As your company grows, you may hire globally to build out your enterprise. International independent contractors are an excellent resource to support various project needs. If you plan to hire contractors in Germany, you must understand how to hire this type of worker.
Hiring independent contractors in Germany
Before you hire contractors in Germany, it’s important to understand the laws surrounding this worker type.
Employees vs. contractors
Every country has varying laws regarding independent contractors, so it’s essential to understand the regulations of the country you’re hiring in. German law recognizes two primary criteria for contractor status — performance and working time.
An employee will have little say in how they perform their job — this includes decisions surrounding work schedule, the type of tasks performed, and the processes used to complete those tasks. In contrast, an independent contractor can choose how, where, and when they work.
Employers may ask employees to work within a set time during specified days each week. Contractors create their own schedule, and employers have no say in when or how long a contractor works aside from the agreed-upon project criteria.
Penalties for misclassification
Abiding by independent contractor laws is essential for mitigating risks. If you hire a worker as a contractor but treat them like an employee, your company may face:
- Social security back payments with annualized interest
- Criminal charges or prosecution
How to hire independent contractors in Germany
The contractor hiring process should involve these three key steps:
1. Carefully conduct interviews
The hiring process will play a vital role in working with independent contractors. Rather than asking questions about performance capabilities and character traits like you might in an employee interview, you should focus on their skills and experience.
2. Create a service agreement
Independent contractors will not be eligible for benefits like vacation leave, sick time, and other benefits that come with employment, but you should still consider the legal side of hiring contractors. Creating an agreement for your independent contractor will lay out the terms of your relationship and prevent any disputes that can arise from lack of clarity.
Items to include in your agreement are:
- Pay rates and arrangements
- Timeline for the project
- Termination conditions
3. Introduce necessities
Introducing your contractor to your company allows the individual to prepare for the new project ahead. These brief introductions can be as simple as introducing your contractor to the people they’ll collaborate with, general workflows, and company tools.
Clarifying these factors from the start can make your contractor feel more comfortable with their project.
How to pay independent contractors in Germany
Independent contractors are not eligible for Pay As You Earn (PAYE) taxation like employees. Generally, employers pay contractors on a project basis with an agreed-upon rate. You should include this rate in your contract agreement. You will not need to deduct any taxes because contractors file independently.
Terminating independent contractors
Independent contractors may be terminated without cause, as long as employers abide by a notice period. This notice period should be included in the contract agreement. Contracting agreements can also include valid reasons for termination, if both parties see fit.
Turn to Globalization Partners when hiring independent contractors in Germany
As an extension of Globalization Partners’ Global Employment Platform™, G-P Contractor allows companies to hire anyone, anywhere, for both short- and long-term projects. Whether you’re hiring employees or contractors, we streamline the process with a single solution for your global workforce. Contact us to learn more.
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE.
You should always consult with and rely on your own legal and/or tax advisor(s). Globalization Partners does not provide legal or tax advice and the information is not tailored to the specific situations of your company or your workforce. Globalization Partners makes no representations or warranties concerning the accuracy, completeness or timeliness of this information. Globalization Partners shall have no liability arising out of, or in connection with, the information, including any loss caused by use of, or reliance on, the information.