Guide to contracting in Germany

guide to contracting in Germany

25th November 2020

As we mentioned in our post earlier this week demand for contractors is up in Germany. However, for professionals seeking work in the country, ensuring you are operating compliantly is a real challenge that’s wrought with complex legislation.

For those of you looking to capitalise on the uptick in contractor recruitment in the destination, here’s a brief guide to contracting in Germany.

What contracting models can you operate under?

There are two contracting models available in Germany:

  • Local self-employed “contract model” which is split into two distinct areas: sole trader Freiberufler or a limited company GmbH.
  • Local in-country payroll – in Germany this is the AÜG model.

While you may come across a limited company in Germany, it’s much less common than the sole trader option, but the local in-country payroll model is certainly something to be aware of if you’re considering contracting here.

The AÜG model is pseudo employment with labour leasing – essentially, an entity employs a worker and then leases them on to a third party. If you are being ‘leased’ as a temporary agency worker by a business, that firm needs to have an AÜG license.

For many contract professionals this in-country payroll route is not normally the chosen model of work – in fact recent research from the Association of Professional Staffing Companies (APSCo) revealed that 75% of highly qualified German freelancers would not accept an AÜG role unless it was their last resort. A further 59% would not consider it at all, even if this meant they had no current project.

However, while it might not be an employment model you would prefer to work under, in some cases the end-client will enforce this model. It is important to be aware, as a result, that in Germany AÜG and worker status classification are highly regulated. As such, there are very strict rules surrounding the application for an AÜG license, including what terms need to apply and how it’s monitored and audited.

It is possible for you to be leased for a project through a third party that has a license, but be aware that the company with the AÜG licence must hold the end-client contract, to avoid illegal chain leasing.

Candidate classification: what do you need?

When it comes to determining whether you are suitable to work under the contract model or through AÜG, your recruitment agency or contractor management company should be able to advise you in more detail. However, to make the classification there are a number of things that will be required, some of which are detailed here:

  • A clear job specification – that demonstrates enough of the role to highlight why you are being brought in as a contract expert and not a full-time employee.
  • Confirmation that you as the contractor will provide your own tools and equipment (be aware as well that for on-site assignments at the moment this may include PPE).
  • Consultants should also be able to demonstrate absolute autonomy for their own work.
  • Ideally you will also have your own German recognised professional insurances (PI & PL). If German authorities were to audit and challenge your deemed employment status, this demonstrates that you are paying something financial to guarantee the work you’re delivering and are, subsequently, a contractor.

A guide to contracting Germany: staying compliant

As you can probably already imagine, contracting in Germany is a compliance minefield, so here’s a brief overview of some of the points you need to know:

  • The agency you operate through will require a valid AÜG licence to operate an AÜG model engagement. Alternatively, the agency can engage a partner that holds an AÜG licence (funding considerations).
  • The company holding the AÜG licence must contract directly with the ultimate end-user to avoid illegal chain leasing.
  • Ideally the AÜG model works best when a fixed monthly salary can be agreed with yourself as the Temporary Agency Worker and the Client.
  • The contract of engagement with the end-user will need to be in line with AÜG legislation.
  • If you are a Temporary Agency Worker you will need to be engaged under an approved AÜG employment contract.
  • The maximum term for AÜG engagement is 18 months.
  • After the 18-month period is up, a three-month gap is required, after which the contractor can be engaged for a further 18-months.

Seek expert guidance

Germany is clearly a destination to keep an eye on at the moment and for contractors that gain an opportunity to work here, it could prove highly lucrative. But it is crucial that you operate compliantly or you could face potential fines or even criminal charges.

The above information is designed to provide an insight into the complexity of the German legal world and is not a full list of compliance considerations. In order to limit the risks to yourself and ensure you continue operating compliantly, we highly advise that you seek expert guidance.

Contact the 6CATS International team today to find out more.

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