Hiring Your First Employee In Germany [2025 Step by Step Guide]

Posted by:

Reena R

|

Last Updated:

July 7, 2025

|

Views:

7

Key Takeaways

You (as an employer) are responsible for paying your employees’ payroll tax and social security contributions.
You can create employment contracts using the online templates from the IHK website.
After hiring your employees, you must register them with the employer’s liability insurance association for statutory accident insurance.

This is how you do it

Identify the tasks you want your employee to do.
Find someone who fits the role.
Register and inform the tax authorities, the Federal Employment Agency, and the Employer’s Liability Insurance Association.
Collect your employee’s social security number, tax ID, and date of birth. You need this information to calculate payroll tax and make Social Security contributions correctly.

How do you hire your first employee in Germany?

Hiring the first employee in Germany involves several steps that you, as a business owner, must complete. Most of these steps must be done only once, simplifying hiring more employees in the future.

Here are the steps to hire your first employee in Germany.

Identify the tasks your employee must do. This is your employee’s job description.
Find the right person for the job. You can use various job portals to publish your job or find someone in your network.
Inform German authorities that you want to be an employer in Germany. You must do this only once. Here are the authorities you must inform.
1. The tax office (Finanzamt)
2. The Federal Employment Agency (Bundesagentur für Arbeit)
3. The Employer’s Liability Insurance Association (Berufsgenossenschaft)
Each authority will give you a unique number needed to become an employer in Germany.
1. Tax number (Steuernummer) from the tax office to file payroll tax for your employees.
2. Betriebsnummer from the Federal Employement Agency.
3. Unternehmensnummer from the Employer’s Liability Insurance Association.
You need your employee’s Social Security Number, Tax ID, and the name of their health insurance. You need this information to make social security contributions for your employee and to deduct the correct payroll tax.
You may be required to get occupational safety training. This step depends on the nature of your business, and it’s not mandatory for every business owner.

After completing these six steps, you are officially an employer in Germany. However, your responsibilities as an employer have just begun.

Things you must do as an employer in Germany

Here are the things you must do as an employer in Germany.

Create monthly payslips for your employees.
Pay your employees’ salaries on time.
Pay social security contributions on time.
Transfer the payroll tax to the tax authorities.
Create an annual “wage tax certificate (Lohnsteuerbescheinigung)” for your employees.
Stay updated about changes in the following areas as an employer.
- Labor law (Arbeitsrecht)
- Social security law (Sozialversicherungsrecht)
- Income tax law (Lohnsteuerrecht)
- Minimum wage (Mindestlohngesetz)
- Youth labour law (Jugendarbeitsschutz)

Before we dive into each step, it is essential to understand the difference between “payroll tax” and “income tax” to avoid confusion.

Payroll tax (Lohnsteuer) vs Income Tax (Einkommensteuer)

Payroll tax is the tax you deduct from your employees’ monthly salaries and pay to the tax office. Don’t confuse it with “Income tax (Einkommensteuer)”.

“Payroll tax” is the advance monthly tax payment. “Income tax” is calculated at the end of the year when filing the tax return.

Your employee does the “income tax calculation” to ensure they don’t overpay or underpay the tax.

Suppose your employee paid more payroll tax. In this case, they’ll get a tax refund when filing the income tax return.

Similarly, if your employee paid less payroll tax, they must pay the remaining tax to the tax office.

You can also understand it like this

Payroll tax is calculated and paid monthly.
Income tax is calculated and paid annually.

Some people also relate

Payroll tax to the tax that employees pay, and
Income tax to the tax that the self-employed pay.

However, this approach is only partially correct.

Let’s dive into the steps of hiring in Germany.

Step 1: Identify the tasks for your employee before hiring them

Before finding the ideal employee, understand what you are expecting from an employee. Ask yourself about the:

Tasks and responsibilities of the employee
Characteristics you expect in an employee (such as educational qualifications, previous job experience, etc.)
Salary and benefits for the position
Work hours (whether it is full-time or part-time)
Job duration (whether it is a permanent or temporary profession)
Job location (whether it is an on-site or a remote job)

Step 2: Find the right person to hire for the job

Once you have identified the role and responsibility for your future employee, it’s time to

Write a compelling job description.
Post your job advertisement on job boards, social media, or your network.
Arrange interviews to evaluate the candidate.
Conduct background checks.

And when you find the perfect candidate who checks all the boxes on your expectations list, proceed to hire them.

Steps 3 & 4: Inform the relevant authorities about becoming an employer in Germany

In Germany, before hiring your first employee, you must notify the following authorities:

The tax office (Finanzamt)
The employer’s liability insurance association (Berufsgenossenschaft)
The Federal Employment Agency (Bundesagentur für Arbeit)

NOTE: You must do these steps only once and not for every employee.

Inform the tax office that you want to hire an employee

As a business owner in Germany, you already pay:

Income tax (Einkommensteuer)
Sales tax (Umsatzsteuer)
Trade tax (Gewerbesteuer) [if you are not a freelancer, farmer, or forester]

However, when you hire an employee, you’ll also have to pay payroll tax (Lohnsteuer) for your employee.

In Germany, the employer pays the employee’s payroll tax to the tax office (Finanzamt). You’ll withhold a percentage of payroll tax from your employee’s monthly gross salary. Then, you’ll remit the amount to the tax office during payroll tax returns.

The frequency of the payroll tax returns is decided based on your previous year’s payroll tax liability.

Payroll tax return frequency	Previous year payroll tax liability
Monthly	More than 5000€
Quarterly	Between 1,080€ and 5000€
Annually	Less than 1,080€

Source: IHK (as of 2025)

In order to file the payroll tax returns, you must first activate the payroll tax signal (Lohnsteuersignal) with the tax office (Finanzamt).

You can email the tax office to activate the payroll tax signal. If you have any questions, call the tax office to learn how to activate the signal.

After informing the tax authorities, you’ll receive a tax number (Steuernummer) that you can use when filing payroll tax returns.

Inform the Employer’s Liability Insurance Association (Berufsgenossenschaft) that you want to hire in Germany

The employers’ liability insurance association (Berufsgenossenschaft (BG)) is the statutory accident insurance provider (gesetzliche Unfallversicherung). They are responsible for the prevention, rehabilitation, and compensation for:

Work-related accidents
Accidents on the way to work
Occupational diseases

Every business owner must register with the employer’s liability association (§192 Sozialgesetzbuch VII) within one week. The Berufsgenossenschaft considers the registration requirement fulfilled as soon as you register your business at the local trade office (Gewerbeanmeldung).

In short, once you have registered at the local trade office (Gewerbeanmeldung), you don’t have to register separately with the Berufsgenossenschaft. The Berufsgenossenschaft will get your company’s data directly from the regional trade office (Gewerbeamt).

Note: The transfer of your company data from the trade office (Gewerbeamt) to Berufsgenossenschaft takes some time. So, if you have employees when starting the company, you should inform the responsible Berufsgenossenschaft directly. You can do so by completing the online form.

This ensures that your employees are covered by statutory accident insurance.

Once the responsible Berufsgenossenschaft (BG) has your company data, they will issue a 15-digit number called a Unternehmensnummer. This number will be used for communication between your company and the Berufsgenossenschaft, such as the transfer of:

Employee payroll statements (UV-Lohnnachweise)
Annual accident insurance reports (UV-Jahresmeldungen) of each employee.

Every employee you hire will automatically become a member of the statutory accident insurance. Assuming your company is registered with the Berufsgenossenschaft.

NOTE: You, as a founder, are not covered by the statutory accident insurance by default. However, you can voluntarily insure yourself.

Which Berufsgenossenschaft is responsible for you?

The Employer’s Liability Insurance Association (Berufsgenossenschaft) is organized under the central organization, German Social Accident Insurance (DGUV). Depending on your industry, you will be assigned to one of the following associations:

Employers’ Liability Insurance Association	Professions
Administrative Employers’ Liability Insurance Association (Verwaltungs-Berufsgenossenschaft (VBG))	– Banks – Insurance companies – Administrations – Liberal professions – Companies in the ceramics and glass industries – Companies in the tram, subway, and railway sectors
Employers’ Liability Insurance Association for Food and Hospitality (Berufsgenossenschaft Nahrungsmittel und Gastgewerbe (BGN))	– Accommodation industry – Restaurant. – Food production, etc.
Employers’ Liability Insurance Association for trade and goods logistics (Berufsgenossenschaft Handel und Warenlogistik)	– Wholesale trade – Retail trade – Warehouse logistics
Employers’ Liability Insurance Association for the construction industry (Berufsgenossenschaft der Bauwirtschaft (BG BAU))	– Building construction – Civil engineering – Roofing work – Painting
Employers’ Liability Insurance Association for Wood and Metal (Berufsgenossenschaft Holz und Metall)	Companies in the wood and metal industry
Employers’ Liability Insurance Association for Energy, textiles, electrical, and media products (Berufsgenossenschaft Energie Textil Elektro Medienerzeugnisse (BG ETEM))	Companies in – Energy supply – Textile manufacturing – Electrical industry – Media production
Employers’ Liability Insurance Association for Health services and welfare (Berufsgenossenschaft für Gesundheitsdienst und Wohlfahrtspflege)	Professions in the health and welfare care

Inform the Federal Employment Agency that you want to hire employees in Germany

When hiring your first employee, you must register with the Federal Employment Agency (Bundesagentur für Arbeit).

After your registration, the Federal Employment will give you a Betriebsnummer. This number uniquely identifies your company and is required to:

Hire employees.
To register and deregister employees with the health insurance company.

NOTE: You only have to register your company with the Federal Employment Agency once. You can use the same Betriebsnummer to hire employees in the future.

You can register with the Federal Employment Agency online for free. It’s a one-page form and takes five minutes to complete.

NOTE: Since 1 January 2024, you must register with the “Employers’ Liability Insurance Association” before registering with the “Federal Employment Agency”.

Step 5: Collect your employee’s information

After hiring your employee, you must request the following information from them.

Tax identification number (Steuer-Identifikationsnummer)
Social security card or social security number (Sozialversicherungsnummer)
Information about health insurance (Krankenversicherung)
Residence permit (Aufenthaltserlaubnis) with a work permit (for foreign employees)

Collect the tax number from your employee

You need your employees’ Tax ID and date of birth to request access to their Electronic Wage Tax Deduction Data (ELStAM). ELStAM contains essential information about your employee, such as:

Tax class (Steuerklasse)
Child Allowances (Kinderfreibetrag)
Church affiliation (Kirchenzugehörigkeit)
Tax allowances (Steuerfreibeträge)
Contributions to health (Krankenversicherung) and nursing care insurance (Pflegeversicherung)

You need this information to calculate and deduct the correct amount of payroll tax (Lohnsteuer) from your employee’s salary. You can use payroll software to access this information.

As an employer, you are responsible for paying your employees’ social security contributions (Sozialversicherung). This includes

Health insurance (Krankenversicherung)
Nursing care insurance (Pflegeversicherung)
Pension insurance (Rentenversicherung)
Unemployment insurance (Arbeitslosenversicherung)

To pay the social security contributions, you must request your employee’s:

Social security number (Sozialversicherungsnummer)
Health insurance company’s name (Krankenkasse)

You (as an employer) pay your employees’ social security contributions to their chosen health insurance company. The health insurance provider, in turn, redistributes these funds to the appropriate insurance providers, i.e., nursing care insurance, pension insurance, and unemployment insurance.

In short, you only deal with your employees’ health insurance company for the social security contributions. This is why knowing your employee’s health insurer is vital.

Step 6: Finish occupational safety training

Registering for the first time as an employer in the Employers’ Liability Insurance Association (Berufsgenossenschaft), you might have to complete occupational safety training.

You’ll learn the following in the training:

The fundamentals of occupational safety
The factors you need to observe in the work environment
The safety obligations you must fulfill as an employer

Whether you must complete this training depends on your business area.

Usually, the Employer’s Liability Insurance Association contacts you to finish the training. If they don’t, you don’t have to proactively do it.

This is the last step in becoming an employer in Germany. Let’s check other essential things you must know as a first-time employer in Germany.

Who can you contact for questions regarding hiring in Germany?

If you have any doubts or questions about the registration process, several experts are available to assist you for FREE.

Contact your regional IHK to clarify any questions or concerns related to starting a business. You can contact them by phone or email.
Contact Berufsgenossenschaft (BG). They can assist you with questions related to hiring employees in Germany and starting a business.
Contact your local tax office for tax-related questions. For example, clarifying doubts about whether you qualify as a freelancer, VAT, etc.

If you speak German, calling the authorities is the fastest way to clarify your questions. Moreover, they don’t charge you for their advice.

Don’t hesitate to contact the authorities. You’ll be surprised how friendly and helpful the people working in these organizations are.

If it helps, we called the authorities multiple times while writing this guide.

Sign an employment contract before you hire an employee in Germany

Once you find a candidate, you need them to sign an employment contract (Arbeitsvertrag). This ensures that what you and the candidate agreed is in writing without ambiguities.

You can download the employment contract template from the IHK website. You can use the template as it is or modify it to fit your requirements.

Suppose you have specific requirements. In this case, consult a lawyer to create an employment contract.

An ideal employment contract must contain the following:

Name and address of the contracting parties
Start of the employment relationship
Duration of the employment contract (in the case of a fixed-term contract)
Type of employment (part-time or full-time)
Place of work
Short description of the activity
Compensation details
Working hours
Annual leave (sick leave, parental leave, public holidays, etc)
Notice periods
Reference to applicable collective agreements, works agreements, or service agreements

Discuss the above details with your candidate and add/edit the necessary information in the contract.

Update your company’s terms and conditions and insurance policies

As a business owner, you are liable for your products and services. Many founders take professional liability insurance (Berufshaftpflichtversicherung) to protect themselves from such liabilities.

Since your employees are part of your business, the damages they cause should also be covered.

Contact your professional liability insurance provider and confirm whether the damages caused by your employees are also covered in the policy. If not, extend your insurance coverage.

Similarly, if required, you must update your company’s privacy policy and terms and conditions.

GermanPedia