German labor laws: Key rules every business should know

Getting to grips with German employment processes

Any company hiring in Germany needs a working understanding of core German labor laws, even if much of the administration is outsourced to an EOR or local adviser. Germany’s framework is detailed and employee-focused, but once you grasp the main rules, it becomes far easier to plan compliant hiring, HR, and payroll processes.​

Employment contracts and documentation

German labor laws start with clear, written terms of employment. Employers must provide key conditions in writing—including role, place of work, pay, hours, holiday and notice periods—within a set period after the employee starts work. Current reforms are also modernising formal requirements, with more scope for concluding contracts and information duties in digital or text form.​

In practice, a compliant German contract should also reference any collective agreements or works council arrangements that apply. When you use Agility’s Employer of Record solution in Germany, the employment contracts provided are drafted to reflect German legal requirements and are updated when relevant employment regulations change.

Working time, breaks, and rest

The Working Time Act (Arbeitszeitgesetz, ArbZG) is a cornerstone of German labor laws, setting limits on daily working hours, mandatory breaks, and rest periods. Full-time work is commonly 36–40 hours per week, with strict caps on daily hours and a minimum rest period between shifts.​

Overtime is closely regulated, and many sectors follow collective agreements that add further rules on scheduling and compensation. Recent case law and guidance have also emphasized accurate working‑time recording, meaning employers need reliable systems for tracking hours rather than relying on informal arrangements.​

Vacation, sick leave, and family protections

German labor laws guarantee employees robust entitlements to paid leave and income protection. As a minimum, full-time employees receive 20days of paid annual vacation per year, based on a five-day work week, with many employers offering more. In the event of illness, employees are typically entitled to up to six weeks of continued salary from the employer, after which statutory insurance benefits may apply.​

Family-related rights are extensive. Pregnant employees benefit from maternity protection and mandatory maternity leave, and parents can access substantial parental leave and allowances. Ongoing EU-driven reforms are also shaping rules around carers’ leave, flexible work, and pay transparency, all of which sit alongside core German labor laws that emphasize equal treatment.​

Termination and dismissal protection

Termination is one of the most sensitive aspects of German labor laws, and an area where employers must act cautiously. The Protection Against Dismissal Act (Kündigungsschutzgesetz) requires a valid reason for many terminations and enforces formal procedures and notice periods, particularly once a business exceeds certain headcount thresholds. Employers must distinguish between ordinary dismissals with notice and extraordinary dismissals for serious cause, which are only permissible in narrowly defined situations.​

Notice periods usually follow statutory scales linked to length of service and often take effect on the 15th or last day of a month. Additional protections apply to specific groups, such as pregnant employees, employees on parental leave, severely disabled employees, and works council members, which can require authority approvals before termination. While severance is not always mandatory, settlement agreements are commonly used to manage risk and avoid lengthy litigation.​

Data protection and employee privacy

German labor laws operate alongside GDPR and strong national data‑protection standards that heavily influence HR and employment practices. Employers must process employee personal data lawfully and transparently, only for defined purposes, and with appropriate security and retention policies.This affects everything from personnel files and performance data to email monitoring, recruitment tools, and reference checks.​

Employees have the right to access their data, request corrections, and understand how their information is used. Partnering with an Employer of Record provider in Germany, like Agility, means these obligations are reflected in contracts, policies, and HR workflows from day one, reducing the risk of ad‑hoc or non-compliant practices.​

Anti-discrimination, equal treatment, and pay

German labor laws prohibit discrimination on grounds such as gender, race, religion, disability, age, and sexual identity across recruitment, employment, and termination. Employers must apply equal treatment principles, including in situations involving temporary agency or leased employees, who may be entitled to conditions comparable to those of directly employed staff.​

New and forthcoming pay‑transparency measures are also reshaping how employers advertise roles, structure pay bands, and respond to equal‑pay queries. For international businesses, this means aligning German pay practices with both local law and wider corporate policies, rather than treating Germany as an exception.​

Why many companies use an EOR to navigate German labor laws

Because German labor laws are comprehensive and change regularly, many overseas employers choose to work with an Employer of Record partner in Germany instead of building local legal and HR expertise from scratch. An EOR such as Agility drafts compliant contracts, runs German payroll, manages social contributions, and keeps policies aligned with the latest statutory and case‑law developments.​

This approach is often useful when you are hiring a small team or testing the German market, because it gives access to compliant employment arrangements without setting up your own German entity. For more detail, you can refer to Agility's Employer of Record in Germany page and Germany employment guide.