be paid using Germany’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
38-40 hours average per week, up to 48 hours in exceptional cases.
Workdays are typically 8 hours and should not exceed 10 hours.
Overtime payment is required when stated in employees’ individual contracts or collective labor agreements. The statutory maximum weekly working time is 48 hours.
The regular daily working time may be extended up to 10 hours, provided that on average 8 hours per working day are not exceeded within a reference period of 6 months or 24 weeks.
Salaries are paid monthly at the end of the month, typically around the 25th.
13th salaries are not required, however, are sometimes outlined in collective bargaining agreements.
PTO is calculated by the:
German holidays differ based on the state. However, there are 9 national holidays that all states follow.
The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:
Mothers are entitled to 6 weeks leave at full pay prior to their child’s birth, and 8 weeks at full pay after birth. In the case of premature or multiple births, 12 weeks of paid leave is permitted after birth.
During such maternity leave, the employer will continue to pay the employee’s salary, and the health insurance company shall fully reimburse the employer.
Paternity leave falls under parental leave.
Parental leave is 36 months and can be divided between the parents as they see fit. The eight weeks of maternity leave (after labor) are counted as part of this leave.
In the case of the mother, the parental leave starts after maternity leave stops. During parental leave, parents can choose to work part-time for up to 30 hours per week.
At least 12 months of parental leave must be taken within the first 3 years after labor – the rest 24 of these 36 months can be taken until the child reaches the age of 8.
Parental leave does not start automatically, it must be requested in writing or submitted to the employer at least seven weeks before the start of the parental leave.
No additional mandatory leave.
All employees are protected by the German Termination Protection Act after the first 6 months of employment. The employer should have a specific reason to dismiss an employee, and there are different types of reasons (related to the personal situation of the person to be dismissed, related to the behavior of the person to be dismissed, related to the employer’s business).
A dismissal notice must be in writing and signed by the employer’s authorized representative. Generally, terminating employment in Germany, without the employee’s consent is a complex process, hence many termination processes are made under mutual agreement.
The notice period in Germany should be at least 4 weeks and increases according to the length of service as follows:
Severance payment is not mandatory if a justified reason and proper notice are given for the termination. However, severance payment must be given for termination caused by operational changes.
When severance payment is given, it is a half month of the employee’s regular wage for every year the employee was in the company.
The probation period is up to 6 months and is subject to mutual agreement between both parties.