Personnel Management

Personnel management places special demands on you personally, as you are the superior. You are more in demand as a manager than as a specialist.

  • What qualifications must these employees have?
  • How many employees do I really need?
  • Which labour law requirements do I have to deal with?
  • How do I draw up an employment contract?
  • How do I set up long-term personnel planning?

Personnel planning

Personnel planning helps to determine how much personnel you require for which tasks, which qualifications you require and which employment relationships are to be covered by the personnel requirements.

To determine whether you need staff, answer the following questions:

  • Can I handle the existing (or expected) order volume alone? If so, in what period? Do I have enough time for acquisition and business development?
  • Can I meet the deadlines?
  • Do I work profitably or am I too expensive if I process my orders completely myself?

You may come to the conclusion that employees are actually needed. If you are still in the start-up phase, define for the beginning and the first year of the business activity which services you expect and in which form they are to be fulfilled:

  • How much personnel will you need?
  • How many positions therefore need to be filled (full-time/part-time)?
  • What are the vacancies?
  • What skills are required?
  • What training is necessary?
  • What professional, intellectual or character requirements are placed on the job?
  • Which physical requirements are necessary?
  • How critical is social adaptability?

Build on this consideration and ask yourself the same questions, but this time for the second year of your business. You have now created a personnel requirements plan that defines the job description and requirements profile of your future employees.

Employment

Between mini-job and permanent position there are many ways of working together. Deciding which alternative is the right one must be considered on a case-by-case basis. Key data include workload, personnel costs, and availability.

Your employees must not necessarily have a permanent full-time position. There are many different types of employment. Decide which one is right for you depending on how much work and money you have.

1. A minor employment relationship (Geringfügiges Beschäftigungsverhältnis, Mini-Job)

...sets a low earnings limit for your employee. In principle, these jobs are tax-free. Only employees who work in more than one of these jobs have to add up their earnings and then pay income tax. As an employer, you pay a fixed contribution to the employee's statutory health insurance. In addition, you pay into the pension fund and pay a flat-rate tax, which includes church tax and the solidarity surcharge. If your employee wants to collect a pension from their wages, they must also pay a fixed percentage out of their own pocket.

2. A low-wage job (Niedriglohn-Job, Midi Job)

...is when your employee earns an income above that of the minor employment relationship and below a fixed limit. A so-called sliding income zone has been established for these employment relationships, according to which compulsory insurance continues to apply in all branches of social insurance. However, the employer pays the full employer's social security contribution. Depending on the health insurance provider, the contribution is about 20 percent. The employee contribution increases linearly from approx. 4 percent to the full rate of approx. 20 percent according to the level of income.

3. Part-time employees

...are permanent and indefinite employees who do not follow the normal working hours of the company. For qualified work that requires little time, they naturally offer cost advantages over full-time employees. However, such part-time jobs have another huge advantage: They can grow with the revenue. Especially for many highly qualified and motivated mothers after maternity leave, this is a dream come true – if used well, it can therefore be an advantage for both sides.

Employees in enterprises with more than 15 employees (full-time or part-time, but without trainees) are entitled to part-time work. The prerequisite is that the employment relationship has been in place for more than six months. There are exceptions in the case of operating impairments or disproportionately high costs.

4. Fixed-term employment (temporary help)

Employees can be employed part-time or full-time, for example as holiday, illness or maternity leave cover. Project-related employment also follows this pattern. The relationship ends automatically without notice after expiry of the agreed period.

Employers may conclude fixed-term employment contracts if, for example, there is a temporary need in the enterprise (e.g. seasonal work). A fixed-term employment contract can be concluded for up to two years, unless a fixed-term or open-ended employment relationship already existed previously.

5. Agency or temporary employment relationships

...are brokered by temporary employment agencies and through the Personnel Service Agencies (PSA) of the state employment agency. The employees are permanently employed there. The temporary employment agency will issue an invoice for the “loaned” employees based on the work assignment. The advantage for you: No incidental wage costs, holiday pay or sick pay are incurred. Instead, you pay a contractually agreed hourly rate, the amount of which depends on the type of activity and the desired qualification.

6. Freelancers

...work not only for you, but also for other customers. They provide you with services on their own account, design the work according to their own professional ideas, and are not bound by labour law or instructions. You can transfer fixed assignments to freelancers. Projects are typically defined in contracts for work and services and then executed. The advantage for you is that no ancillary wage costs are incurred in this way. You do not have to bear the risk of illness or holidays. You only pay the fee for the service rendered.

Attention: Freelance work becomes problematic if the relationship starts to resemble an employment relationship, regardless of the agreement you have made with your “employee”. A so-called “bogus self-employment” or a hidden employment relationship exists if

  • a freelancer works only for your company for a longer period of time,
  • a permanent workstation is available for him,
  • the obligation to follow instructions exists, and
  • they must be present at fixed working hours.

If bogus self-employment is subsequently determined, for example by the health insurance funds, the full social benefits must be paid in arrears by you, both your employer's contribution and the employee's contribution! If you mainly want to work with freelancers, have a lawyer draw up a standard contract for you.

7. Teleworking

...refers to an employment relationship in which the employee usually works either at home or on the customer's premises. The employee is connected to the company with the help of modern information and communication technologies.

8. Full-time employees

...are permanent employees who are employed for an indefinite period and who follow the normal working hours of the company. As an employer, you conclude a written employment contract with them and have to pay ancillary wage costs in addition to the fixed salary of the employees. For a rough calculation, you should plan for at least 20–25 % “additional costs” in relation to the gross salary shown (“employee gross” vs “employer gross”).

Labour law

Employment relationships of any kind naturally entail rights and obligations for both sides. There are legal regulations ranging from the Works Constitution Act (Betriebsverfassungsgesetz) to notice periods and maternity protection. It is impossible to know all the laws, but an entrepreneur should keep some important guidelines in mind.

One of the most common legal issues in the world of work is the notice period.

Notice periods apply equally to employers and employees. The statutory basic notice period is four weeks to the 15th or the last day of the month. In the case of longer periods of employment, this period increases to up to seven months if the employer gives notice. During the probationary period, employment contracts can generally be terminated with a notice period of two weeks. With temporary employees, notice periods of any length can be agreed during the first three months of their employment relationship. Collective agreements often contain different notice periods.

It is impossible to present all legal regulations concerning labour law and occupational health and safety law here. Therefore, the following list includes only the most important ones.

Working Hours Act (Arbeitszeitgesetz)

Sets out the provisions on the regular working time:

bundesrecht.juris.de/arbzg/index.html

Workplace ordinance (Arbeitsstättenverordnung)

Sets out the provisions relating to the furnishing of workplaces. The Workplace Ordinance contains provisions on room size, lighting, temperature, sanitary rooms, break rooms, etc.:

bundesrecht.juris.de/arbst_ttv_2004/

Vocational Training Act (Berufsbildungsgesetz)

Sets out general regulations on vocational training:

https://www.gesetze-im-internet.de/bbig_2005/

Minimum Leave Act (Mindesturlaubsgesetz)

Sets out the statutory provisions on recreational leave:

Works Constitution Act (Betriebsverfassungsgesetz)

Sets out the provisions on the participation rights of employees in company decisions, where applicable through a works council:

www.bundesrecht.juris.de/betrvg/index.html

Home Working Act (Heimarbeitsgesetz)

Sets out the provisions governing the employment of home workers and the formalities:

www.bundesrecht.juris.de/hag/index.html

Youth Employment Protection Act (Jugendarbeitsschutzgesetz)

Sets out provisions and special conditions for the employment of young people, such as working time regulations, bans on certain occupations, holidays, etc.:

www.bundesrecht.juris.de/jarbschg/index.html

Dismissal Protection Act (Kündigungsschutzgesetz)

Sets out general provisions to protect against socially unjustified dismissals or notice periods:

www.bundesrecht.juris.de/kschg/index.html

Continued Remuneration Act (Entgeltfortzahlungsgesetz)

Regulates entitlement, amount, and duration of continued remuneration in the event of illness on working days and public holidays:

www.gesetze-im-internet.de/entgfg/index.html

Maternity Protection Act (Mutterschutzgesetz)

Sets out the statutory provisions on work restrictions, maternity protection periods and protection against dismissal for expectant mothers:

https://www.gesetze-im-internet.de/muschg_2018/

Act on Parental Allowance and Parental Leave (Gesetz zum Elterngeld und zur Elternzeit)

Sets out the statutory provision on parental leave and corresponding protection against dismissal:

https://www.gesetze-im-internet.de/beeg/

Disabled Persons Act (Schwerbehindertengesetz)

Sets out the statutory provision of the obligation to employ severely disabled persons, their special protection against dismissal, and additional leave:

https://www.gesetze-im-internet.de/sgb_9_2018/

Some of the laws listed provide thresholds for enterprise size above which laws become applicable or special regulations apply. Some of the most important thresholds:

Employees

Example of effect

from 1

Workplace Ordinance (lighting, rooms ...)

from 5

Works council, separate toilet facilities

from 11

Dismissal Protection Act, military service no reason for dismissal

from 20

Compulsory employment of severely disabled persons

These are just a few examples from a wealth of regulations. Inform yourself about them at an early stage as well as from time to time at health insurance funds, the employment office, associations or guilds, and accountants, particularly regarding changes in the statutory regulations or about the regulations important to you as your staff increases.

Personnel costs

Every employee costs money. Hiring employees only makes sense if the support is really necessary and you can delegate fields of work that you do not necessarily have to do yourself. Calculate what this will cost you, including ancillary wage costs (in particular social security contributions). This allows you to find out when you can afford employees and how much increase in revenue you need to be able to pay your employees. This is part of your cost planning.

Your personnel planning is also the basis for the use of funding products. When planning personnel costs, take into account that the costs exceed the declared salary (employee gross amount). The largest factor is the social insurance contributions to which you contribute the employer's contribution. The ancillary wage costs amount to at least 20 percent of the employee’s gross salary, because, in addition to the social contributions, you must also include costs for annual leave, vacation/Christmas bonus, sickness/maternity leave and ancillary costs such as capital-forming benefits.

As an entrepreneur, it is in your very own interest to keep personnel costs low. However, paying employees less than justified for their qualifications rarely works out. Because underpaid employees who are trained with a lot of effort often end up leaving the company very quickly. An important approach for you: Structure the tasks according to qualification level and then recruit the appropriate specialists.

For example: It can make sense to have the bookkeeping done by an internal or external bookkeeper (Buchhalter) (cost comparison) and to buy only the annual tax advice or the annual accounts from a more expensive accountant (Steuerberater). Or: A carpenter will be able to delegate many less qualified tasks, such as sanding, to semi-skilled workers. Though it is not easy, structuring work packages is an important and worthwhile task.

Personnel recruitment

Our society and the working population are getting older and older. That means: The proportion of young qualified employees is decreasing. In particular, competition for skilled workers will become tougher. You should therefore actively search for employees. Greater independence from the labour market is becoming increasingly important, i.e. by training the next generation of skilled workers for one's own company.

In many cases you do not have to search far for the first employee: your spouse. Acquaintances and relatives are also often the first ones who want to help the fledgling enterprise “get off the ground” and are therefore happy to join you.

Tip: Save yourself a lot of trouble and apply the same standards when you employ your acquaintances and relatives as you would for any other employee. Use the same criteria for the selection!

You might as well start your search with friends or colleagues, and then look further afield using online job sites or the state employment agency. You will realise very quickly how difficult it is to find qualified personnel. This is even more true for a young company than for a renowned one; many qualified specialists shy away from the risk of switching to a young company.

Even though the internet is now the most important medium for the job market, traditional job advertisements in daily newspapers or industry-specific trade journals can still lead to success. The local employment agency can also help in the search for suitable staff. Here is a summary of suitable ways of finding personnel:

Online job search

Online job sites have by now become more important than the classic newspaper advertisements. When you advertise online, make sure you select the right keywords for your job advertisement. This ensures that your advertisement will also be found by the right recipients. You should also choose specialised job portals for very specialised job profiles.

State Employment Agency (Agentur für Arbeit)

The classical “job centre” can also help in the search for new employees. Here, it is important to draw up a job description that is as precise as possible and that can be passed on to the staff of the local state employment agency in writing or by telephone. The state employment agency also offers companies an online search for potential candidates amongst the more than two million applicant profiles: https://jobboerse.arbeitsagentur.de/vamJB/startseite.html?kgr=ag#a2059311434.

Private employment agencies

Private employment agencies are becoming increasingly common. These can be very helpful in the search for personnel, but with a usual fee of 1.5–2 gross monthly salaries they are a comparatively expensive option. Attention: Make sure that the private employment agency is certified by the state employment agency.

Temporary employment agencies

Recruiting workers through a temporary employment agency can help compensate for peak workloads within the company over a limited period of time. It is not uncommon for temporary workers to be hired on a permanent basis later on. A particular form of temporary employment agency is the personnel service agency (PSA), which only recruits jobseekers who are registered as unemployed and proposed by the employment agencies. Especially interesting in this case: PSA takes over the payroll accounting for the hiring company.

Employees directly from the universities

It is not unusual for companies to look for their employees at job fairs directly at universities and technical colleges. Particularly candidates with high potential can be recruited there.

Personnel selection

It is not always possible to determine from certificates whether the required technical skills actually exist. Therefore, try to get as complete a picture as possible of your future employee by asking appropriate questions during the interview. During job interviews there are a few “unwritten rules”, including for the employer.

Prepare yourself well for the interview, make a list of all your questions. This list can look like this:

  • Why are you applying for a job at our company?
  • Have you been able to gain a comprehensive impression of what our company does?
  • Which of our projects/products/offers particularly appeals to you? Why?
  • We have read your documents, but would still like to receive a personal account of your career from you.
  • Where were the biggest challenges/difficulties and how did you master/overcome them?
  • Why do you want to leave your current job?
  • Do you have a second job?
  • What are you doing to continue your professional development?

Supplement this list with points that you consider important for your project. Take notes of the candidate's answers during the interview. Take your time for the interview and the selection of the new employees. Especially the employees of the very early days are an important success factor.

Employer obligations

Your obligations as an employer begin with the registration of your employees with the health insurance fund for pension, health, and unemployment insurance and the registration with the employers' liability insurance association (Berufsgenossenschaft).

If your new employee does not present you with his or her social insurance card by the third working day, you are obliged to submit a control notification to the health insurance fund. Companies in the following sectors must notify the health insurance fund of the new employment immediately on the day the employee starts working: Construction, cleaning, exhibition and fair construction, and the fair and amusement park business.

You retain the employee's share of the social insurance contributions from the salary, and add the remainder as the employer. The employer pays the premium of the employer's liability insurance association in full. You deduct the income tax of your employees from their wages or salary and transfer it to the tax office. You pay the employee and employer social security contributions together to the health insurance fund. The employee therefore receives the net amount.

As an employer, however, you are not only obliged to register your employees and pay contributions. You are also responsible for the correct calculation of these contributions. If something is wrong, you will be asked to pay first! For example, when giving someone a position classed as minor employment (geringfügige Beschäftigung), make sure that your employee has no other secondary jobs. Otherwise, the total wage is usually higher than the limits of social security exemption or flat-rate wage tax. This results in back payments of contributions and income tax, for which the employer is liable.

Employment contract

No matter who or how many employees you hire, always have these documents presented to you:

  • income tax card
  • proof of insurance book/social insurance certificate
  • proof of health insurance
  • leave certificate of the last employer
  • police clearance certificate
  • work permit (if your new employee does not come from a country of the European Union).

Once all documents are available and you and your new employee have agreed on the nature, scope, and remuneration, you conclude a written employment contract (including with acquaintances or your spouse).

Do not be persuaded to pay too much. Be guided by the usual market remuneration and pay for performance, not to keep the employee from leaving! There are binding collective agreements for many sectors in which remuneration and classifications are regulated. Ask trade associations or trade unions about the collective agreement for your sector.

Arrange a probation period in order to be able to terminate the employment relationship at short notice if you and your new employee do not fit together well. During the probationary period you should set yourself dates for interim meetings, in which both sides will provide evaluations, questions, and suggestions for improvement for the induction, in order to have a well-founded verdict at the end of the probationary period.

Sample text: Personnel management
We do not plan on employing any staff in the first year for laundry service, home sitting, shopping, and messenger services. We will employ someone on a mini-job basis for household maintenance. This enables us to respond flexibly to fluctuations in capacity utilisation. In the second and/or third year, depending on the workload, a permanent position is also planned. In order to motivate the employees, suitable remuneration is provided right from the start. The acquisition of new customers by our employees is rewarded with a bonus. A friend of ours who is a lawyer will help us with drawing up an employment contract and with regard to all other labour law issues.