There are plenty of compelling reasons to expand your business into Germany. But without your own legal business entity in the country, most people believe the only option to engage workers in Germany is via an AUG license. And the AUG license in Germany comes with a big limitation in the form of an 18-month maximum contract.
But there’s another totally legal option you may not be familiar with. Instead of temporary employment through an AUG license, your international business can outsource project-based services through a consulting company (or an LTD).
Let’s compare the two options.
Using an AUG license in Germany
The AUG license allows for temporary work or fixed-term employment in Germany without your own business entity in the country.
It’s a triangular arrangement in which an employment leasing firm like Safeguard Global hires an employee through its entity on the client company’s behalf. In an AUG arrangement, all three parties communicate and collaborate to make sure the client’s work gets done. Employment liability is equally distributed across all three parties.
The AUG engagement is limited to an 18-month maximum, at which point the client company must either:
- End the contract;
- Pause the contract for at least 6 months;
- Or hire the employee full time through its own entity.
If the client wishes to terminate an AUG employee before the end of the employee’s contract, the termination settlement and any employee disputes legally fall on the end client. Of course, reputable labor firms provide guidance for compliant termination, but if the employee is unhappy with the termination and/or settlement, the actual liability is claimed against the end client.
There are a few situations when it makes sense for your international company to work with German professionals via an AUG license:
- If you want to expand into Germany but are still in the process of opening a German entity, it’s quicker and easier to hire with an AUG license. It’ll help you get started while you get your legal business up and running.
- If you already have an entity in Germany, you can hire temporary employees for specific roles you don’t need permanently. For example, an IT professional for a specific technology upgrade or a seasonal assignment.
- An AUG license offers a temporary solution to test the local market. During the 18 months, your company can assess whether to open its own German entity or branch.
- The AUG license is a common solution for hiring the field workers your business needs to provide service to customers in Germany. For example, you may need an engineer, technician, mechanic, machinery auditor, or geologist on site. Or you may need a sales associate to audit how solutions are installed at a client location.
Many people—including some of our competitors—believe the AUG is the only legal way to get work done in Germany without your own legal entity. But contrary to popular belief, this just isn’t the case.
Using consulting services in Germany
So, what’s consulting all about?
A consulting arrangement allows an international business to outsource project-based-work to an employer with a legal German entity—such as Safeguard Global. Client businesses (e.g. you!) outsource projects to us, and we hire the people necessary to deliver these projects as our own full-time employees.
Let’s say your business needs to deliver an IT assignment in Germany that requires 10 people. We find the resources suitable for the project, hire the employees as our own, manage these employees and their assignments, etc. These employees also receive full benefits, such as a pension, social security contributions and healthcare.
With the consulting approach, there is no constricting 18-month term. Safeguard Global can hire the employees for an indefinite term, and client projects can last as long as they need to (with continuity in key players).
Another key difference is liability. In a consulting arrangement, the consulting provider (Safeguard Global) is 100% liable for employment—not you.
It may make sense for your international company to take advantage of a consulting arrangement in Germany if:
- You need specialized work performed in Germany and are concerned a fixed-term employment contract (through AUG) will limit your resourcing options.
- You do not want to assume any liability for employment but need to develop a new project in the local market. With consulting services, Safeguard Global assumes 100% liability for employees and delivers the project locally on your behalf.
Split three ways
100% on full-time employer
Isn’t the AUG license Germany’s only legal option?
No, the AUG is not the only legal option. Consulting services are also a completely legal option for getting work done in Germany.
If you want the triangular relationship with shared liability and the option to terminate at 18 months, your only legal option is the AUG license. But providing project-based services is not considered employment.
In our consulting agreements, we hire the employees as our own full-time employees. We have staff in Germany that manage these employees—assigning their projects, managing deadlines and expenses, approving time off, etc. They are 100% Safeguard Global employees.
Keep in mind: A consulting company is NOT a company of record. It is NOT an employee leasing firm. A company like Safeguard Global that offers consulting services in the German market is the official employer of full-time, indefinite-term employees.
Benefits of project outsourcing
For many situations, a fixed-term AUG contract will work just fine. But there are a few advantages to considering consulting services instead.
The most obvious benefit is that we can employ workers for an indefinite amount of time. There’s no 18-month limit, so you can be confident there will be continuity in your project.
Liability is also a big advantage when it comes to consulting. If employees are terminated or require compensation for an accident, illness, or injury—we’re on the hook, not you.
Finally, Germany’s top talent typically expects stability and benefits. We offer indefinite employment terms with the perks local talent are used to, so we ensure you get the resources you need to carry out complex projects.
Will the 18-month AUG maximum ever change?
Probably—but who knows when it will happen? The pandemic created a work-from-anywhere fever, and people don’t want to go back to the office like they used to. All kinds of employment norms are shifting, and the 18-month fixed-term is a limiting factor that doesn’t make sense for many businesses and their workers.
But for now, you’re stuck with two options: AUG and consulting. We offer both, so take your pick—and we’ll worry about all of the local German laws and cultural norms, German employer taxes, and other headaches.
Talk with one of our global solutions advisors to learn more about the intricacies of employing workers in Germany.