We Set Up HR in Germany Ourselves. Is It Compliant? A 10-Point Self-Check

Written By Genevieve Retzlaff

HR Compliance Grow Better Together in Germany

Most foreign companies don't build HR in Germany from a blueprint. They hire a first employee, adapt the HQ contract template, sign up with a payroll provider and handle the rest as it comes. For a while, that works.

Then something tests the setup: a termination, a pension insurance audit, a works council election, an employee asking to see their personnel file. That's usually when the gaps show. In Germany they tend to be expensive, because many rules end in fines, back payments or void decisions rather than a friendly warning.

This self-check covers the ten areas where homemade HR setups most often fall short. It takes about 20 minutes. It doesn't replace legal advice, but it tells you where to look first.

The short answer: a homemade HR setup in Germany holds up only if ten areas are covered: written employment terms, working time records, minimum wage and pay structure, payroll and worker classification, leave, employee data protection, health and safety, equal treatment and whistleblowing, works council readiness, and terminations.

How to use this self-check

For each point, answer Yes (2 points), Partly (1) or No (0). Count "not sure" as No. In German HR, a rule you follow but can't document is very hard to prove when an auditor, a court or a works council asks.

1. Employment contracts and written terms

Check: Does every employee have their essential terms in writing, under German law, delivered on time?

Germany's Evidence Act (Nachweisgesetz) lists what employees must receive: pay and its components, working hours, overtime rules, probation, notice periods and more. Some items are due on the first working day, the rest within seven days or one month. Since January 2025, text form such as an email or PDF is generally enough, as long as the employee can store and print it and you ask them to confirm receipt. Missing or late terms can cost up to €2,000 per case.

Common homemade gap: an HQ template with at-will language, a US governing-law clause or no notice periods. Two traps hide in templates like these. A fixed-term clause must be signed in wet ink before the start date, or the contract is treated as permanent. And a post-employment non-compete without compensation of at least half the last pay is void.

Quick fix: compare each contract with the Evidence Act list and issue a compliant statement of terms where something is missing.

2. Working time and time recording

Check: Do you record start, end and total working hours for every employee, every day?

Since a 2022 ruling by the Federal Labour Court, employers must record all working time, including overtime. "Trust-based working time" (Vertrauensarbeitszeit) without records is not compliant. The daily limits still apply: 8 hours, up to 10 if it averages out, 11 hours' rest between working days, and Sundays off as a rule.

More is coming. A draft bill from June 2026 would make same-day electronic recording the standard, with an exemption for businesses under ten employees and transition periods for smaller employers. As of mid-October 2026, the federal cabinet had not adopted it.

Common homemade gap: salaried staff treated like US "exempt" employees with no records, and contracts saying all overtime is included in the salary. A vague clause like that is often invalid; it needs to state how many hours it covers.

Quick fix: introduce a simple recording tool now. If you have a works council, agree on it with them first.

3. Minimum wage and pay structure

Check: Does everyone earn at least the statutory minimum, and could you explain pay differences between comparable roles?

The minimum wage is €13.90 per hour in 2026 and rises to €14.60 on 1 January 2027. The mini-job ceiling is €603 a month in 2026. Check interns and mini-jobbers in particular, since many internships are covered too.

Pay structure matters as much as pay level. The EU Pay Transparency Directive deadline passed in June 2026 without a German law, but employees can already rely on the EU principle of equal pay for equal work, and courts read existing German law in that light. We explain what that means in our last article on the Pay Transparency Directive.

Common homemade gap: salaries negotiated case by case, with no written criteria, and HQ equity grants to German staff with no documented logic.

Quick fix: write down the criteria behind each salary band or level, even if it's one page.

4. Payroll, social security and worker classification

Check: Are your registrations complete, and is everyone you pay correctly classified as an employee or a freelancer?

Employing in Germany requires a company number (Betriebsnummer) from the Federal Employment Agency, registration of each employee with their health insurance fund, monthly wage tax filings, and membership in the statutory accident insurer for your sector (Berufsgenossenschaft). The German pension insurance audits every employer at least every four years.

Common homemade gap: long-term contractors who work like employees: fixed hours, a company email address, a place in the team, one client. If they're reclassified as falsely self-employed (Scheinselbstständigkeit), you owe social security contributions for up to four years back, and longer if the authorities find intent. The employer usually ends up paying most of the employee's share too.

Quick fix: list everyone who works for you in Germany, on payroll or not, and check each status. If people work for HQ in Germany without a German entity, that raises separate risks.

5. Vacation, sick pay and family leave

Check: Do your leave rules meet German minimums, and do you actively manage untaken vacation?

The statutory minimum is 20 vacation days on a five-day week, and most employers give 25 to 30. Employees on sick leave receive full pay from the employer for up to six weeks per illness. Parental leave can last up to three years per child, on top of maternity protection.

Common homemade gap: "unlimited PTO" with no tracking, or a "use it or lose it" rule without notice. Vacation only lapses at year end if the employer has asked the employee in good time to take it and warned that it will expire. Without that, days carry over and pile up, and you pay them out when someone leaves.

Quick fix: track leave per person and send a written reminder every year by early autumn.

6. Employee data protection

Check: Do employees know what data you process, where it goes and on what legal basis?

The GDPR applies to all employee and applicant data, with additional German rules on top. You need a privacy notice for employees and applicants, a legal basis for transfers to HQ systems outside the EU, retention and deletion rules, and a data protection officer once at least 20 people regularly process personal data.

Common homemade gap: a global HRIS, monitoring tool or background-check process rolled out from HQ without a German review, and personnel files that too many people can open.

Quick fix: map your HR data flows: which data, which system, which country, who has access.

7. Health and safety at work

Check: Do you have a documented risk assessment that includes psychological stress, and have you appointed safety support?

Office teams are not exempt. Every employer needs a written risk assessment (Gefährdungsbeurteilung) that covers mental strain as well as ergonomics, access to an occupational physician and a safety specialist from the first employee, trained first aiders, regular safety briefings, and eye examinations offered to screen workers.

Common homemade gap: assuming this only applies to factories and warehouses, until the accident insurer or the labour inspectorate asks for documents.

Quick fix: contract an external occupational safety service. Most deliver the physician, the specialist and the risk assessment as one package.

8. Equal treatment, notices and whistleblowing

Check: Can employees safely raise discrimination or misconduct, and do you meet your posting duties?

Under the General Equal Treatment Act (AGG), you must name a complaints office and make the act accessible to employees, for example on the intranet. The Working Time Act has to be accessible too, and the Maternity Protection Act if you regularly employ more than three women. Job ads need to be gender-neutral (m/f/d) and free of age signals such as "young, dynamic team": rejected applicants have two months to claim.

With 50 or more employees, you also need an internal whistleblowing channel. Not setting one up can cost up to €20,000. An HQ hotline can count, but only if it meets German requirements.

Common homemade gap: no named complaints office, job ad templates copied from HQ, and a global hotline nobody checked against German law.

Quick fix: name the complaints office in writing, review your ad template, and check the hotline.

9. Works council readiness

Check: Do you know what changes if your employees elect a works council, and are HQ rollouts planned around it?

Employees in any establishment with at least five permanent employees can elect a works council (Betriebsrat). The employer can't prevent it, and obstructing an election is a criminal offence. Once a works council exists, it has a say on working time, pay principles and any technical system that can monitor performance or behaviour. That covers most HR, collaboration and security software.

Common homemade gap: HQ launches a new HRIS, review process or monitoring tool worldwide, and the German works council was never asked. It can stop the rollout in Germany.

Quick fix: keep a list of HR tools and policies that would need works council agreement, even if you don't have one yet.

10. Terminations and offboarding

Check: Could you end an employment relationship tomorrow without a formal mistake?

A termination notice must be on paper with a wet-ink signature. Email, PDF and e-signatures are invalid. Statutory notice is four weeks to the 15th or the end of a month, longer with seniority, and two weeks during probation of up to six months. After six months, in businesses with more than ten employees, the Dismissal Protection Act requires a valid reason. If you have a works council, it must be heard before every dismissal, or the dismissal is void. Severely disabled employees need prior approval from the integration office.

Employees have three weeks to challenge a dismissal in court. That is why most cases end in a settlement, not because severance is owed by law.

Common homemade gap: a termination sent by email or e-signature from HQ, or signed abroad by someone without clear authority. The employee can reject a letter like that if no original power of attorney is attached.

Quick fix: build one termination checklist and have it reviewed before you need it.

Your score

  • 18–20: solid. Review once a year and whenever headcount crosses 10, 20 or 50.

  • 12–17: typical for a homemade setup. The gaps are fixable. First, fix every point where you scored 0. Next, review points 1 (contracts), 2 (working time) and 10 (terminations) if you scored less than 2 there, because mistakes in these areas cost the most.

  • Under 12: several exposures at once. Get an outside review before your next hire, termination or audit.

A high score on paper can still hide problems. Several points depend on how rules are applied day to day, not on whether a document exists. In eight years of HR work on the ground in Germany, the pattern I saw most often was a setup that was right on day one and drifted as the company grew, HQ policies changed and German law moved.

What to do next

Download the checklist. Get this self-check as a one-page PDF to share with HQ, your finance lead or your payroll provider.

Book an HR Audit

Want certainty instead of a score? Our HR Audit reviews your contracts, processes and policies against German law and your HQ standards. You get a prioritized list of gaps and a plan to close them, and we can help you close them. We work in super proficient English, with a German-native team.

 

FAQs

  • The core areas are written employment terms, working time recording, minimum wage, payroll and social security registration, statutory leave, employee data protection, health and safety, equal treatment, works council rights and formal termination rules. Some duties start at the first employee; others apply once you pass 10, 20 or 50 employees.

  • Yes. Since a 2022 Federal Labour Court ruling, employers must record the start, end and duration of all working time, including overtime. A June 2026 draft bill would make same-day electronic recording the standard, with exemptions for very small businesses, but it had not been adopted as of October 2026.

  • Mostly, yes. Since January 2025, essential terms can be provided in text form, such as an email or PDF, if the employee can store and print them and is asked to confirm receipt. Fixed-term clauses and non-competes still need wet-ink signatures, and terminations must always be on paper with a handwritten signature.

  • No. The employer doesn't set one up, but it can't stop one either. Employees in any establishment with at least five permanent employees can elect a works council, and obstructing an election is a criminal offence. Once elected, it has a say on working time, pay principles and monitoring software.

  • As a starting point, yes, but not unchanged. At-will clauses, foreign governing law, unlimited PTO without tracking and blanket overtime clauses often don't hold up under German law. Localize each policy so it keeps HQ's intent and meets German requirements.

  • Once a year, and whenever something changes: headcount passing 10, 20 or 50, a first termination, a new HR system from HQ, or a works council election. German employment law also changes often, with new minimum wage levels and working time rules in 2026 and 2027.

Genevieve Retzlaff, Founder of Grow Better Together in Germany

Genevieve Retzlaff, Founder of Grow Better Together in Germany

About the author

Genevieve Retzlaff is the founder of Grow Better Together in Germany, an organizational development consultant. She brings more than 15 years of HR business partnering experience, including eight years working on the ground in Germany. As an ICF PCC-certified executive and team coach, she has spent eight years and over 1,000 hours coaching senior leaders.

This article is general information, not legal advice. Last reviewed: 18 October 2026.
Reviewed by our expert, Markus Mitter.

Sources

Genevieve Retzlaff
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