The most common way to employ people in Germany is through a German Limited company (GMBH).
This is fine if you are based in Germany and have capital behind you. However, this can also raise issues:
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What if you don’t want to tie funds up in share capital?
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What if you are only looking to employ a few people?
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What if you need to hire someone next week?
Can you test the German market without incorporating?
Yes, you can! EOR in Germany is an alternative is to hire your staff through an intermediary.
What is an Intermediary?
Business intermediaries are third party companies who your business can outsource a particular product or service to. In this case, TopSource Worldwide could manage your employment worries in Germany through our EOR Services.
Like most things in Germany, the leasing of employees has been looked at, defined and legislated for. The resultant Labour Leasing Act governs the act of employee leasing in Germany, including:
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German PEO services
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German Employer of Record services
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German ‘Contractor’ client relationships
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Generally any type of employer-employee relationship that is not a simple direct employment between a German company and its employee.
Employer of Record Services in Germany – All You Need to Know
Today, we are focusing on the option of using a EOR service, also known as labor leasing provider or an Employer of Record in Germany.
The first thing you must know is that the leasing of labor in Germany is regulated and can only be carried out by a licensed firm. There is a Ministry of Labour that issues these licenses and they also police the arrangements to ensure compliance.
Assuming your provider holds an AuG license (Arbeitnehmeruberlassung then you can hire and lease your candidate subject to some restrictions. Although it’s complex, a good provider will be able to steer you through the key points without issue. A couple of notable points are:
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18-month maximum term – employees can only be leased for a maximum of 18 months. After this, they must be hired permanently by the client (lessee) or let go.
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No chain leasing – it is a requirement of the company holding the license to contract directly with the party receiving the labor. This means no agencies, intermediaries or MSPs in the direct contractual chain.
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Equal treatment – all employees leased to a client should receive the same benefits as the client’s native’ employees. This forms part of the contract and due diligence must be carried out by both the lessor and lessee.
What does that mean for EOR services in Germany? Simply – it limits it. After 18 months you and your business will need to be positioned to either withdraw or establish a presence in Germany.
Doing Business in Germany
Doing business in Germany is quite unique.
The Germans are renowned for ‘efficiency’ and rules. Employing and working there is no exception. The German system contains a comprehensive set of rules and procedures for almost any situation.
Be aware that non-compliance is not an option, it is treated extremely seriously. A comment from our German lawyer stated: ‘You would rather have trouble with the (Russian) Mafia than the German authorities.’
With this backdrop in mind, let’s look at the positives of such an approach.
A clear set of rules are to be welcomed, with regulated employment processes, termination and notice periods clearly defined and a robust payroll process, the system provides absolute certainty and clarity to the rules of engagement between employer and employee.
Do it by the book – that is the simplest way to describe working in Germany.
There will be a rule that defines how something is done – do it that way. There is very little scope for alternative interpretation or deviation from the rules. They have generally been extensively defined for most situations and so the process must be followed. They are also generally policed and enforced by specific German bodies.
Partnering for Success
Partnering with TopSource Worldwide's means you’ll gain a seamless pathway to compliant hiring in Germany with our EOR services. From navigating labor leasing regulations to ensuring equal treatment policies, our tailored solutions simplify the complexities of German employment laws.
Take the next step in expanding your global workforce with confidence. Reach out to us at sales@topsourceworldwide.com to discuss how we can help your business thrive in Germany.
