Setting Up HR in Germany as an International Company: A Practical Checklist

Why HR Setup in Germany Is Different

Setting up HR in Germany as an international company is not a straightforward export of a proven HR model. Germany's employment framework — the Kündigungsschutzgesetz, the Betriebsverfassungsgesetz, the Arbeitszeitgesetz, the Nachweisgesetz, and a set of data protection obligations that apply specifically in the employment context — creates a compliance environment that is materially more complex than most other markets international companies have operated in.

International companies consistently underestimate this complexity at the market entry stage. The result is an HR function that is technically operational but legally exposed — with employment contracts that do not meet NachwG requirements, working time practices that breach ArbZG, no framework for the works council that will eventually form, and dismissal procedures that would be void under KSchG.

This checklist is designed for international companies that are building HR capability in Germany for the first time, or that are systematically reviewing an existing German HR operation that has grown faster than its compliance infrastructure.

Step 1: Employment Contract Framework

The first and most fundamental HR compliance requirement in Germany is employment contracts that meet the Nachweisgesetz (NachwG) standard. Since the August 2022 amendment, the NachwG requires written documentation of the following terms within seven days of commencement of employment: the names and addresses of the contracting parties, the start date, the workplace or the fact that the employee is free to work at different locations, a description of the work to be performed, the agreed compensation including all additional components and the frequency of payment, the agreed working time, the duration of annual leave, the notice periods applicable to both parties, and any reference to applicable collective agreements or works agreements.

Using a contract template that has not been reviewed for NachwG compliance is a common mistake. Many international companies import employment contract templates from other jurisdictions, or use generic templates that predate the 2022 amendment. A Germany-compliant employment contract framework is the starting point for everything else.

Practical action: Have at least two contract templates prepared — one for standard employees, one for senior executives (where different termination and confidentiality arrangements apply) — and have them reviewed by an HR specialist with German employment law expertise.

Step 2: Working Time Framework

The Arbeitszeitgesetz (ArbZG) imposes specific obligations that international companies frequently overlook. Maximum working time is eight hours per day, extendable to ten hours if the average over a six-month period does not exceed eight hours. Sunday and public holiday working is prohibited except in listed circumstances. Minimum rest time between shifts is eleven hours.

Since the September 2022 BAG ruling, employers are required to systematically record employees' working hours. The obligation is not satisfied by a trust-based system where employees self-certify hours only when they exceed the norm. A system — whether paper-based, spreadsheet-based, or software-based — that records the start, end, and duration of each working day for each employee is required.

For international companies with cultures of flexible or extended working, this represents a significant operational adjustment. HR must build working time recording into its standard processes and communicate the requirement clearly to managers and employees from the start.

Practical action: Select a working time recording system before the first hire. Integrate it into onboarding. Ensure managers understand that approving overtime has specific legal implications and must be documented.

Step 3: Dismissal Protection Planning

The Kündigungsschutzgesetz (KSchG) applies to employees with more than six months of service in companies with more than ten employees. Once these thresholds are met, employment protection applies. Dismissals must be socially justified — on conduct grounds, on performance grounds, or on operational grounds. The procedural requirements for each type of dismissal are distinct and must be followed correctly.

For international companies, two aspects of German dismissal protection are most frequently misunderstood. First, the probationary period: during the first six months, dismissal protection does not apply and notice periods are shorter. However, dismissal during the probationary period still requires written form and cannot discriminate on protected characteristics. Second, operational dismissals (betriebsbedingte Kündigungen): these require genuine operational necessity and a documented selection process (Sozialauswahl) comparing the affected employee with comparable employees in the organization. Selecting an employee for redundancy without a documented Sozialauswahl is a frequent procedural error with significant legal exposure.

Practical action: Before making any dismissal decision in Germany, ensure the decision is reviewed by someone with specific German employment law expertise. Build a standard dismissal process — including documentation templates and a Sozialauswahl checklist — before it is needed.

Step 4: Works Council Readiness

Any company with five or more permanent employees in Germany can have a Betriebsrat formed at any time, at the initiative of employees. Companies with twenty or more employees face additional BetrVG obligations, particularly the §99 consultation requirement for hiring, reclassification, and transfer decisions. Companies that restructure in a way that affects the workforce materially face §111 BetrVG consultation obligations.

International companies often do not plan for works council formation until it happens. This leaves them without the understanding, the documentation, and the internal HR processes needed to manage a Betriebsrat relationship compliantly from the start. The first works council election is frequently triggered by a specific event — a restructuring announcement, a downturn in trust, or a period of rapid growth — and the period immediately following election sets the tone for the relationship.

Practical action: Build awareness of BetrVG obligations into the HR setup process from the beginning, even if no Betriebsrat currently exists. Ensure that anyone responsible for HR management decisions understands the §99 consultation requirement. Prepare standard §99 consultation documentation. Have a plan for responding constructively if employees initiate a works council election.

Step 5: Data Protection in the Employment Context

The BDSG and GDPR apply to employee personal data. The employment context creates specific data protection obligations that are distinct from customer or general data protection requirements. Key areas include: the legal basis for processing employee data (typically contractual necessity under Art. 6(1)(b) GDPR for standard employment processing, and legitimate interests under Art. 6(1)(f) for other processing), data retention obligations (employee data must be deleted when no longer needed for its purpose), and employee monitoring (any technical system that monitors employee behavior or performance requires specific justification and — if a Betriebsrat exists — may require a §87 BetrVG Betriebsvereinbarung).

Practical action: Review the data protection requirements of any HR system or process before implementation. If a works council exists or may form, build data protection review into the co-determination assessment for any new HR technology.

Step 6: Payroll and Social Security Registration

German payroll requires registration with the relevant social security agencies and the tax authority. Social security contributions cover health insurance, long-term care insurance, pension, and unemployment insurance. The employer pays approximately half of the total social security contributions.

The specific requirements depend on the legal structure of the German entity and the nature of the employment relationships. Contractors and freelancers are treated very differently from employees for social security purposes — misclassification as a contractor (Scheinselbstständigkeit) when the actual relationship is one of employment creates significant retrospective liability for unpaid contributions.

Practical action: Before the first hire, ensure payroll registration is in place and that the distinction between employee and contractor is clearly understood. Do not rely on a contractor arrangement for a relationship that has the characteristics of employment.

Step 7: HR Governance and Reporting Structure

International companies operating in Germany frequently face a governance challenge: the German entity's HR function reports both to local management and to an international HR function at headquarters. Where these reporting lines pull in different directions — for example, when HQ-driven restructuring decisions conflict with German works council obligations — the German-based HR function needs clear authority to manage the local legal requirements correctly.

Building the right governance structure from the start means defining: who is responsible for German employment law compliance, who has authority to make decisions in works council consultations, who approves German employment terms that deviate from HQ standard, and how German HR practices are reported to and understood by the international HR function.

Practical action: Agree the governance structure for German HR before significant decisions need to be made under time pressure. Ensure that the international HR function has access to Germany-specific HR expertise — either internally or through an external adviser — to understand the constraints that the German legal environment places on HQ-level HR decisions.

The Most Common Mistakes

International companies setting up HR in Germany consistently make a small number of specific mistakes. Non-compliant employment contracts — using templates that miss NachwG requirements. Inadequate working time recording — no systematic system, or a system that records only overtime. Dismissals without proper process — particularly during the probationary period, where the absence of formal protection leads some managers to assume no process is required. Works council surprise — no preparation for works council formation, no understanding of §99 obligations, no internal process for consultation. HR technology implemented without §87 BetrVG assessment — monitoring systems, time-tracking software, and performance management tools that require co-determination but were implemented without it.

Each of these mistakes is avoidable with the right HR expertise engaged at the right stage of the market entry or scale-up process. The cost of prevention is substantially lower than the cost of remediation.