If you are keen to employ new talent and expand your business in Germany, EORs offer a solid short-term solution. Read on to find out how EORs work and how you can continue employing compliantly in Germany.
Employer of Record (EOR) structures are stringently regulated in Germany. Known locally as “labour leasing” companies, EORs become the legal employer of employees on behalf of other companies. They take over key functions like payroll, benefits, and onboarding.
EORs have a long history in Germany, with their earliest forms beginning in the 1920s. By 1931, EORs were fully legally responsible for their employees. Though the concept of EORs is not new, it is a highly popular, compliant, and affordable means for hiring the best talent, entering a new market, and company expansion. With the rise of remote employment, EORs are providing remote friendly and remote-first companies with the flexibility and legal means to grow globally.
If you want to hire remote talent compliantly in Germany, you will need to know how the current EOR structure works. Here we outline the legal ramifications, as well as short-term and long-term solutions for compliant remote employment in Germany.
Germany limits the amount of time an employer can employ staff via an EOR to 18 months. The government wants to encourage companies to set up shop more permanently and to pay corporate taxes in Germany. EORs provide a means to avoid this, so the government wants to ensure companies can’t use or misuse EORs in the long-term.
Employing through an EOR could still trigger Permanent Establishment (PE) risk for you, for example, if an employee is conducting profit-generating business activities on your behalf. Such activities include concluding a sale. But remote employers and their partnering EORs will know how to minimise their exposure to PE risk.
By employing for only 18 months, overseas companies have the opportunity to test the waters before making the decision to set up a legal presence in Germany.
Unfortunately, there is another catch. The 18-month rule applies to an employee that has been working for you previously outside of Germany also.
So, for example, if an employee who has been working for you in London for 6 months relocates to work remotely from Germany, you will only be able to employ them via an EOR for 12 months. This is the case regardless of whether you employed them through an EOR or otherwise.
Moreover, this time period also applies if there were gaps in employment, provided that these gaps were less than 3 months.
This also provides a compliant short-term solution. If an employee stops working for you for over 3 months, this means the timeline resets and you can employ them through an EOR for 18 months again.
Though this can provide a short-term employment fix, re-employing numerous employees or staff that are integral to your workflow is cumbersome. You will likely find your productivity hampered. It may also affect your employee retention if your staff find themselves unemployed every 18 months.
If you don’t want to employ on such a short-term basis, but you also don’t want to set up an entity either, Omnipresent can provide you with the ideal middle-ground solution.
In Germany, you can register your existing company as a “foreign employer”. This means you will have a virtual presence in the country. You do not need to open a foreign subsidiary, new company, or even an office. Once the set-up is done, you can sit back and let us handle the rest.
As a global EOR and remote-first company ourselves, Omnipresent is ideally positioned to help you employ remotely and compliantly in Germany. We take over contracts, onboarding & offboarding, payroll, and benefits for your Germany-based staff. And though the same PE risk applies as with an EOR, we can help you mitigate it. You can enjoy the benefits of a fully compliant EOR service - but without any limits on the length of employment.
Get in touch today for a free consultation to begin employing remotely in Germany.
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