By Globalization Partners
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What is an AUG license?
An AUG license (Arbeitsnehmerüberlassung), also known as the labor leasing act, allows agencies and or umbrella companies to lease or contract labor to the German end user (companies based in Germany) without the end user becoming the official employer of the contracted employee.
Why should companies care about an AUG license?
Germany’s labor market is the fourth largest in the world and since the beginning of the Covid-19 pandemic and Europe’s second lockdown, companies have prioritized transforming their ways of working. A recent collaborative study shows that a large portion of self-employed workers who have high-in-demand skills are now referred to as i-Pros (professional intellectuals), and there are currently more than three million i-Pros working in Germany, France, and Spain. Thus, the number of contracted employees in Germany is predicted to further grow within the coming months. The AUG license is a great method for companies in Germany to offer temporary employment and avoid the cost and complexity of hiring a formal full-time employee.
Top 2 AUG license updates
From April 1, 2017, the German Federal Employment Agency (Bundesagentur für Arbeit) introduced new strict AUG licensing regulations.
1. Under the new AUG license, the agency or umbrella company leasing contingent workers is required to be licensed by the German government to help reduce questionable companies in the labor market. There are 28 regulations companies must take into consideration and prove compliance with when applying for their AUG license. Failure to comply can result in fines as high as EUR€500,000.
2. Prior to 2017, there were no restrictions on the period of time that agencies could contract employees through the AUG license. Since the introduction of new regulations, after 18 months, all contractors automatically become the German end user’s official employee. Unless the employee wishes to remain freelance, he or she must seek an alternative contracted company to remain an employee of the agency or umbrella company.
Important aspects of an AUG license companies should consider
- The hiring company (German end user) and the contingent agency and or umbrella company must consider compl[AP1] iance obstacles, such as tax and labor laws in Germany. This is of paramount importance for ensuring a compliant relationship between both parties. On the other hand, under German law a contingent worker is considered an official employee of the agency or umbrella company, and not of the hiring company. Thus, the contract of employment is ultimately made between the contracted employee and the agency or umbrella company. The hiring company (German end user) and the contingent agency and or umbrella company must consider.
- The contingent agency or umbrella company is responsible for managing said contracted employees’ labor laws compliantly. This involves mainly managing social security benefit payments and deductions, health insurance, and salary payments.
- Ultimately, the only responsibility of the hiring company is ensuring a safe working environment for the contracted employee. However, as a result of the Covid-19 pandemic, companies throughout the world are increasingly adopting hybrid working models. According to a recent survey, that polled more than 2,100 people, 58 percent would “absolutely” look for a new job if they couldn’t continue remote work in their current role. As a result, companies have begun allowing employees to work from anywhere, which has led to blurred lines and new obstacles related to ensuring a safe working environment for employees.
- One key question many employers ask is “what if you are a contractor doing business under your own limited company?” In this case, the contractor’s own limited company would need to obtain an AUG license, as in essence, the contractor is leasing themselves as an employee to the German end user. As a result, the contractor is liable for German tax and social security compliance.
How does an AUG license benefit companies hiring in Germany?
There are three major benefits an AUG license can provide for companies hiring in Germany. These include:
1. Allowing companies to be more agile and adaptive to the changing economic and business environments: An AUG license opens hiring opportunities for German companies. This is true whether they’re looking to fill a part-time role or one that’s full-time for 18 months, or hiring a remote hybrid team. Additionally, an AUG license is a great way for companies to trial new talent on their team, and if it is a successfully collaboration, companies might even decide to hire contracted workers full-time.
2. Meet short-term business requirements: An AUG license can aid companies in achieving their short-term business requirements, which could be caused by employee turnover, maternity leave, or employee sick leave. In these instances, as soon as the demand is met, companies can easily downsize contracted employees.
3. Lower hiring costs: Hiring and onboarding permanent employees can be an expensive and difficult task. An AUG license gives the HR department more flexibility when it comes to hiring for project-related work.
Obtaining an AUG license can be a daunting task for many companies looking to hire contracted workers in Germany. However, we recommend consulting a trusted EOR (Employer of Record) that can seamlessly guide your HR team through the AUG licensing process. Contact us today to speak with one of our experts.