What is a sideline or part-time start-up?
Self-employment as a employee or student, while caring for family, as a pensioner or while unemployed
In this case, founders may already be employed at a company and self-employed as a form of secondary employment or sideline work (“Nebenerwerbsgründung”). Part-time start-ups and self-employment are also popular, for example while studying, in training, caring for a family, or during retirement. The benefits of this model include the chance to test your business idea without financial pressure, flexibility regarding time, lower initial financing needs compared to a full-time start-up, and ideally an additional source of income. Sideline self-employment is subject to the same rules as a full-time start-up. Particular issues apply regarding employment law, social insurance, and tax requirements (“Kleinunternehmerregelung” or “provision for small businesses”).
Are you starting a business while still employed?
First check whether your employment contract or any collective agreement says anything about “secondary employment”. These documents determine whether you must inform your employer or even ask for their permission before starting a sideline business. That is often the case.
You should also talk to your health insurer. If you have statutory health insurance, your status is crucial: As long as your health insurer classifies your self-employed activity as a sideline business, nothing changes for you. But if your health insurer decides that your business is your main occupation, you will in future have to pay for your own health insurance. That may be the case if you spend more time on your self-employed activity (or earn more money from it) than your regular employment.
Statutory pension insurance and/or statutory accident insurance are compulsory in some occupations even as a sideline, although you may be able to apply for an exemption.
Self-employed while on parental or family leave
People who are on parental leave have the right to work for up to 30 hours a week, including as self-employed persons (Section 15 of the Parental Allowance and Parental Leave Act (BEEG)), as long as their employer agrees to it. So you should check whether your employment contract or collective bargaining agreement includes a “sideline job clause” (“Nebentätigkeitsklausel”). This determines whether your employer must be informed or give consent before you take on secondary employment. This is usually the case.
Do you receive parental allowance? Then you should be aware that your income from self-employment will affect the amount of parental allowance you get. Use the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth’s (BMFSFJ) parental allowance calculator for an initial calculation. Note also the combination of parental allowance (“Elterngeld”), parental allowance plus (“Elterngeldplus”), and the partnership bonus (“Partnerschaftsbonus”).
Many parents are covered by “family insurance” as part of their statutory health insurance and so do not have to pay contributions. This remains the case as long as the time spent on and income earned from self-employed work is not more than the applicable tax exemption limit. For an analysis of your individual case please contact the respective statutory health insurance provider.
Some self-employed persons are obliged to contribute to the public pension scheme, including in the case of sideline self-employment. Such persons include teachers, artists, and journalists. A list of self-employed professions which are obliged to contribute can be found in Section 2 of the German Social Code (SGB) VI. If your income from self-employed work does not exceed the relevant monthly tax-free allowance you can apply for an exemption.
Self-employment while unemployed
Do you receive unemployment benefit (“Arbeitslosengeld I”) and would like to go self-employed in the form of sideline employment? This may well be possible after you have discussed it with the Federal Employment Agency. The main requirement is that your sideline job does not exceed 15 hours a week. The profit from your self-employed work will be offset against your unemployment benefit after the deduction of a tax-free allowance. Are you planning to start a full-time business to end your unemployment? The Federal Employment Agency can help you with a start-up grant.
Do you receive unemployment benefit in the form of “Arbeitslosengeld II” and would like to go self-employed in the form of sideline employment? Your Job Center will advise you on what is required and how the earnings from your self-employed work will affect your unemployment benefit. Are you planning to start a full-time business to end your unemployment? Get advice on possible financial assistance from the Job Center. One such form of assistance is the grant known as “Einstiegsgeld”.
You must inform your statutory health insurance provider when starting self-employed work. Some self-employed persons are obliged to contribute to the public pension scheme, including in the case of sideline self-employment.
Self-employment as a pensioner
Anyone who has reached legal retirement age (65 years of age, since 2012 rising in stages to 67) and receives a regular pension is allowed to earn additional money as a self-employed person without limitation.
If you receive an early retirement pension, i.e. before reaching the legal retirement age, areduced earning capacity pension or bereavement benefit, such as in the case of widows/widowers or orphans, there is a tax-free allowance and an individual upper limit for additional earnings. Some self-employed persons are obliged to contribute to the public pension scheme, including in the case of sideline self-employment. Make sure to get advice!
You must inform your statutory health insurance provider when starting self-employed work.