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Hiring structure

Employer of Record or your own GmbH?

How US companies should put their first people on the ground in Germany — the real cost of each route, the headcount where it flips, and the compliance traps that turn a cheap hire into a four-year liability.

Last updated: 2 September 2026

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Short answer

Which one should you use?

Use an Employer of Record for your first one or two hires in Germany, and found a GmbH once you pass roughly three to five employees or once a buyer, bank or landlord requires a German contracting party. The EOR buys speed and optionality; the GmbH buys control and per-head economics. Both are far cheaper than getting contractor classification wrong.

Do not hire a German-based person as an independent contractor to avoid the choice. That is the one route with an open-ended downside.

In this guide

The Employer of Record hub.

This page is the overview. Two deep dives cover the questions that decide the budget and the timing.

Cost

What an Employer of Record really costs in Germany

Provider fees, the 20–21% employer contributions, deposits, sick pay and the line items that only appear on invoice three — with a fully loaded EUR 80,000 example.

Read the deep dive →

Timing

EOR vs local entity: when to switch

The five switch triggers, the AÜG 18-month limit, permanent-establishment risk and a twelve-week plan for moving people into your own GmbH payroll.

Read the deep dive →

The two routes

What each route actually gives you.

Employer of Record

Live in 1–3 weeks

The fastest legal way to put someone on the ground. A licensed German provider employs the person, you direct the work. Right when you are hiring your first country lead or a single salesperson to test the market, and you do not yet want fixed entity cost.

Strengths

  • Live in weeks, not months
  • No share capital, no notary, no Handelsregister
  • Provider carries payroll and labour-law compliance
  • Exit is a contract termination, not a liquidation

Trade-offs

  • EUR 400–900 per person per month on top of salary
  • AÜG assignments are time-limited — not a permanent structure
  • No German contracting party for enterprise or public buyers
  • Less control over contract terms, equity and benefits

Your own GmbH

Live in 6–12 weeks

The structure you end up with if Germany works. Direct employment, your own contracts and benefits, a German signatory and a credible counterparty for banks, landlords and procurement teams.

Strengths

  • Per-head cost stops scaling once fixed costs are covered
  • Full control over contracts, equity, benefits and culture
  • Required for a Geschäftsführer and for many enterprise deals
  • Signals permanence to German candidates and customers

Trade-offs

  • EUR 12,500 paid-in capital plus EUR 1,500–3,500 in fees
  • EUR 5,000–12,000 per year in accounting and filings, regardless of headcount
  • Six to twelve weeks before the first compliant payroll
  • Formal liquidation process if you wind down

Break-even

Where the cost curves cross.

Annual overhead only — excluding gross salaries and the roughly 20 to 21 percent employer social contributions, which you pay on either route. Ranges reflect typical provider pricing and Steuerberater fees; your numbers will vary with salary level and city.

HeadcountEOR overhead / yearGmbH overhead / yearCheaper route
1 employee~EUR 6,000–11,000~EUR 17,000–24,000EOR
2 employees~EUR 12,000–22,000~EUR 19,000–27,000EOR
3 employees~EUR 18,000–32,000~EUR 21,000–30,000Roughly even
5 employees~EUR 30,000–54,000~EUR 25,000–36,000GmbH
10 employees~EUR 60,000–108,000~EUR 35,000–50,000GmbH

Risk

Four things that go wrong.

Contractor misclassification

Scheinselbständigkeit is assessed on how work is actually performed — fixed hours, your tools, your org chart, one dominant client. A finding triggers up to four years of retroactive social contributions plus interest, and personal exposure for the responsible manager.

Permanent establishment by accident

Staff who habitually negotiate or conclude contracts in Germany can create a taxable permanent establishment for the US parent even without an entity. An EOR reduces employment risk but does not automatically remove PE risk — the activity does.

AÜG licence and time limits

Providers must hold an Arbeitnehmerüberlassung licence, and assignments to the same client are generally capped at 18 months. Treat an EOR as a bridge with a planned end date, and verify the licence before onboarding.

Termination is not at will

Beyond the six-month probation period, and above ten employees, the Kündigungsschutzgesetz makes dismissal a documented process with notice periods scaling by tenure. Plan hiring in Germany as a slower, more deliberate commitment than in the US.

FAQ

Questions US companies ask before their first German hire.

What is an Employer of Record in Germany?

An Employer of Record (EOR) is a German company that formally employs your worker on your behalf. It holds the employment contract, runs payroll, pays social contributions and handles German labour-law compliance, while the person works day to day for you. You pay the EOR a fee on top of the employment cost instead of founding your own entity.

Is an Employer of Record legal in Germany?

Yes, when it is structured correctly. Germany regulates the temporary supply of workers under the Arbeitnehmerüberlassungsgesetz (AÜG), and providers must hold an AÜG licence. Because AÜG assignments are time-limited (generally 18 months with the same client), an EOR is a bridge to your own entity, not a permanent structure. Always confirm your provider's licence before signing.

How much does an Employer of Record cost in Germany?

Typically EUR 400 to 900 per employee per month, or 8 to 15 percent of gross salary, on top of the gross salary and roughly 20 to 21 percent employer social contributions. Expect setup fees and, in some contracts, a deposit equal to one or two months of payroll.

At what headcount does a GmbH become cheaper than an EOR?

Usually between three and five employees. A GmbH carries roughly EUR 12,500 paid-in capital plus EUR 5,000 to 12,000 per year in accounting, payroll and filing costs regardless of headcount, while EOR fees scale linearly per person. Below three people the EOR is normally cheaper; above five it rarely is.

Can I just hire someone in Germany as a contractor?

It is the single most common and most expensive mistake. German authorities apply Scheinselbständigkeit (false self-employment) tests to how the work is actually performed, not to the contract wording. A finding means back-payment of social contributions for up to four years, plus interest and potential criminal exposure for the responsible manager.

What are employer costs on top of a German salary?

Roughly 20 to 21 percent of gross salary in statutory employer contributions to health, pension, unemployment, long-term care and accident insurance, plus statutory sick pay obligations and a minimum of 20 paid vacation days (24 on a six-day week; 28 to 30 is the market norm).

Can an EOR employee be a managing director or sign contracts?

No. A Geschäftsführer role requires your own entity, and an EOR-employed person should not be presented as an officer of a German company that does not exist. Where a customer, bank or public buyer needs a German signatory, you need a GmbH.

How fast can each option get someone working?

An EOR can typically onboard in one to three weeks once the candidate is chosen. A GmbH route takes six to twelve weeks for formation plus payroll registration with the tax office and health insurers before the first legally compliant salary run.

Hiring in Germany without a local operator?

Celik Advisory sources and places German commercial talent and advises on the structure around it — so the first hire is the right role, on the right contract, in the right city.

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