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Using a PEO in Germany
Today we will explore using a PEO service, also known as an Employer of Record, in Germany.
Germany is set to enjoy a continues period of sustained economic growth over the next 5 years according to the IMF and as the 4th largest economy in the world it no wonder companies look to do business there.
Doing business in Germany is quite unique. The Germans are renowned for ‘efficiency’ and rules. Employing and working there this is no exception. The German system contains a comprehensive set of rules and procedure for almost any situation. Be aware that non-compliance is not an option, its 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 to 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 it 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. The 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.
So, how do you employ people in Germany? The most common way to employ people in Germany is through a German Limited company (GMBH). This is fine if you are 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? In these situations a labor leasing arrangement would work.
Like most things in Germany the leasing of employees has been looked at, defined, and legislated for. The resultant Labor Leasing Act governs the act of employee leasing in Germany, including German PEO services, German Employer of Record services, German ‘Contractor’ client relationships and generally any type of employer employee relationship that is not a simple direct employment between a German company and its employee.
In Germany Labor can be leased through a leasing company or PEO company subject to certain conditions. Firstly, the company must hold an AuG license (Arbeitnehmeruberlassung). This is a license that is issued by the German labor ministry and governs what can and can be done. Although its complex a good provider (Like PEO Worldwide) 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 (leasee) or let go.
- 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 MSP’s in the direct contractual chain.
- Equal Treatment - All employees leased to a client should receive the same benefits as the clients ‘native; employees. This forms part of the contract and due diligence must be carried out by both the leasor and leasee.
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 incorporate in Germany.
If you are looking to hire in Germany or incorporate directly we are happy to help. Feel free to contact us