What is a sideline business and part-time startup?

In this case, founders may already be employed at a company and self-employed as a form of secondary employment or sideline work (“Nebenerwerbsgründung”). The advantages include the opportunity to test out your business idea without financial pressure, time flexibility, financial requirements that are usually lower than for a full-time startup, and, ideally, additional income. In fact, more than half of all startups are launched as sideline businesses.

Starting a sideline business – An Overview of the Benefits:

Greater security and less pressure: Ideally, your main job provides a steady income to cover your living expenses.
A safe way to test the waters: You can test your business idea on a small scale, explore your market, and develop your offering based on customer feedback—all without the financial and time pressures of a full-time startup.
Easier financing: A sideline business often requires less funding. Typically, the founder’s living expenses do not need to be covered in the initial phase because they are ideally covered by the main job. Often, the income from the main job even finances the launch of the sideline self-employment.
Flexible second source of income: The goal of a part-time startup may be to supplement the income from your main job. Or you may want to cover part of your living expenses through your self-employment in the medium term and reduce your hours at your main job—or even give it up entirely in the long term?

The most important steps toward part-time self-employment

Part-time self-employment is subject to the same rules as starting a full-time business. There are specific regulations regarding labor law, social security, and value-added tax with the small entrepreneur regulation.

Whether you’re startup full-time or part-time, our Roadmap for starting up in Munich guides you through key steps from the initial idea to launch.

Notify your employer

If you’re working employed and want to become self-employed on a part-time basis, remember to notify your employer. Check whether your employment contract or collective agreements contain a so-called “side activity clause.” This clause specifies whether your employer must be notified before you take on a side job. Your business idea should not compete with your employer’s company or violate any other so-called “legitimate interests” of your employer.

Keeping an eye on statutory health insurance

Self-employment in a sideline business

Talk to your health insurance provider. your status is key: As long as your self-employment is classified by your health insurance provider as a sideline job, nothing changes for you. Your health insurance will then continue – as before – to be fully covered through your employment relationship, and your employer will pay half of the health insurance premium.

Self-Employment as your primary source of income: Health insurance premiums and special considerations

Put simply, if your health insurance provider classifies your self-employment as your primary source of income, you’ll switch from the employee rate to the self-employed rate. This also affects your premiums: From now on, your monthly health insurance costs will be calculated based on your total income. This includes your salary as an employee, profits from self-employment, interest, and income from renting or leasing property. And: Your employer does not contribute anything toward the profits from your self-employment or other sources of income. You must pay these premiums entirely on your own.

If you remain employed at the same time, your employer will continue to pay your normal salary for 6 weeks in the event of illness. However, there is no continued pay for the self-employed portion of your work. Health insurance does not provide compensation for this loss during the first six weeks. Only starting in the seventh week can you receive sick pay for your loss of earnings—provided you have opted for “Krankengeld” option (the sick pay plan).

As a rule of thumb, you pay approximately 21% of your profit for monthly health and long-term care insurance (as of 2026). However, there are fixed minimum and maximum limits: Due to the statutory minimum and maximum limits, the premium ranges from approximately 280 to 1,250 euros per month.

Health Insurance Company Criteria for Classifying Self-Employment as Primary or Secondary Income

Contact your health insurance provider and ask about the exact criteria for classifying your self-employment as primary or secondary income. This depends on both the time you invest and the income you generate. The health insurance provider makes a case-by-case determination based on the ratio between the weekly hours worked as an employee and the weekly time you invest in your self-employment. Your monthly income from employment is also compared to the profit generated from your self-employment.

The health insurance provider reviews each case individually. For initial guidance, search for the terms “part-time or full-time self-employment” and “classification as full-time self-employment” on the health insurance providers’ websites.

Clarifying your pension insurance obligations

Statutory pension insurance is compulsory for certain occupational groups even if the self-employment is realized on a part-time basis. Therefore, check in advance whether you are required to be insured with the German Pension Insurance (DRV), what contributions you must pay, and whether there are any exemptions. Civil servants are also affected by this.

If you are employed full-time and also engage in self-employment subject to pension insurance, you are subject to parallel insurance obligations. In this case, you pay pension insurance contributions for both your employment and your self-employment, but the total amount cannot exceed the contribution assessment ceiling.

Reporting to the statutory accident insurance

All self-employed persons, regardless of whether they are pursuing a main or sideline business, must register with the relevant Social Accident Insurance Institution within one week of starting. This insurance may be compulsory for the entrepreneur depending on their activity. Others may enroll voluntarily.

Small entrepreneur regulation in value-added tax

When registering with the tax office you can opt for the small entrepreneur regulation – Kleinunternehmerregelung. The small entrepreneur regulation is a statutory simplification regulation for companies with low turnover. This means that VAT is not charged. This advantage is offset by the disadvantage that entrepreneurs with small entrepreneur status do not receive the VAT they have paid back from the tax office as input tax.

From January 1, 2025, the following turnover limits will apply to founders:

25,000 euros for the founding year

The following turnover limits apply after the founding year:

25,000 euros for the previous year and
100,000 euros for the current calendar year

If you exceed these thresholds, you lose your small business status and must declare VAT in the current financial year and submit quarterly advance VAT returns to the tax office. You must therefore monitor your total sales on an ongoing basis, not just at the end of the year.

Practical calculation examples are provided by Gründerplattform, the Chamber of Commerce and Industry or the tax office.

Note on small entrepreneur regulation in other EU countries:

From January 1, 2025, founders with small entrepreneur status can also apply the regulation to sales in the European Union (EU). The prerequisite is that the total turnover in other EU countries in the previous year and in the current year does not exceed 100,000 euros net. In order to use the European Small Entrepreneur Regulation, you have to apply for a small business identification number, the so-called KU-IdNr, from the Federal Central Tax Office. There are various obligations associated with participation in the European Small Entrepreneur Regulation. For example, you must report your turnover to the Federal Central Tax Office on a quarterly basis. The EU Commission’s SME web portal provides English language information on the details.

Would you like to use the small business owner regulation?

Then you can apply for it when registering with the tax office
You then do not include VAT in your invoices and justify this, for example, with the printed note: “Gemäß § 19 Abs. 1 UStG wird keine Umsatzsteuer berechnet.“

Please note that we do not provide insurance, tax or legal advice. Our information is intended as an initial guide and does not claim to be exhaustive.

Conclusion: part-time self-employment is not “self-employment light”

Many people mistakenly believe that part-time self-employment is a kind of “self-employment light” subject to fewer formal rules. However, this is a misconception. In the vast majority of cases, there are no differences between starting a business as a full-time or part-time self-employed person.

Self-employment in a sideline business is subject to the same rules as full-time startups. This applies, for example, to registering your business with the trade and tax offices, tax obligations, legal structure, and any required permits and licenses for certain commercial activities.

Create a working document for your self-employment project: Your business plan

The business plan is an important foundation for your successful start into self-employment. A business plan is not just a document that describes your business idea – it is also an important tool for defining your strategic and economic goals and for financial planning. Especially in the early phase of the startup, a business plan helps critically evaluate your business idea and develop it in a structured way.

Registering your self-employment with the business license office and tax office

How and where you register your self-employment depends on the legal form and whether the self-employment is classified as a liberal profession (Freier Beruf) or as a business (Gewerbe):

More information about registration can be found here.

Consultation and support from the Munich Startup Office

Whether in full-time or side business – this is how the Munich Startup Office supports you:

You can clarify individual questions immediately:

Contact

E-Mail: start@muenchen.de (with callback service)
Phone: Monday to Thursday from 2 PM to 5 PM at 089 233 721759.

The Munich Startup Office is here for you and supports you on your way to self-employment.