Do I Need a Local Entity to Hire in Germany?

In Germany, a "local entity" typically refers to a recognized employing presence, such as a subsidiary or branch office, that can handle payroll and employment obligations. This setup allows you (or a provider acting on your behalf) to be recognized as an employer and fulfill the country's payroll and employment requirements.

Without a local employing setup, it's generally not possible to do the following compliantly: register as an employer, manage mandatory social security processes, run local payroll with required withholdings, and issue compliant employment terms while adhering to employment protections. Germany's Federal Employment Agency outlines employer responsibilities for paying social security contributions, which is a core part of being an employer in Germany.

What is Required to Employ Someone in Germany?

• Local employing entity required to directly employ? Yes (unless using an EOR)
• Payroll registration required? Yes (employer registration + payroll compliance with the Finanzamt)
• Withholding/tax remittance required? Yes (payroll withholding obligations apply to employment)
• Social contributions required? Yes (employer must pay contributions to the Sozialversicherung)
• Local employment agreement required? Yes (written terms are standard in Germany)
• Mandatory benefits to budget? Yes (statutory leave, social security coverage, and other mandatory entitlements)
• Works council/collective agreements considerations? Often (many sectors are influenced by collective agreements)

Best Options If You're Hiring in Germany

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but it can be risky if the relationship resembles employment.

Contractors don't require you to set up a local entity like direct employment does, but Germany has strong worker protections, and misclassification can expose you to legal risks if the contractor effectively works like an employee.

The misclassification risk tends to be higher if:

• the work is exclusive (or close to it)
• you control hours, location, tools, or how the work is done
• the role is core to the business and the worker is embedded like an employee (managerial oversight, internal meetings, org chart)

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes weeks to months to set up an entity in Germany, depending on registrations required.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated €300–€700 per month ($350–$820)
• Payroll provider: Estimated €20–€60 per employee per month ($24–$70)
• Employer registrations and recurring compliance: Varies by complexity
• Corporate tax filings and annual reporting: Estimated €1,500–€4,000 per year ($1,760–$4,700)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 p/month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions, mandatory benefits administration)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Germany

Hiring in Germany can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Germany quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.