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. But…

  • What if you don’t want to tie funds up in share capital?
  • What if you are only looking to employ a few people?
  • What if you need to hire someone next week?

Can you test the German market without incorporating?

Yes, you can! The alternative is to hire your staff through an intermediary.

This is a labour leasing arrangement that would work for you.

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:

  • German PEO services
  • German Employer of Record services
  • German ‘Contractor’ client relationships
  • 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 PEO service, also known as an Employer of Record or labour leasing provider, in Germany.

The first thing you must know is that the leasing of labour in Germany is regulated and can only be carried out by a licensed firm. There is a Ministry of Labour that issues these licences 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:

  • 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.
  • No chain leasing – it is a requirement of the company holding the licence to contract directly with the party receiving the labour. This means no agencies, intermediaries or MSPs in the direct contractual chain.
  • 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 PEO 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 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.

This is our quick guide to hiring in Germany – an overview of Professional Employment Organisation (PEO) and labour leasing services.

If you are looking for a German PEO or incorporate directly, we are happy to help. Feel free to contact us on sales@topsourceworldwide.com.

P.S. Germany is one of our top 3 European countries to employ in. You can find out the other two in our blog The Top 3 European Countries to Employ In.

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Published On: 10/03/20Last Updated: 14/09/22

About the Author: Sam Barnes

Sam is our Global Business Development Manager for Employer of Record services. For the last 10 years, he has assisted companies in the successful execution of their international expansion plans. Sam tells us “There’s something inherently exciting about growing a business into overseas jurisdictions. Each country does things slightly differently and it’s great to be able to share learnings on statutory requirements and cultural nuances”. Email: sam.barnes@topsourceworldwide.com

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