Planning on hiring contractors In Germany? What you need to know:
A changing workforce and growing skills gaps across industries are evident across many EU Member states. This change is apparent in the largest economy in the EU, Germany. A country that boasts a variety of industries, Germany has long been an attractive nation for contractors to work, and this looks to continue. So, what do you need to know before you begin engaging contractors in Germany?
What are the benefits to companies in hiring a contractor?
Hiring contractors may be a more flexible option for businesses than hiring a full-time employee as hiring and onboarding costs are reduced, and the contractor and their skills help the organisation achieve the short-term business goals they have for the contract.
Contractor Compliance for German Companies:
Germany has mandatory requirements for organisations that wish to employ contractors and freelancers to provide a product or service to a client. There are currently two main methods for engaging contingent labour.
The first is the Freiberufler (freelance/self-employed) model, and the second is the employed model licence known as the Arbeitnehmerüberlassung or AÜG for short. This term translates from German to English as temporary employment. Companies hiring an employed contractor from a provider without an AÜG licence can find themselves in conflict with German Law.
Freiberufler Model:
- Under Freiberufler (freelance/self-employed), a contingent workforce management company such as 3C Global would engage with candidates on a Statement of Work (SOW) contract for a specific project.
- 3C Global’s accountants would also ensure that the individual is registered as a freiberufler/freelancer with the German authorities regarding income tax and VAT.
- Contractors would be paid a "gross" rate on an hourly/daily basis for work completed. However, tax payments are not deducted at source, and is managed with the help of the accountants.
Employed model - Arbeitnehmerüberlassung (Also known as an AÜG/ ANÜ licence)
Under the Employed (AÜG/ANÜ) model, an organisation such as 3C Global would engage with candidates on a German employment contract.
- 3C Global would "lease" the services/skills of the employee to the end client/hirer through another separate leasing agreement between both companies, which is required by law.
- The relevant employee would be paid a "net" amount for work completed.
- Differing from the Freiberufler model, Tax and social security contributions would be deducted at source, and employees would be provided with a payslip.
- Holiday pay and sick pay are also accounted for.
The practice of engaing an organisation such as 3C Global ensures that corporate “leasers” comply with German labour leasing law.
Compliance in a country that has stringent tax regulations like Germany is of utmost importance. Generally most contractors are aware of the stringent legal environment and will want to ensure all aspects of their contract engagement are compliant under German tax laws under either model.
Potential risks to parties who fail to comply with regulatory requirements:
In order to obtain an AÜG license, several regulations must be met, prompting many to collaborate with contingent workforce management company’s like 3C Global. These entities must hold an AÜG licence, which must be renewed by the organisation annually. Additionally, contractors are only allowed to work with the same client for a maximum of 18 months. In addition, any business found to be contracting employees without a valid AÜG licence can be met with fines of up to €500,000 or more severe consequences, including imprisonment. This can be a big motivator for businesses to work with an contingent workforce organisation that specialises in German contracting and can help ensure your business stays compliant with German law.
How Can 3C Global Assist You in Successfully Engaging Contractors ?
AT 3C Global, we work to ensure that our clients comply with German law by continuously working to abide by the country’s fundamental contractor compliance principles.
- Ensuring all income is appropriately declared in Germany for the purposes of taxation, irrespective of model.
- Ensuring the appropriate model for each new contractor engagement is analysed on a case-by-case basis by looking at the circumstances of the client, the hiring intermediary (if any) & the candidate.
- Ensuring all involved parties know the potential risks of engaging contingent workers via either model. Contact us for more information on how to compliantly hire contractors in Germany.
In Conclusion:
As we have examined, businesses and staffing agencies must follow many rules and regulations when engaging contractors within Germany. It is imperative to abide by local regulations to remain compliant. Please don't hesitate to contact us if you want to begin hiring contractors or have any questions regarding compliance, German tax law or other contracting queries. The team here at 3C Global specialise in International Contracting and can help ensure your business can benefit from contracting while being compliant.
