The do’s and don’ts of side hustles in Germany
Disclosure: not written by ChatGPT! Bookmark this page because you or someone you know will need it.
Executive summary. The three main takeaways for your side hustle:
- Do the paperwork from day one,
- check your employment contract for restrictions and
- steer clear of conflicts of interest with your day job – or be aware of the possible consequences
In issue #75 of the newsletter, I asked you what you’d like to read about. We had a clear winner, and I teamed up with Jean-Baptiste Abel, a lawyer based in Berlin with a focus on employment law, who helped me prepare this thorough FAQ on the topic of side businesses (= being employed but taking your hobby to the next, income-generating, level).
During the discussion about the concept, he told me, “Maybe it’s time you meet my perfectionism,” and I remember thinking, “Well, ok, that’s a brave one!” But after I received his first draft, I understood what he was talking about.
🥳 On top of great answers, Jean is also offering a reduced rate for the initial consultation for Handpicked readers (10€), subscribers of more than two months (30€) and supporters (50€). Mention “Handpicked” along with your status. You better call Jean. In German, English and French.
We have 22 questions and answers, which are split into six chapters:
If you have any further questions regarding the topic, approach Jean, and if you have suggestions about the article, approach me. Now let’s dive in!
Do set up your side hustle properly
1. Do I need a company for it?
Legal forms differ in complexity and cost. When setting up a business as a part-time job, consider the time and effort involved in setting up, bookkeeping and taxes. After all, you don’t want to spend all the time you spend on your business alongside your job on paperwork.
2. Ok, what are possible legal forms of side hustles?
Rome wasn’t built in a day, and neither will your side hustle. You’ll likely start as a solo entrepreneur (Einzelunternehmer), which means you will operate under your name and be liable with all your private assets.
If you are starting your business with other founders, a partnership under civil law (Gesellschaft bürgerlichen Rechts) is a good option at first, as it is easy and unbureaucratic to set up and administer.
Later on, it may make sense to opt for a different legal form. You are free to choose – from the UG (haftungsbeschränkt) to the Societas Europaea. This decision will impact the decision-making process among executives, but also on questions of liability, administrative costs, freedom in the choice of company name, type of financing, tax and accounting or publicity requirements. Upgrade from solo entrepreneurship is a big decision you should make carefully after seeking advice from a professional.
Do check your employment contract
3. Do I need to ask my employer for permission if I want to start a side business?
Your employer is not permitted to categorically prohibit you from taking up other activities besides your work for them, regardless of whether you intend to take up secondary employment as a self-employed person or as an employee. The Constitution prohibits this (even if only for German nationals). Essentially, it is none of your employer’s business what you do after work as long as you meet your contractual obligations.
4. Ok? But why do some say you need permission? On what grounds?
That’s because your employer is permitted to demand in your employment contract that you inform them or ask for their permission before you take up any secondary activity. In other words, whether you have to obtain permission from your employer depends on what your contract says. It is, however, only possible for your employer to deny you permission to undertake side business activities under specific conditions. For example, if the secondary employment leads to a significant restriction of your working capacity or if the employer’s competitive interests are affected.
5. If my side hustle is not generating revenue, do I still need to worry about permissions?
Yes, the contractual obligation of notification does not depend on whether your secondary activity generates revenue.
6. Would you recommend written documents? Can a permission e-mail be ok?
Permission for secondary activities should be obtained so you can present it in the event of a dispute. More often than not, an e-mail to HR should suffice.
7. My manager agreed to my side hustle. But now she is gone. Do I need to ask for permission again?
Usually, the HR department is the right point of contact for your notification, in which case the permit will also be in your personnel file in case you are assigned a new manager. While it can make sense to inform your direct manager, I recommend doing so only in addition to your HR department.
8. Can the employer set any limits on the revenue of my side hustle?
There are generally no maximum earnings limits that you have to comply with related to your employer. In practice, the limiting factor is often the statutory (public) health insurance. (we will come to that below)
Do respect the legal framework
9. How much am I allowed to work outside of my day job?
If you take on another employment relationship in addition to your main employment contract, the Working Hours Act (Arbeitszeitgesetz) imposes strict limitations: the working hours of all employment relationships are summed up and must not exceed eight hours a day, 48 hours a week as mandated by the Working Hours Act (Arbeitszeitgesetz).
There are no such restrictions for self-employed activities. This is the beauty or challenge of self-employment, depending on your point of view. In practice, limits exist only insofar as you can no longer fulfil your contractual obligations because of your self-employment. In other words, if you work so hard as a self-employed fitness coach that you fall asleep at your desk at your office job, this will obviously be a problem and could justify a written warning from your employer and, if repeated, termination of employment.
10. Can I work on my side hustle while on sick leave with my main job?
From a purely formal legal point of view, you might be too ill to fulfil your employment contract but healthy enough to carry out your self-employed work. For example, if you have a broken leg, you may not be able to load a removal van, but you can still carry out office work.
However, if you call in sick at your main job and continue to work part-time in your self-employment, this might raise eyebrows. There could be a strong suspicion that you’re not very serious about your illness and are simply taking sick leave to work on your part-time career. You could quickly face a written warning or termination if this accusation is substantiated. For reasons of caution alone, you should refrain from such practices.
11. Can I work on my side hustle while on vacation with my main job?
Yes and no. It is generally permitted to work on your side hustle while you are on vacation. However, remember that you are legally obliged to refrain from any activities that conflict with the recreational purpose of your vacation. The purpose of your vacation entitlement is not only to allow you to admire the Saarschleife, climb the Brocken in the Harz Mountains or enjoy the beaches of the Baltic Sea but also to provide your employer with a refreshed workforce. Last but not least, you will also be doing yourself (and – I’m speaking from experience here – your family) a favour if you take a break from time to time.
12. Can the employer revoke their approval for secondary activities later on?
Whether your employer may later withdraw the secondary employment permit depends on your employment contract – there may well be a provision for withdrawal in the secondary employment permit. If your employer discovers that you are competing with them in a prohibited manner, they can prohibit you from competing – or terminate your employment contract, possibly even for cause – without notice period.
Don’t forget the paperwork (we are speaking about Germany, after all)
13. Register your side hustle
Depending on your self-employed activity, you will need to register a trade (“Gewerbe anmelden”). If you are operating in Berlin, this is the form you must fill out; the US military provides an unofficial but translated version in English for their service members’ families for Wiesbaden). You are required to fulfil this registration – no matter what the legal form of your side hustle is – as soon as you start your activity. The German Trade Regulation Act may also require a permit or authorization for your activity. In contrast, liberal professions such as doctors, lawyers, journalists, artists and certain advisors do not require a trade registration. However, there may be exceptions, especially in the case of mixed forms, so be sure to seek advice.
14. Report to the Finanzamt
You must also report your activity to the tax authorities. To do this, complete the tax registration (Fragebogen zur steuerlichen Erfassung). You’ll need to enter it through a ELSTER Account, and this is what the form looks like. The US military has an unofficial translated version which will give you a good idea of the information you must provide.
When registering for tax purposes, you will also be able to indicate whether you wish to make use of the so-called small business (Kleinunternehmerregelung), which allows you not to charge VAT for your services as long as your revenue (not profit) in the last year did not exceed 22,000 euros and is expected to be less than 50,000 euros in the current year.
15. Will my side hustle in any way impact my statutory health insurance or private health insurance status?
Whether your side hustle will affect your health insurance contributions depends on several factors. For those covered by statutory health insurance, no contributions are due for self-employment as long as the self-employment is only carried out on a part-time basis.
As soon as self-employment is pursued on a full-time basis, only your self-employed activity will be taken into account when calculating dues. The health insurance providers have the authority to assess on their own whether your self-employment is to be considered part-time or full-time. This is primarily assessed based on the amount of time you spend working and the income you generate.
As long as your salaried employment takes up more time and brings in more income than your self-employment, you are considered to be self-employed on a part-time basis. As soon as you switch your focus to self-employment in terms of time or money, the health insurance provider will review whether your self-employment can still be considered part-time according to its own criteria.
Be careful! The health insurance company can also investigate past periods, which can lead to severe demands for additional payments for years in the past that they might reassess. Failure to notify your health insurance provider in a timely manner can be a costly oversight.
On the other hand, the extent of self-employment is generally not a relevant factor for privately insured persons.
Don’t overstep boundaries
16. Can I start competing with my employer with my side business?
No. You are prohibited from competing with your employer in the market sector in which the employer operates – unless your employer expressly waives the prohibition. It applies by law, i.e. even if it is not expressly stated in the employment contract. It applies for as long as the employment contract is in force: even during vacation, sick leave, garden leave and regardless of whether or not you are paid a salary. A breach of this non-competition clause may result in termination without notice and claims for damages. Steer clear of the legal troubles any violation may bring.
17. Am I allowed to compete with my – then former – employer after I leave the company?
After termination of the employment relationship, you are generally allowed to be in competition with your – then former – employer. For a period of up to two years, your employer can arrange a post-contractual non-competition clause with you. However, the agreement must stipulate that your employer will pay you compensation amounting to at least half of your last salary. Due to the costs involved, employers are generally very reluctant to use this option.
18. Are there legal considerations when using an employer’s resources (like office space or equipment) for a side hustle?
Good fences make good neighbours. Just as you should not engage in your self-employment activities during your employer’s working hours, you should refrain from using your employer’s resources for your entrepreneurial activities. Resist the temptation; the risk of termination is probably not worth it.
19. Could my side hustle shortlist me for a future layoff? How can I prevent it?
Realistically, the fact that you are self-employed on the side could not be a factor in justifying a dismissal for operational reasons. Theoretically, an employer could argue that a dismissal for operational reasons would affect a particular employee less severely because they have a second mainstay in the form of part-time work. Still, I do not think it is realistic for this to play a major role in the social selection that an employer has to make before dismissal.
20. What are the best practices for disclosing a side hustle to an employer to mitigate conflicts of interest?
In the majority of cases, employees are obliged to disclose any form of side hustle anyway. Purely preparing or brainstorming about your side hustle doesn’t trigger this obligation. However, as soon as you are ready to enter the market, check your contract to see what your obligations are and inform your employer accordingly.
Do spread your wings as soon as you feel like it
21. My business is flying! Can I reduce my working hours?
Once your side hustle has picked up speed, you may feel like reducing your working hours. I recommend contacting your employer at least three months in advance. Write an email to your manager and the HR department in which you state exactly when you would like to reduce your working hours and by how much, and also state how you would like your working hours to be distributed over the week (you will find a handy template on my website). Your employer must then agree to both the reduction in working hours and the distribution of working hours over the week if there are no operational reasons for not doing so.
In companies with more than 45 employees, you may also have the right to a temporary reduction in working hours. This allows you to return to a full-time position after a try-out period if you feel like it.
22. Based on your experience, can employers easily argue that operational reasons prevent the reduction of my hours?
Your employer must provide operational reasons to refuse your request for a working-hour reduction. The law expressly states that operational reasons include, in particular, if the reduction in working hours significantly impairs the organisation, workflow or safety in the company or causes disproportionate costs.
Your employer therefore needs compelling reasons and must also observe strict deadlines so that his consent is not considered to have been granted – them ignoring your request will work in your favour. In my experience, there’s always a solution waiting to be found, usually through open dialogue with your employer.
Good luck, I’m rooting for you! And if you need any legal advice, make sure to call Jean.
🎉 Remember, you can get a reduced rate for the initial consultation! Handpicked readers (10€), subscribers of more than two months (30€) and annual supporters (50€). Mention “Handpicked” along with your status.
Wait a minute. Who’s Jean? And why is he giving us advice?
I am an attorney (Rechtsanwalt) with a focus on employment law. I’ve been serving the expat community of Berlin and Germany since day one. I offer my consultation services in English, French and German. I practice in Graefekiez in Kreuzberg, where I also live with my wife and two kids. I love photography and cooking for my friends, and I’m secretly dreaming of a cook-off between Igor and myself to settle the match of palačinke vs crepes once and for all. I’ve got two kids, so I’m as comfortable discussing the realm of unicorns and ninjas as much as I am talking about terminations and clauses in employment contracts. You can e-mail me or add me on Linkedin.
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