Hiring Employees in Germany Without a Local Company? Here’s What You Need to Know About Payroll Compliance

Many international companies want to hire staff based in Germany – but do not yet operate a German legal entity. Whether testing the market or supporting remote team members, companies must comply with German labor, tax, and social security regulations from the first day of employment.

In this article, we explain how international companies can legally run payroll in Germany without having to immediately establish a German GmbH – and what risks to avoid.

 

1. Is It Possible to Employ Staff Without a German Entity?

Yes—but only under strict conditions. If your company does not yet operate a legal entity in Germany, you may still employ staff, provided that:

  • You register your foreign company as an employer with the German tax and social security authorities
  • You appoint a registered payroll provider to manage wage tax, contributions, and filings
  • You comply with German labor law regarding contracts, benefits, and protections

This setup is often used by international companies during an initial expansion phase, before full incorporation.

 

2. Required Employer Registrations

Before the first salary is paid, the foreign company must:

  • Obtain a German tax number from the local tax office (Finanzamt)
  • Register with all social security institutions (health, pension, unemployment, care)
  • Receive a company number (Betriebsnummer) from the Federal Employment Agency
  • Register with the accident insurance authority (Berufsgenossenschaft)
  • Assign a German representative for formal correspondence

A registered payroll provider can assist in handling these processes on your behalf.

 

3. Payroll Responsibilities for Foreign Employers

Even without a German company, you must meet all standard obligations as an employer:

  • Withholding income tax (Lohnsteuer) based on employee tax class
  • Calculating and paying social security contributions (employer and employee shares)
  • Submitting monthly filings via certified payroll software
  • Providing German-compliant payslips
  • Filing annual statements and employee certificates (Lohnsteuerbescheinigung)

All payroll reporting must be in German, and submissions must comply with local electronic systems.

 

4. Misclassification Risks: Contractor vs. Employee

Some foreign companies attempt to avoid payroll obligations by hiring individuals as independent contractors. However, if the working relationship meets the criteria of an employment relationship under German law, this may be classified as „Scheinselbstständigkeit“ (false self-employment).

Consequences include:

  • Retroactive tax and social contribution payments
  • Penalties and interest
  • Legal liability for both employer and individual

Using a compliant payroll structure from the beginning avoids these risks entirely.

 

5. Why Work with a Local Payroll Provider?

A German payroll provider can:

  • Set up all employer registrations
  • Handle wage tax and social security calculations
  • Submit monthly filings and issue payslips
  • Ensure compliance with German labor law
  • Advise on gross-to-net budgeting and total employment cost

This enables you to legally employ staff in Germany – without needing to set up a GmbH immediately.

 

Conclusion

Hiring in Germany without a local legal entity is possible—but only if handled properly. With the right registrations and a compliant payroll setup through a local provider, international companies can employ German-based staff legally and efficiently.

 

WW+KN, a Baker Tilly company, supports international businesses with payroll setup, registration, and full-service payroll processing for employees in Germany.

For more information, contact us at info@payrollgermany.de

 

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