An AUG license is required to assign contractors to Germany to provide services for a German end client, i.e. the company whose project the employee is working on. The license allows an agency or umbrella company to lease labour (e.g. the contractor as an ‘employee’) so that the German end user/client does not become the employer. Most companies that hire contractors are trying to avoid the cost and complexity of a formal employee, so the AUG license allows that to happen. To avoid non-compliance, the AUG route is one that many clients choose and at TCP Solutions we are one of the few employment businesses to hold the AUG license, and have done so since 2007. We can employ staff on behalf of a client, and place them at our client’s site for a limited amount of time. By having an AUG license we can ensure that all their contractors are working compliantly under the German tax system. This also protects contractors from any infringements of German tax law.
Here is an example of how the AUG license works
- Company A needs help with a software project. They reach out to a recruitment agency, Company B.
- Company B says, “Sophia would be perfect for your project” and assigns Sophia to work on Company A’s software project. Company B don’t have an AUG license so they need an umbrella company who holds an AUG license to be able to employ the candidate. They get in contact with an umbrella company, Company C.
- At this point, Sophia may work for 18 months for Company A while still being employed by Company C.
- After 18 months of employment at company A, employed by company C, the employee automatically becomes a permanent employee at company A, if he/she works there for just one day after the AUG contract ends. Meaning, the end client then has to take on the contractor as an internal permanent employee and pay them accordingly + social contributions.
Reasons why companies hire through AUG
For some businesses, it gives them the option to hire temp staff for certain projects without having to permanently employ and then terminate them (which is complicated to do in Germany). Some businesses hire through AUG because it’s more cost effective and gives them flexibility.
Another main reason is “Scheinselbstständigkeit” (Bogus self-employment). A few years ago many large well-known companies got in trouble for hiring contractors (self-employed people) and keeping them on for years and years. Freelancers usually earn more money than internal staff, this is due to the fact that companies do not pay employment costs for freelancers. Therefore, it becomes more economical for companies to hire external people and keep them on for as long as possible. To avoid this bogus self-employment, the tax authorities agreed that certain industries should not be hiring freelancers altogether, to avoid tax fraud. In order to work compliantly and follow the tax rules property, without any tax avoidance or running any risk, many companies now operate through AUG.
AUG Rules and Regulations
Failure to comply with AUG licensing requirements could result in the end client becoming the employer. The company of record that is employing the worker must have an AUG license in order to contract out the employee. If the company does not have an AUG license or fails to comply with the AUG license requirements, the end client, i.e. the company whose project the employee is working on, will be considered to be the worker’s employer.
What does this mean for you? If you’re considering using an employee leasing firm or Global PEO, make sure they have an AUG license and find out if they are fully compliant with current regulations. Otherwise, you could unwittingly become the employer. Additionally, keep track of how long your contingent employee is on your project so that you don’t inadvertently become his/her employee.
Another interesting aspect of AUG is “Equal Pay”. Equal Pay was introduced because the German government wants to avoid people being taken advantage of. After 9 months of being lent to company A, the employee is entitled to a competitive salary that is the same as if he/she was employed directly by the company. There is also “Equal Treatment”, which is similar to “Equal Pay”, just not for pay per se, but other financial allowances such as a company car, shares in the company, free food and beverages etc.
How TCP can help?
With an AUG license and (fully staffed) local offices, we have the authorisation to carry out labour leasing activities in Germany and are able to help recruitment agencies and their contractors to take full advantage of the potential and flexibility of the German market.
If you would like to find out how TCP can help you employ contractors in Germany, you can contact a member of our sales team on +44 (0)2085800800 or via email on firstname.lastname@example.org.
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