Transitioning from EOR to GmbH: A Compliance Checklist for International Companies with German EOR Employees

For many international companies, an Employer of Record (EOR) is the fastest way to hire in Germany without a local entity. Over time, however, business needs change. Headcount grows, operations stabilize, and long-term plans take shape. At that point, transitioning from an EOR model to a German GmbH becomes the next logical step.

While this transition is common, it requires careful planning. Moving employees to your own German entity is more than an administrative exercise. It is a compliance-sensitive process that affects employment contracts, payroll, tax, and social security.

Why Companies Transition from EOR to a German GmbH

An EOR works well for early-stage market entry or testing the German market. However, it is not a long-term scaling solution.

Common reasons for moving to a GmbH include growing headcount and the need for greater control over employment terms. Companies also transition to remove regulatory limits, such as AÜG time restrictions. Establishing a GmbH allows you to employ staff directly and manage payroll locally.

Find more information on German entity setup here. 

Understanding the Compliance Triggers for Transition

Compliance timing often drives the transition. In Germany, the Employee Leasing Act (AÜG) limits EOR assignments to 18 months per employee. As you approach this limit, you must decide whether to restructure employment or risk non-compliance.

Companies also face scrutiny regarding corporate tax exposure if they operate indefinitely through an EOR. Planning the transition between months 12 and 15 gives you the flexibility to move employees smoothly.

Legal Considerations When Moving Employees from EOR to GmbH

You cannot simply “move” employees from an EOR to a GmbH. In most cases, you must end the existing EOR relationship and issue a new contract through the German entity.

German labor law requires compliant local contracts. These must include notice periods, statutory benefits, and working time protections. Handle continuity of service and accrued leave carefully to avoid disputes. Clear communication with employees is critical to maintaining trust during this shift.

Payroll, Tax, and Social Security Readiness

Once you establish a GmbH, your company is responsible for German payroll. This includes income tax withholding, social security contributions, and health insurance reporting.

Many companies underestimate the administrative effort involved in German payroll. Outsourcing these tasks ensures accuracy from day one.

Support with German payroll can be found here.

Operational and HR Considerations

Beyond legal steps, you must register the GmbH with local authorities and set up internal employment policies. Review whether your expense policies and data protection processes need localization for the German market. A transition is a shift in operational responsibility that requires preparation across multiple teams.

What Happens to the EOR Arrangement?

You must formally terminate the EOR engagement according to your contract. Timing is vital to ensure no gaps occur in employment or payroll coverage. Coordinate closely between the EOR provider, legal advisors, and internal stakeholders to ensure a seamless move.

Explore our EOR services in Germany here.

Compliance Checklist: Transitioning from EOR to GmbH in Germany

The table below summarises the key steps companies should review when planning a transition.

Area	Key questions you need to answer
Entity setup	Is the GmbH legally registered and operational before EOR employment ends?
Employment contracts	Are new German-compliant contracts prepared and reviewed?
Employee communication	Have employees been informed clearly and early about the transition?
AÜG exposure	Is the transition aligned with the 18-month limit where applicable?
Payroll setup	Is German payroll configured and tested before the first pay run?
Tax registration	Is the GmbH registered for income tax, social security, and local reporting?
Benefits	Are statutory and supplementary benefits in place from day one?
Data protection	Are GDPR and German data handling requirements addressed?
EOR termination	Are EOR contracts ended correctly with no employment gaps?
Ongoing compliance	Is responsibility clearly assigned for payroll, HR, and reporting?

 

Conclusion: Planning the Transition for Long-Term Stability

Transitioning to a German GmbH is a natural step for growing companies. When planned properly, it provides control, stability, and compliance certainty. Treat the transition as a strategic project to protect your talent and support sustainable growth in Germany.

Ready to transition your German team? Contact our experts today to ensure a compliant move from EOR to your own local entity.