An Employer of Record (EOR) helps you outsource your legal obligation to a third party responsible for taking care of the compliance elements of legal employment. This includes factors like payroll, taxes, contracts, and more.
Essentially, you pay a fee to have an EOR act as a proxy or stand-in legal employer for an overseas employee.
An EOR will deal with your:
- Employee taxes
- Benefits
- Insurance
- Payroll
- Compliance
There are numerous benefits to using an EOR service. But Employers of Record have strict laws and guidelines to follow in Germany as opposed to other European countries.
Keep reading to learn how you can expand your company quickly and easily in Germany while staying compliant.
EOR Benefits in Germany
Using an EOR in Germany is a cost-efficient way to outsource your payroll and HR functions. EORs know the legal fundamentals behind global employment regulations so you don’t have to.
With an EOR, you could save time on administrative tasks including onboarding, paperwork, and payroll, so you have more time to focus on growing your business.
An EOR also lets you operate in Germany without a physical entity based there. Setting up an entity for your company can take months and waste valuable time that could be spent growing your company.
By outsourcing to Borderless as your EOR, you can actually get down to doing business right away.
Since we handle the hard part, you have more time to expand, inspire and onboard your German team.
Curious about bringing in German talent? See our Country Explorer to get an overview of the working landscape for German employees and contractors.
Contractual Relationships
When looking into an EOR service in Germany, make sure you stay up to date on how German contracts work.
There is no co-employment allowed in Germany.
Under German law, services rendered by a primary company (seen as the “factual” employer of an employee) and EOR services are not one and the same.
The relationships between A)— the EOR and an employee directly— and B) —the primary company as a customer of the EOR requesting an employee’s services through the EOR— need to be treated separately under German law.
Disciplinary rights including termination, employee misconduct, and poor performance are handled by the EOR, while day-to-day management tasks are handled by the primary company.
What You’ll Need Before Selecting an EOR in Germany
An Arbeitnehmerüberlassungserlaubnis.
If you’re asking yourself what on Earth that is, it’s a fancy German word for an employee leasing license. It’s also commonly abbreviated to “AUG license.”
To obtain an AUG license, you’ll need to apply through the German Federal Employment Agency. It’s important since misclassifying your workers in Germany can lead to costly penalties.
Whether or not you need an AUG license can depend on whether you work with contractors, freelancers, or employees.
This tool will help you better understand some of the penalties you could face for misclassifying your workers.
Risk and Considerations
German employee leasing is limited to a time of 18 months per employee. After the 18-month period, a foreign company is not allowed to retain a team member through the EOR company they hired through.
When time runs out, the business has to make a decision: directly hire the employee firsthand or let them go.
Luckily there’s a loophole.
As an employer, if an employee stops working for you after three months within the 18-month contract, the clock restarts and you’re allowed to re-hire said employee for another 18-month stint.
It’s compliant but impractical. Probably not the best way to ensure your company's long-term growth and health.
You may think that hiring independent contractors could serve as a workaround for these restrictions. But misclassifying an employee as a contractor could get your company saddled with steep fines to pay if you’re audited.
If you’re looking at expanding more sustainably into the German market, you’ll eventually need to consider registering as a foreign employer to be able to retain your employees long-term.
How Borderless Can Help
Employees? Contractors? Arbeitnehmerüberlassungserlaubnis?
We know it sounds complicated, but with Borderless it doesn’t have to be. We want to eliminate the guesswork so you don't misclassify or miscalculate and face costly penalties.
Book a demo with us to see how Borderless can serve your company's needs in Germany and beyond!
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
