Understanding the AÜG License in Germany: A Guide for Employers
Learn the basics of the AÜG and how it affects companies that hire in Germany through an employer of record (EOR).
Summary: Germany’s AÜG (Temporary Employment Act) governs “employee leasing,” where a legal employer (e.g., an employer of record [EOR]) supplies staff who work under a client’s direction, and it requires the legal employer to hold an AÜG license. Key rules include equal treatment (leased workers must receive the same pay/benefits as comparable employees after a set period) and a maximum 18-month assignment to the same client, after which a three-month break or reassignment is needed and each assignment must be documented in an employee leasing agreement (ELA). Trying to bypass AÜG with contractor agreements is high risk and can trigger fines, retroactive taxes/benefits, and legal disputes. Plane is fully compliant in Germany with an AÜG license and can advise on the right approach.If you hire a new employee in Germany under an employer of record (EOR) arrangement, it’s important to understand a key piece of legislation: the AÜG (Arbeitnehmerüberlassungsgesetz), or Temporary Employment Act. This law regulates how temporary employee leasing works in Germany, and it directly affects how you engage with and manage employees.Below, we’ve broken down the basics of AÜG compliance.
What is AÜG compliance?
Under German law, if a person is employed by a legal employer (such as an EOR) but works under the day-to-day direction of another company, this arrangement is considered employee leasing. Legal employers, including EORs, that lease employees in Germany must have an AÜG license, which comes with specific requirements.The AÜG sets rules to ensure fairness and protect employees’ rights. Two of the most important rules are:Equal treatment
After a certain period, leased employees must be treated the same as permanent employees in the client company (i.e., your company) in terms of pay and benefits.Assignment limits
The employee can be assigned to the same client company for a maximum of 18 consecutive months. After this, the employee must take a three-month break before returning to the same client.For compliance purposes, each assignment must be recorded in an employee leasing agreement (ELA) between the client company and the legal employer.Why does this matter?
Following AÜG rules is essential for legal compliance. If the rules are not followed, it can create serious risks for everyone involved, including:- Significant penalties and fines
- Retroactive employment liabilities
- Additional tax and social security costs
How new employees are hired under the AÜG
For new hires in Germany, the standard approach is:Fixed-term contracts
They will typically be hired on an 18-month fixed-term employment contract.Employee leasing agreements
At the start of their employment, the client company will enter into an ELA directly with the legal employer in Germany.If you wish to continue working with the employee beyond 18 months, there are a few possible paths.What happens after 18 months?
When the initial ELA ends, there are a few legal options if you want to keep working with the employee. These options include the following:1. Three-month paid break
The employee takes a three-month break from working. During this time:- The employee remains employed by the legal employer
- The employee continues to receive the same salary and benefits
- You fund the pay and benefits during the break
2. Assignment to a different client company (outside of Germany)
If you have another client company, the employee could be assigned there without a break, but only if:- The employee is integrated into the new company’s operations and follow their instructions
- Their reporting lines are formally updated
- A new ELA is signed with the second client company
3. Direct employment
If you have your own German entity or are a foreign registered employer in Germany, you can employ the employee directly.- This is treated as a transfer of employment under German law
- We recommend seeking independent legal advice before proceeding
Why not use contractor agreements?
Some companies may wonder if they can classify workers as independent contractors instead of employees to avoid AÜG restrictions. However, this is a high risk under German law.If the employee works set hours with company equipment and under direct supervision, the law says they are an employee, no matter what the contract says. Misclassification can lead to:- Heavy fines
- Back payment of taxes and benefits
- Legal disputes over employment rights
Key takeaways
The AÜG protects employee rights in leased work arrangements- The employee can work for the same client company for a maximum of 18 months before a break or reassignment is needed
- Continuing beyond 18 months requires following one of the legally approved options
- Contractor arrangements that bypass AÜG rules are risky and generally not allowed
Questions?
Have questions about the AÜG license? Plane provides EOR services for Germany and is fully compliant, with an AÜG license. We’re happy to answer any questions. Feel free to contact us at support@plane.com.For more information about regulations and best practices when hiring in Germany, check out our detailed Germany hiring page.Related articles
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