New Regulation to German Temporary Employment Act

New Regulation to German Temporary Employment Act

In an effort to support the growth of the local economy, the German government is imposing stricter regulations on companies that utilize temporary employment or employee leasing practices. A recent update to the German Temporary Employment Act, named ArbeitnehmerÜberlassungsGesetz, has put a limit on the amount of time companies can employ someone with a temporary contract in Germany.

 

This new update will affect companies who already have established operations in the country as well as those exploring Germany for growth opportunities. In this post, we discuss what the new regulation is and what it means for companies with operations in Germany.

What is the New Regulation?

The new law, which went into effect April 1, 2017, states that a leased employee can only be employed by a for a maximum of 18 consecutive months. If an employee has reached their 18-month limit, they must either be hired full-time through a German entity or replaced by another leased employee for the same position. However, if an employee takes a break from the company for a minimum of three months, the person can return to the same position as a leased employee for another 18-month period. Prior to this update, there was no strict limit in place regarding temporary employment practices in Germany.

This addition to Germany’s employment law aims to keep companies with operations in the country more accountable. The German government wants to ensure companies benefitting from their growing economy are making the proper social contributions and actively participating in improving the economy. Companies that fail to comply will likely face severe fines.

What Qualifies as a “Leased” Employee?

Employee leasing is a practice where a third party, such as an International PEO (Professional Employer Organization), acts as a bridge solution between a company and its international employee. These employees perform the tasks and duties requested by their overseas employer, while the International PEO handles HR and legal functions to ensure compliance.

International PEO is an employment relationship that allows companies to explore new global markets while maintaining an agile approach. This Employer of Record solution provides HR services and support to employees in international offices where companies may not have the resources to handle it in-house. International PEO helps ensure compliance, mitigate risk, and allows companies to avoid setting up an entity right away. Additionally, if a company decides to stop operations in a country, International PEO helps ensure a compliant exit.

What Does This Mean for Companies?

Beginning April 1, 2017, persons employed under this practice can remain working for their employers in the same position for 18 months. Those still employed through this solution after 18 months must either find a new position or be able to prove their employer is in the process of setting up a German entity.

This new regulation gives companies up to 18 months to test their potential for success in the German market. If a company is in-country and does not see success, the flexible International PEO solution allows them to stop operations without having to go through the process and costs associated without tearing down an entity. However, companies that find success now have a safety period to determine if entity establishment is the right path forward. Bear in mind that establishing an entity can be an arduous process, and companies should make sure they understand the costs, risks and time associated before making this decision.

If this update to the German Temporary Employment Act has you concerned about your Germany operations, you are not alone. However, your International PEO partner is there to help guide you. We understand how local labor laws will affect your company and can walk you through your options for employing workers in Germany.

Stay on top of employment law updates in any of your target countries. Reach out to our team of global experts to help you maintain compliance overseas. We take a proactive approach to expansion to help our clients realize global success and avoid obstacles.

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