German law sets no minimum size for an HR department, but HR obligations start with the first employee. The need for in-house HR expertise becomes tangible between 20 and 50 employees, because works council consent to hiring, the disability employment quota and whistleblower protection all apply there. A full-time HR role only pays for itself at around 70 to 80 employees; many companies bridge the time before that with an experienced part-time HR lead.
At a glance
- Written terms of employment, payroll tax filings, the minimum wage and working time recording apply from the first hire, regardless of company size.
- The big jumps come at more than 10, more than 20, 50, more than 100 and more than 200 employees.
- German companies average one HR employee for every 76 staff; smaller companies need proportionally more.
- The first HR hire should build structure before taking over administration. Otherwise it administers the gaps nobody closed.
- The EU Pay Transparency Directive pulls reporting duties down to 100 employees and applies to starting pay from the very first job ad.
Nobody asks this question while things run smoothly. It comes up when something goes wrong: an unfair dismissal claim where the lawyer asks about the social selection, a works council that suddenly forms, a notice about a compensatory levy nobody knew existed. Then the question is: at what headcount should we have had an HR department?
The honest answer is uncomfortable. German law has no minimum size for an HR department, but it has a long list of thresholds at which new obligations begin. And it has obligations that apply from the first employee. If you are waiting for a magic number at which HR work starts, you have already missed the start.
This article works through the question in three steps. First the obligations that apply regardless of size. Then the thresholds at which the workload jumps. Then the HR-to-employee ratios that show when an in-house HR role pays for itself, and what bridges the time before that. It describes the legal framework in general terms and is not legal advice: for your specific case, check the assessment with your employment lawyer.
Obligations from the first employee
A number of employer obligations in Germany have no size threshold. They apply as soon as the first person is hired, which is why HR work starts with the first employment contract and not with a department. Whoever covers these obligations properly has laid the foundation of an HR function, even if nobody in the company has an HR title.
It starts with the contract itself. The Evidence Act (Nachweisgesetz) requires the employer to put the essential terms of employment in writing, sign them and hand them over. Text form is permitted under conditions: the document must be accessible to the employee, storable and printable, and the employer must request a confirmation of receipt. Many small companies have their first gap right here, because contracts go out by email and are never countersigned.
Payroll runs in parallel. The payroll tax return (Lohnsteuer-Anmeldung) must reach the tax office no later than the tenth day after the end of the filing period, and that period is generally the calendar month. In small companies the tax adviser usually handles it. The employer is still responsible for correct master data. Since 1 January 2026 the statutory minimum wage has been 13.90 euros per hour, and it is owed for every hour worked, including overtime that disappears into flat-rate pay.
Then there is working time. In 2022 the Federal Labour Court ruled that employers are obliged under the Occupational Safety and Health Act to record the start and end of their employees' daily working time. The decision names no size threshold. Companies that practise trust-based working hours still need a system that records the hours.
Finally, the obligations small companies think of least. The Occupational Safety Act (ASiG) requires employers to appoint company doctors and occupational safety specialists. Occupational integration management (betriebliches Eingliederungsmanagement, BEM) must be offered as soon as someone has been unable to work for more than six weeks within one year, continuously or in total, again with no minimum size. And the EU Pay Transparency Directive gives applicants the right to learn the starting pay or its range in advance, and prohibits asking about their pay history.
These obligations apply with no size threshold
- Written statement of essential termsIn writing or in text form with confirmation of receipt, under the Evidence Act.
- Payroll tax return and paymentNo later than the tenth day after the end of the filing period, usually monthly.
- Minimum wage for every hour worked13.90 euros since 1 January 2026.
- Recording daily working timeStart and end, following the Federal Labour Court decision of 2022.
- Company doctor and occupational safety specialistAppointment under the Occupational Safety Act; the scope depends on sector and size.
- Occupational integration management (BEM)To be offered after more than six weeks of incapacity for work within one year.
- Disclose starting pay on requestUnder Article 5 of the EU Pay Transparency Directive, no size threshold.
The thresholds at which HR work jumps
German employment law grows with the workforce in steps. At certain headcounts, new obligations arrive that require new processes, and these steps are the most reliable guide to when HR expertise must be in-house. The most important ones sit at 5, more than 10, more than 20, 50, more than 100 and more than 200 employees.
From five permanent employees entitled to vote, three of whom are eligible for election, a works council (Betriebsrat) can be elected. With more than ten employees, the Protection Against Dismissal Act (Kündigungsschutzgesetz) applies to everyone whose employment began after 2003. Part-time staff count proportionally: up to 20 hours a week as 0.5, up to 30 hours as 0.75. With more than 15 employees, staff who have been with the company for more than six months can claim a right to part-time work, with three months' notice.
The threshold of 20 is the one where the most changes. In companies with more than 20 employees entitled to vote, the employer must inform an existing works council before every hire, grading, regrading and transfer, and obtain its consent. Planned operational changes must be communicated and discussed in good time. From an annual average of 20 jobs, the duty to employ severely disabled people applies. And in establishments with more than 20 employees, a mass dismissal must be notified to the Federal Employment Agency once there are more than five dismissals within 30 calendar days.
Then come the thresholds that presuppose a formal organisation. With more than 45 employees, staff are entitled to temporary part-time work for one to five years. From usually 50 employees, an internal reporting channel under the Whistleblower Protection Act (Hinweisgeberschutzgesetz) must be set up and operated. With more than 100 permanent employees, an economic committee (Wirtschaftsausschuss) must be formed to discuss economic matters with management. With more than 200 employees in an establishment, staff have an individual right to information on equal pay.
None of these obligations on its own is a reason to set up a department. Together, they change the nature of the work. Up to the threshold of 20, HR work can be organised as administration. After that it becomes a procedure with stakeholders, deadlines and documentation, and it needs someone who knows the procedure. How that responsibility can be split between an interim lead and a part-time lead is shown in the comparison of interim, fractional or a permanent hire.
Selected thresholds by headcount. Depending on the law, the count applies to the establishment or the company, and sometimes only to employees entitled to vote or permanently employed.
The works council grows with size
Whether a works council exists in Germany depends heavily on the size of the establishment. According to the IAB Establishment Panel 2025, 2.3 percent of establishments with 5 to 9 employees have a works or staff council, 30.3 percent of those with 51 to 100 employees and 73.7 percent of those with 201 or more. For HR planning this means: the likelihood of working with a council rises in exactly the size range where many companies still have no HR lead.
Measured by employees, the picture differs, because large establishments employ many people. In the private sector, in establishments with five or more employees, around 37 percent of employees are represented by a works council, around 38 percent in western Germany and around 31 percent in eastern Germany. Most people therefore work without one, but in mid-sized establishments the council is no longer an exception.
The size of the body grows too. A works council consists of one person in establishments with 5 to 20 employees entitled to vote, three members at 21 to 50, five at 51 to 100 and seven at 101 to 200. Each additional member means more meetings, consultations and votes, and each of them needs someone on the employer side who is prepared.
Its formation is rarely the real problem. It gets difficult when the council meets a management team that has made every people decision informally until then. Suddenly the documentation is missing that a consent procedure under Section 99 BetrVG would have to build on: job descriptions, pay grading, selection criteria. Whoever creates these foundations before the first consultation negotiates far more calmly than someone who has to supply them under deadline pressure.
Share of establishments with a works or staff council by size, 2025. Source: IAB Establishment Panel, extrapolated values.
The HR-to-employee ratio
The metric for estimating HR demand is the HR-to-employee ratio. In Germany, according to the HR study by Kienbaum and SAP, it has held steady between 1:70 and 1:80 in recent years, at 1:76 in 2023. On average, one full-time HR employee covers 76 staff.
US figures sit in the same range. The 2022 Human Capital Benchmark Report of the Society for Human Resource Management shows an average of 1.7 HR staff per 100 employees and names 1.5 to 4.5 as the usual range. Older Bloomberg BNA data from 2018 found a median of 1.5 per 100.
For small companies, the more important finding is the second half of these studies. Organisations with fewer than 250 employees tend to have a higher ratio, meaning more HR capacity per head, and Kienbaum explains this by the fact that HR staff in smaller companies have to be generalists, while larger organisations specialise and digitise more. According to SHRM, ratios at the smallest employers have risen 4.7 percent since 2018.
Using the German average gives a simple rule of thumb: a full-time HR role pays for itself arithmetically from around 70 to 80 employees. Below that, the need is real but smaller than one full-time role. This gap is why many companies between 20 and 80 employees either have no HR expertise in-house or have someone who does HR alongside their actual job.
The ratio has limits worth knowing. It says nothing about the quality of the work and nothing about the profile of the person. An HR administrator for 70 employees and an HR lead for 70 employees produce the same ratio but solve completely different problems. SHRM also recommends leaving payroll and other specialised roles out of the count. If your payroll sits with your tax adviser, the calculation is more likely too low than too high.
Four stages from tax adviser to HR department
Most companies go through the same stages when building their HR function, and the transitions fall quite precisely on the legal thresholds. The size distribution is worth a look: according to the Federal Statistical Office, 82.9 percent of companies in Germany had fewer than ten people working for them in 2024, 14.0 percent between 10 and 49 and 2.5 percent between 50 and 249. Together, small and medium-sized enterprises make up 99.3 percent of all companies and 53.7 percent of the people working in them.
In the first stage, management handles HR itself and payroll sits with the tax adviser. That works as long as contracts come from a good template, working time is recorded and nobody falls seriously ill. It becomes critical with the first dismissal, because with more than ten employees dismissal protection applies and a procedural error costs money.
In the second stage, an office manager or assistant takes over part of the HR administration. They maintain files, send out contracts and coordinate with the tax adviser. What this stage lacks is leadership: nobody develops pay logic, grading or selection procedures, and nobody knows the co-determination rights that apply from more than 20 employees.
In the third stage, that leadership arrives, often part-time at first. An experienced HR lead on one or two fixed days a week builds the structures that carry the administration from stage two: processes, templates, policies, the relationship with the works council. This model is called fractional HR and fits exactly the range where the need is real but smaller than a full leadership role.
In the fourth stage, the company builds its own HR department with a full-time HR lead and a team. According to the ratio, that is arithmetically viable from about 70 to 80 employees, in growing companies often earlier, because the number of hires drives the workload more than the headcount. Whoever takes this step should not start with an administrator; more on that in the next section.
The typical order when building the HR function. The highlighted stage is the one most often skipped.
The first HR hire: administration or leadership?
The most common mistake when building an HR function is a first hire who administers before anyone has designed anything. It is understandable, because the pain sits in administration: contracts, certificates, absences, questions from payroll. An administrator relieves that pain quickly and costs less than a lead.
The problem shows a year later. By then the administrator is managing the gaps nobody closed: contracts without consistent logic, salaries without traceable grading, hires without documented selection criteria. When a works council, an equal pay information request or an unfair dismissal claim arrives, the foundation a lead would have laid is exactly what is missing.
The better order is therefore the reverse. First an experienced person builds the structure: contract templates, pay bands, a hiring process with works council involvement, a working time policy, the procedure for occupational integration management and dismissals. Then an administrator runs day-to-day operations within that structure. The lead does not need to be a full-time employee. What it costs is shown under the cost of fractional HR, and compared with a year of rework the calculation is usually clear.
If the administration itself needs rebuilding because systems and processes no longer hold, the bottleneck is different. Then the first job is processes, employee master data and payroll oversight, and the right role for that is interim HR operations rather than a strategic HR lead.
An administrator takes over contracts, absences and payroll questions. The pain goes away quickly, the gaps stay: no pay logic, no selection criteria, no preparation for co-determination rights.
An experienced HR lead, often part-time, builds templates, pay bands and processes. Then an administrator runs day-to-day operations in a structure that holds.
The order decides whether the second hire takes work off your plate or inherits rework.
Signs your HR function is arriving too late
A missing HR function shows up in individual symptoms that each look harmless on their own. Together they show that the company has crossed a threshold without updating its processes. The following findings come up again and again in small and mid-sized companies.
One finding costs money immediately and is still often overlooked. Employers with 20 or more jobs who do not meet the quota for severely disabled employees pay a compensatory levy (Ausgleichsabgabe) for every unfilled mandatory position. Depending on the quota reached, it is 140, 245 or 360 euros, and 720 euros at a quota of zero; employers with fewer than 40 jobs pay lower rates of 140 or 210 euros. Paying the levy explicitly does not remove the duty to employ.
Other findings cost later, but then significantly. A hire without the consent of an existing works council, a dismissal without social selection, a missing whistleblowing channel from 50 employees: none of these errors shows in daily business, each of them does in a dispute. And in a dispute it is too late for clean documentation.
If three of these symptoms apply, you are more likely missing a person who builds structure than another administrator. That is where an interim or part-time HR lead makes the biggest difference.
Typical symptoms of a missing HR function
- Employment contracts without confirmation of receiptSent by email, never countersigned, written terms duty open.
- No working time recordingTrust-based hours without a system, although the recording duty applies.
- Salaries without traceable logicEvery hire negotiated from scratch, a problem at the latest when someone requests pay information.
- Compensatory levy without a planThe quota is not met, the levy is paid every year, nobody steers it.
- Occupational integration management never offeredLong illnesses run without the required procedure.
- No internal reporting channel from 50 employeesRequired under the Whistleblower Protection Act, often simply forgotten.
Pay transparency pulls the threshold down
The EU Pay Transparency Directive moves part of the HR workload into smaller companies than German law has covered so far. Employers with 250 or more employees must report on the gender pay gap by 7 June 2027 and every year after that. Employers with 150 to 249 employees also report for the first time by 7 June 2027, then every three years. Employers with 100 to 149 employees follow by 7 June 2031, also every three years.
For comparison, the existing German Pay Transparency Act (Entgelttransparenzgesetz): the individual right to information applies in establishments with more than 200 employees, and a report on equality and equal pay is only required of employers with more than 500 employees who must prepare a management report. Member states had to transpose the directive by 7 June 2026. How the German implementing law handles the details should be checked against the current state with your employment lawyer.
For building the HR function, the direction matters more than the date. A pay gap report requires pay groups, documented grading and clean master data. Nobody builds that in the three months before the deadline. If you have 80 employees today and are growing, set up your pay structure now so that it can be analysed later.
And one part of the directive applies with no threshold. Applicants have the right to learn the starting pay or its range from the prospective employer, and the employer may not ask about their pay history. That affects a start-up's first job ad just as much as a corporation's, and it requires a salary range someone can justify.
Deadlines under Articles 5, 9 and 34 of Directive (EU) 2023/970. National implementation may regulate details differently.
How to answer the question for your company
The question of the right size cannot be answered with a number, but it can be answered with a five-step check. It takes an afternoon and gives you a solid answer on whether you need an HR lead, how much of one, and from when.
The first step is the count, and it is more complicated than it looks. Depending on the law, what counts is the establishment or the company, all employees, only permanent ones or only those entitled to vote, and for dismissal protection part-time staff count proportionally. If you have 19 people and plan three hires, you will be above the threshold of 20 after the summer.
The second step is checking the obligations that apply from the first employee. Are written terms in place, is working time recorded, is a company doctor appointed, is there a procedure for occupational integration management? Every gap here is a finding, regardless of company size.
The third step looks ahead. Which threshold will you cross in the next twelve months, and which processes do you need before that? Then capacity: use the ratio to check whether the need carries a full-time role, and check whether you are missing administration or leadership. Finally the form: an interim lead fits when a transformation with an end date is ahead, a part-time lead when the need is permanent but smaller than a full-time role, a permanent hire when the ratio carries it and the structures are in place. How an interim assignment can be scoped in a mid-sized company is covered in a separate article.
- Count correctlyEstablishment or company, permanent or entitled to vote, part-time proportionally. Add planned hires for the next twelve months.
- Check the basic dutiesWritten terms, working time recording, company doctor, occupational integration management, starting pay in job ads.
- Identify the next thresholdWhich obligation comes next, and which process must be in place before it?
- Calculate capacityUse a ratio of around 1:76 to check whether the need carries a full-time role or sits below it.
- Choose the formInterim for a transformation with an end date, part-time for permanent need below one full-time role, a permanent hire once ratio and structures carry it.
Sources
- Section 2 NachwG (German Evidence Act): duty to provide written terms
- Section 41a EStG (German Income Tax Act): payroll tax return and payment
- German Federal Ministry of Labour and Social Affairs: the statutory minimum wage
- Federal Labour Court, decision of 13 September 2022, 1 ABR 22/21: duty to record working time
- Section 1 ASiG (German Occupational Safety Act): appointment of company doctors and safety specialists
- Section 167 SGB IX (German Social Code IX): prevention and occupational integration management
- Directive (EU) 2023/970 on pay transparency, Article 5: pay transparency prior to employment
- Section 1 BetrVG (German Works Constitution Act): election of works councils
- Section 23 KSchG (German Protection Against Dismissal Act): scope
- Section 8 TzBfG (German Part-Time and Fixed-Term Employment Act): reduction of working time
- Section 99 BetrVG: co-determination in individual personnel measures
- Section 111 BetrVG: operational changes
- Section 154 SGB IX: duty to employ severely disabled people
- Section 17 KSchG: notification of mass dismissals
- Section 9a TzBfG: temporary reduction of working time
- Section 12 HinSchG (German Whistleblower Protection Act): internal reporting channels
- Section 106 BetrVG: economic committee
- Section 12 EntgTranspG (German Pay Transparency Act): scope of the right to information
- IAB Establishment Panel 2025: collective bargaining and works councils, Table 1
- IAB-Forum, Hohendanner and Kohaut (2025): collective bargaining and co-determination, no turnaround in sight
- Section 9 BetrVG: number of works council members
- Kienbaum: HR-to-employee ratio, what is a good ratio?
- SHRM: How Many HR Staff Members Is Best? (January 2024)
- MRA: The Myth of One HR Professional to 100 Employees (Bloomberg BNA HR Benchmarks 2018)
- German Federal Statistical Office: shares of small and medium-sized enterprises by size class, 2024
- Section 160 SGB IX: compensatory levy
- Section 21 EntgTranspG: report on equality and equal pay
Frequently asked questions
Is there a legal requirement in Germany to have an HR department above a certain size?
No. No law requires an HR department. German employment law does attach new obligations to many headcounts, for example dismissal protection above ten employees, works council consent to hiring above 20 employees entitled to vote, an internal whistleblowing channel from 50 employees and an economic committee above 100. Someone has to know and implement these obligations, with or without a department.
How many HR staff does a company with 100 employees need?
The HR-to-employee ratio is the benchmark. In Germany, according to Kienbaum and SAP, it has held steady between 1:70 and 1:80, at 1:76 in 2023. For 100 employees that works out to a little more than one full-time role. Smaller companies need proportionally more capacity because their HR people are generalists. It also matters whether the role covers administration or leadership.
When is fractional HR better than a permanent hire?
When the need for HR leadership is permanent but smaller than a full-time role. That typically applies to companies between 20 and 80 employees that cross the thresholds for co-determination and whistleblower protection, but where the ratio does not yet carry a full leadership role.
Do part-time staff and apprentices count towards the thresholds?
It depends on the law. For dismissal protection, apprentices do not count, and part-time staff count as 0.5 up to 20 hours a week and as 0.75 up to 30 hours. The Works Constitution Act counts employees entitled to vote or permanently employed, the Whistleblower Protection Act counts all employees. Clarify the exact count for your establishment with your employment lawyer.
What should the first HR hire do?
Structure first, administration second. An experienced person sets up contract templates, pay bands, a hiring process with works council involvement and procedures for working time, occupational integration management and dismissals. Only then does an administrator pay off, running day-to-day operations within that structure. The other way round, the first hire administers the gaps nobody closed.
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