Many self-employed people reach a point where they need support – and want to hire their own employees for the first time. On this page, we explain who is allowed to hire employees and what you have to consider in terms of tax.
Content
- Who is allowed to hire employees?
- How can I hire employees?
- How does insurance work for employees?
- What are my tax obligations as an employer?
- What information do I need from my employees?
- How to find the right employees?
- Can I hire someone as a small business owner?
- What is a subcontractor?
- As a self-employed person, can I employ other freelancers?
- What is false self-employment?
- Conclusion: More success with the right employees
Who is allowed to hire employees?
As a self-employed person in Germany, you are completely free to hire your own employees. It doesn’t matter whether you work as a sole proprietor or as a freelancer.
As a member of the freelance professions, however, you must ensure that hiring employees does not jeopardize your own position. In order to be classified as a freelancer, you must, among other things, carry out your activities “independently and in a managerial capacity”.
➡️ Registering as self-employed in Germany: Am I a Freelancer or tradesperson?
How can I hire employees?
If you want to hire an employee as a self-employed person, you must first apply for a company number, or Betriebsnummer in German. The company number is issued by the Federal Employment Agency, or Arbeitsamt, and allows you to officially register the employee with both the tax office and for social security benefits.
💡 Tip from Accountable: Once you have submitted the application for your company number, you usually have to wait about three business days until you receive the number. Therefore, you should submit the application in time to be able to register your employee with the other authorities on time.
You will need the following information to apply for your company number:
- Your name, the name of your company (if applicable), the company address and your contact information
- The business focus of your company
- The contact person for the employment office
- Information about the place of business
You can fill out the application in writing as well as by email, by fax, by phone or directly online.
➡️ Click here to apply for a company number
After you have applied for the company number, you still have to register your new employee with the social security authorities and notify the tax office. If your work involves direct contact with food, you must also register your new employee with the respective health authority, or Gesundheitsamt.
How does insurance work for employees?
In Germany, every employer is required to pay social insurance contributions for its employees. Social insurance includes the following five institutions:
- Health insurance
- Accident insurance
- Pension insurance
- Nursing care insurance
- Unemployment insurance
Among other things, you will need your company number as well as certain information from your employee to complete the registration. You should obtain this information as soon as possible so that you can officially register the employee in a timely manner.
The respective insurance company will tell you which contributions you must then pay for your employees.
➡️ Health insurance for self-employed & Kleinunternehmer
What are my tax obligations as an employer?
As an employer, you are obliged to pay taxes to the tax office for your employees’ wages. To do this, you must register the employee with your tax office. You can do this easily online via ELSTER.
➡️ Everything you need to know about Elster
This is where you can also register your employee with ELStAM, which basically is an electronic income tax sheet. All the necessary information about the employee, such as marital status, religious affiliation (for the possible payment of church tax) and tax class, is recorded there.
Good to know: You have to register with the tax office responsible for you – not at the tax office responsible for your employee. For correct tax processing, you must then withhold the appropriate amount of your employee’s wage tax and regularly pay it forward to the tax office.
What information do I need from my employees?
In order to successfully complete all these registrations, you will need some information and documentation, both about you as an employer and your company, and about your future employee.
Information from you:
- Your company number
- Your full name
- Your company address
- Your contact details
- The name of your company, if applicable
Information from your employee:
- Full name
- Date of birth
- Contact information
- Pension insurance number
- Health insurance company membership certificate
- Tax identification number
- Social security number
- Information about any wage tax deduction characteristics, such as children, tax class and religious affiliation
The best way to obtain this information and documents is via a personnel questionnaire, which you can combine with the employment contract.
➡️ Freelancing in Germany: Here’s what you need to know about tax numbers
How to find the right employees?
Before you can register with the authorities, you must of course first find the right candidate for the job. On the one hand, certain professional skills and qualifications play a role, but you should also consider to what extent you will need support and how much salary you can pay your new employee.
💡 Tip from Accountable: If you record all your business income and expenses with our free app, you will quickly have a good overview of what kind of salary you can afford for an employee.
You can choose whether you want to hire someone full time or only on a smaller scale. This means you can choose one of the following hiring approaches:
- Full-time
- Part-time
- Midijobber
- Minijobber
- Working students
- Interns
If you need support only for a short time or on a small scale, then mini-jobs are the best option, as they require very little social security contributions and often a flat rate for income tax. This not only saves costs, but also a lot of time.
Can I hire someone as a small business owner?
Yes, you can also hire an employee as a small business owner. The same rules apply to you as to sole proprietors or tradespeople. You must therefore apply for a company number and officially register the employee with the relevant authorities and pay wage tax.
➡️ Kleinunternehmer Guide: Everything you need to know about the small business regulation
What is a subcontractor?
An alternative to hiring your own employees is to hire so-called subcontractors. This is especially popular and often done in the construction industry.
A subcontractor is an independent company that is hired by another company as a contractor when the company’s own capacities or knowledge are not sufficient for a job. The subcontractor does not communicate directly with the customer, but rather handles his work directly with the client.
Can I employ other freelancers?
If you are self-employed and need project-related support, you can also hire another self-employed person for a short period of time. In this case, the other freelancer acts as a subcontractor who is contracted by you. They will invoice you and will not communicate directly with the client, but will rather handle the work together with you.
➡️ Everything you need to know about invoices
What is false self-employment?
If you hire another freelancer instead of an employee, then you have to make sure that there is no false self-employment in place. This is the case when someone officially works as a self-employed person, but would be classified as an employee according to objective criteria. This is disadvantageous for the freelancer, since they are not covered by the employer’s social insurance – and the actual employer saves paying wage tax and social security contributions.
Therefore, false self-employment is associated with penalties that affect both the client as well as the freelancer. That’s why you should always make sure to comply with the criteria of real self-employment.
➡️ Everything you need to know about false self-employment
Conclusion: More success with the right employees
Employees are not only a great way to reduce your own workload and bring additional expertise into the company, but can also provide that extra dose of motivation and a professional appearance to customers.
However, you need to register your new team members correctly for both social security benefits as well as with the tax office to avoid any penalties. But if you comply with all the requirements, nothing will stand in the way of joint success!
