Umbrella contractors, want to work in Germany? Here’s how

As Europe’s largest economy, Germany has long been rich with opportunity for contractors seeking assignments overseas. The coronavirus pandemic however, impacted demand for talent across the region.

Yet now, we’re seeing the country bounce back more rapidly than other nations, writes Michelle Reilly, CEO of 6CATS International.

Europe’s economic powerhouse, still

In fact, the Bundesbank recently announced that the German economy is on the verge of recovering the ground lost during the pandemic and, according to the country’s Federal Statistical Office, economic output increased by 1.5% during the second quarter of 2021 alone, and will continue to rise.

This activity is unsurprisingly boosting demand for skills. But talent gaps across the market are now evident. The federal government’s Integration Commissioner, Annette Widmann-Mauz, has attributed a critical shortage of workers to a significant drop in migration to Germany, saying:

“The number of additional skilled workers and workers from the EU in Germany fell by around 25 per cent last year.”

Two contracting models to contract in Germany

For contractors looking to capitalise on this talent-scarce, candidate-driven market, here’s what you need to know.

Firstly, and most importantly, UK nationals cannot work automatically in Germany, or anywhere else in the EU following Brexit.

Instead, and as we advised previously to a reader of ContractorUK, a work permit needs to be obtained by the end-user employer. Unfortunately, these are very hard to secure and can take months. That perhaps explains why generally, most contractors working in Germany are EU citizens. But for those of you who do persist with wanting to work in the federal republic, it is worth remembering that the German authorities are very strict in interpreting the legislation.

For EU professionals seeking work in Germany, ensuring you are operating compliantly is a real challenge. And it’s a challenge that is wrought with complex legislation. There are two contracting models available in Germany:

1. the local self-employed, ‘contract model’ (which is split into two distinct areas: sole trader ‘Freiberufler’ or a limited company – ‘GmbH’), and;
2. local in-country payroll – in Germany this is called the AÜG model.

While you may come across a limited company in Germany, it’s much less common than the sole trader option, but the local in-country payroll model is certainly something to look into if you’re considering contracting in the Berlin-run nation.

Germany’s AÜG model: explained

As to the AÜG model, it is employment with labour leasing – because essentially, an entity employs a worker and then leases them on to a third party. So if you are being ‘leased’ as a temporary agency worker by a business, that firm needs to have an AÜG license.

In our experience, the in-country payroll route is not a popular option for overseas contractors. In fact, research from the Association of Professional Staffing Companies has shown that 75% of highly qualified German freelancers would not accept an AÜG role unless it was their ‘last resort.’ And 59% would not consider it at all - even if this meant they had no current project!

That said, in some instances, the end-client will insist on this model. It is important to be aware that in Germany, AÜG and worker status classification are highly regulated. As such, there are very strict rules surrounding the application for an AÜG license, including what terms need to apply and how it’s monitored and audited.

Nonetheless, it is possible for you to be leased for a project through a third party that has a license. But even then, be aware that the company with the AÜG licence must hold the end-client contract, to avoid ‘chain leasing’ – a practice which is now illegal.

Three conditions for classification

As to determining whether you are suitable to work under the contract model or through AÜG, your recruitment agency or contractor management company should be able to advise you in more detail. However, to make the classification there are a number of things that will be required:

• A clear job specification – that demonstrates enough of the role to highlight why you are being brought in as a contract expert and not a full-time employee.

• Confirmation that you (as the contractor) will provide your own equipment/tools (N.B. Currently, also consider that for on-site assignments, this may include PPE).

• Consultants should also be able to demonstrate absolute autonomy in their own work.

Insurance, licence, partners and covid rules

Unfortunately the must-dos don’t end there. Contractors who want to work in Germany should also have their own locally recognised professional insurances (notably ‘PI’ & ‘PL’). If German authorities were to audit and challenge your deemed employment status, this cover demonstrates that you are paying something, in financial terms, to guarantee the work you’re delivering and are, by implication, independent.

But additionally, the agency you operate through as a contractor will require a valid AÜG licence to operate an AÜG model engagement. Or the agency can engage a partner that holds an AÜG licence.

In our experience, the AÜG model works best when a fixed monthly salary can be agreed between yourself (the contractor) as the ‘Temporary Agency Worker’ and the client. Please note though, the maximum term for an AÜG engagement is 18 months. And after the 18-month period is up, a three-month gap is required, after which time, you as a contractor can be engaged for a further 18 months.

Penultimately, another word on the current climate. It is important to factor in that Covid-related workplace rules in Germany and its regions are dynamic, and so should be researched before contractors begin an assignment. Be aware that since July 2021, the statutory obligation to work from home no longer applies, despite employers still voluntarily allowing employees to work from home.

Further consider that a case before the Cologne Labour court this summer demonstrated, a violation of obligation to wear a face mask in the workplace can justify ‘extraordinary termination.’ The long and short of it? Actively keep abreast of what is expected of you personally in your workplace in Germany, in these still uncertain times. 

Ultimately, are you one of the 270,000 Germany needs?

We started this piece with economics and so let’s close with them too. The European Commission predicts that the 19-nation euro area will recover pandemic-related economic losses by the end of 2021. Before the year is up, our bet is that Germany’s heavy focus on industry will continue to help it navigate the pandemic better than most of its tourism-dependent peers. But this comes at a time when the country is still short of some 270,000 skilled workers. It’s clear, then, that professional contractors are likely to find Germany a highly lucrative destination yet it’s equally abundant that operating compliantly is of paramount importance, or contractors could face potential fines, even criminal charges.