Key Takeaways
- The Temporary Employment Act, known as the AÜG (Arbeitnehmerüberlassungsgesetz) license is a key element that regulates the temporary assignment of workers when hiring in Germany.
- Regulations are designed to safeguard the rights and well-being of temporary workers and the broader workforce.
- Maintenance of the AÜG license means ensuring adherence to several regulations covering various critical facets of employment under the Employee Assignment Act.
- Non-compliance with the license carries significant consequences, which can result in fines and impact companies operating in the contingent labor market.
Understanding the nuances of the Temporary Employment Act in Germany is crucial for businesses looking to hire temporary workers in Germany.
This article aims to shed light on the AÜG license, its requirements, and the implications it holds for hiring practices in Germany.
What is AÜG?
The Temporary Employment Act, known as AÜG in German (Arbeitnehmerüberlassungsgesetz), governs the relationship between a temporary employment agency, referred to as the “Provider,” and the user, known as the “Hirer.” Central to this framework is the AÜG license, a key element that regulates the temporary assignment of workers when hiring in Germany.
Employee Agreements under the AÜG setup |
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✔ Preferred option when hiring employees in Germany |
✔ This setup allows full scale compliance as an EOR like Horizons is fully licensed under the AÜG setup in Germany. |
✔ Client can have an entity and presence in Germany |
✔ License removes risk of direct employment claims |
✔ Maximum duration of the lease is 18 months |
Why is AÜG relevant for EOR projects?
The AÜG license, short for “Arbeitnehmerüberlassungsgesetz” in German, translates to the Employee Leasing Law. This license is highly relevant for an Employer of Record (EOR) operating in Germany for several reasons:
01. Legal Compliance and Risk Mitigation: An AÜG license is a legal requirement for any Employer of Record (EOR) operating in Germany, ensuring compliance with the country’s strict labor laws. This compliance is crucial for legally leasing employees to client companies and mitigates the risk of legal penalties or sanctions.
02. Protection of Employee Rights: Holding an AÜG license ensures that the EOR adheres to regulations regarding employee rights and working conditions in Germany. It guarantees that temporary workers receive fair treatment, equitable wages, and benefits, aligning with the protections afforded to permanent employees.
03. Market Credibility and Client Confidence: An EOR with an AÜG license is seen as credible and reliable in the German market. This license assures client companies that the EOR is authorized and proficient in managing the complexities of employee leasing in compliance with German labor laws.
04. Operational Flexibility for Clients: For businesses in need of temporary staff, especially in sectors with variable demand, an EOR with an AÜG license can provide staffing flexibility while ensuring all legal requirements are met, offering a hassle-free solution for managing a contingent workforce.
These points encapsulate the significance of the AÜG license for an EOR in Germany, highlighting its role in legal compliance, employee rights protection, market credibility, and operational support for clients.
Looking to hire in Germany without setting up an entity? Check out the image below:
What are the regulations companies need to comply with to maintain an AÜG license
In Germany, companies using an Employer of Record (EOR) must comply with key regulations, particularly concerning the 18-month rule for employee leasing:
01. 18-Month Limitation: Under the AÜG (Arbeitnehmerüberlassungsgesetz), there is an 18-month cap on leasing an individual employee to the same hiring company. After this period, the employee must either be hired directly by the company or replaced by another leased employee.
02. Equal Treatment: Leased employees must receive equal pay and benefits as comparable permanent employees of the hiring company after nine months of employment. This rule ensures fair treatment of temporary workers.
03. Documentation and Reporting: EORs are required to maintain accurate records and documentation of employment durations to ensure compliance with the 18-month rule. Regular reporting to labor authorities may be necessary.
04. Notification and Consent: Companies must inform their works councils (if applicable) about the use of leased employees. Furthermore, explicit consent might be required for employee leasing agreements.
Failure to comply with these regulations can lead to significant fines and legal consequences. It’s crucial for EORs to monitor and manage these aspects meticulously to ensure lawful operations and avoid potential liabilities for their clients.
What happens when a company does not comply with AÜG regulations?
Non-compliance with the stringent regulations outlined by the AÜG license in Germany carries significant consequences, manifesting in potential fines that can be substantial and impactful for companies operating in the contingent labor market. The stringent enforcement of these penalties underscores the gravity with which German authorities approach the regulation of temporary employment practices.
Here’s an in-depth exploration of the repercussions of failure to comply –
01. Financial Ramifications:
The fines levied for non-compliance with AÜG license regulations serve as a robust financial deterrent. Companies found in violation of these regulations face the prospect of substantial monetary penalties, creating a strong incentive for adherence to the prescribed standards. The severity of these fines reflects the importance placed on maintaining ethical and legally sound employment practices.
02. Scale of Fines:
The potential fines associated with non-compliance can escalate based on the nature and extent of the violations. Authorities assess fines proportionate to the severity of the breaches, with more egregious violations incurring higher penalties. This tiered approach ensures that companies are held accountable for the magnitude of their deviations from the established regulations.
03. Up to EUR€500,000:
The upper limit of fines, reaching up to EUR€500,000, underscores the gravity of non-compliance with the AÜG license regulations. This substantial penalty serves as a clear warning to companies, emphasizing the legal authorities’ commitment to maintaining the integrity of the contingent labor market and protecting the rights of temporary workers.
04. Legal Proceedings:
In cases of non-compliance, legal proceedings may be initiated against the offending companies. This involves a formal legal process wherein the company is brought to account for its deviations from the AÜG license regulations. Legal proceedings can be time-consuming, further adding to the potential costs and disruptions faced by the non-compliant entity.
05. Reputation Damage:
Beyond the financial implications, companies found in violation of AÜG license regulations may suffer reputational damage. Public scrutiny and negative perception can arise, affecting relationships with clients, business partners, and potential talent. Maintaining a reputation for ethical employment practices is crucial in the contemporary business landscape.
06. Mitigation and Remediation:
In some cases, companies may be given an opportunity to remedy their non-compliance by implementing corrective measures. However, this is subject to the nature and extent of the violations. Taking prompt and effective action to rectify issues can, to some extent, mitigate the severity of fines and other repercussions.
A global employment service can help ensure that companies maintain their AÜG license.
Horizons’ German entity is fully licensed as per the AÜG. Our German entity and AÜG license are administered by the reputable law firm DWF and undergo an annual audit with the German labor authorities.
What are the limitations of AÜG?
01. Maximum Assignment Duration: The AÜG limits the duration a temporary worker can be assigned to the same client company, typically up to 18 months. Beyond this period, the worker must be offered a permanent position or reassigned to prevent continuous temporary employment without the benefits of permanent status.
02. Equal Pay and Benefits Requirement: Temporary workers are entitled to the same pay and benefits as permanent employees of the client company after a specified period, usually 9 months. This rule ensures fair treatment and prevents discrimination against temporary employees.
03. Strict Licensing and Documentation Compliance: Companies providing temporary employment services must obtain an AÜG license, which requires adherence to stringent regulations. Additionally, detailed records of all temporary employment contracts must be maintained and reported to ensure transparency and legal compliance.
How can employment continue after the 18-months period?
When employing staff through an Employer of Record (EOR) in Germany, continuing employment beyond the 18-month limit set by the AÜG (Arbeitnehmerüberlassungsgesetz) can be approached in a few ways:
01. Direct Employment: After 18 months, the most straightforward option is for the client company to hire the employee directly. This means transitioning the employee from being under the EOR’s employment to becoming a permanent staff member of the client company, thereby adhering to the AÜG regulations.
02. Rotation of Employees: If direct employment is not feasible, companies can rotate employees. This involves replacing the current temporary worker with another, allowing the client to continue receiving the necessary labor without violating the 18-month rule. After a specified break period, the original employee could potentially be reassigned to the same client.
03. Renewal after a waiting period of 3-months: If the employment with the same employee needs to continue, a waiting period of three months can reset the 18-month clock. This means that after a break of three months, the same temporary worker can be re-employed under the EOR for another 18-month period, adhering to AÜG regulations.
Each approach requires careful legal consideration to ensure compliance with labor laws while extending employment beyond the initial 18 months.
If you wish to discuss employment solutions beyond 18 months, speak to a member of the Horizons Sales Team to learn more.
Frequently Asked Questions (FAQs)
The Federal Employment Agency (Bundesagentur für Arbeit) in Germany is responsible for implementing the Act.
The AUG license is valid for one year. After three consecutive years of operations, an “unrestricted” permit with no expiration can be granted by the Federal Employment Agency.
Yes, these terms refer to the same licensing requirement.
Yes, contracts can last a maximum of 18 months. After 18 months, there are different solutions. After 18 months, the employee can be deployed to another client entity for another 18 months.
