1. An AUG license can also be referred to as an ANU license, or a labor leasing license. This license is mandatory for any person or entity looking to hire temporary workers in Germany.
2. Germany has a large labor market, with highly skilled individuals of varying expertise.
3. AUG contracts can only last up to 18 months, meaning after this period contractors must take a ‘cooling-off’ period from the original client or find a new contract to take on.
4. Hiring A Global EOR/PEO with a valid AUG license is the easiest way to hire contractors in Germany quickly, and will ensure all compliance and payroll obligations for your new employee are managed and maintained to the standard expected by the German authorities.
Germany has the 4th largest labor market in the world, with a surplus of highly skills and highly educated individuals, making it a sought out destination to hire temporary workers or contractors. However, doing business in Germany whether to open a business entity on the ground, or by contracting German talent, is a complicated process.
However, Germany also has stringent employment laws (such as the requirement for employers to provide a ‘works council’, a committee of employees representing their interests within the company). This means any business moving into Germany for the first time should also consider the rules around AUG licenses (‘AÜG licenses’).
This article will discuss all you need to know about AUG licenses, including what the requirements are, how to apply for one, and all the benefits and shortcomings of being part of an AUG license arrangement.
What are the requirements of an AUG license?
As part of the Temporary Employment Act, written in German as the Arbeitnehmerüberlassungsgesetz, it is a requirement that any person or company that contracts or leases out employees must have a Arbeitnehmerüberlassung license. This is otherwise shortened and referred to as a AÜG license or ANU license, or in laymen’s terms a ‘labor leasing’ license (Note, this is not to be confused with the way the term ‘labor leasing’ is used in the USA. Read more in our Guide to Employee Leasing). An AUG license is mandatory and non-compliance in any respect comes with hefty consequences for all parties involved.
Whenever AUG licensing is discussed in the German context, it denotes that there is a triangular arrangement of entities working together. The three entities associated in such an arrangement are:
- An original company that sought to hire a contractor with specific expertise or skills
- An entity (generally a staffing or leasing agency) that holds an AUG license and acts as the legal employer for the original company that sought contractors
- The contractor
Temporary workers or contractors under AUG contracts are afforded equal treatment as those employees who work directly under the client. Some rights that apply are the right to minimum wage, the right to access communal workplace facilities and the right to access internal job openings by the employer.
How an AUG contract differs from full-time employment in this regard is that full-time employees have more protections related to unfair dismissal, annual leave, notice periods and other protections stipulated under German employment law. Non-compliance with these conditions can result in hefty fines,
How does a company or individual apply for an AUG license?
There are generally three types of entities that can apply and hold an AUG license and legally hire employees in order to contract them out to a third-party entity. They could be an:
- An individual
- A company such as a labor leasing company or an Employer of Record (EOR)
- A local or international company seeking contractors
Applying for an AUG license is a complex bureaucratic procedure and must be done at the Federal Employment Agency (FDA), the issuing and oversight authority AUG licensing. There are several documents that need to be prepared so that the application process can run smoothly. If a company has an existing registered business within Germany, there are 11 documents that must be translated into German and submitted to the FDA. These documents include:
- A completed application form
- Commercial register extract
- Partnership agreement
- Business Registration
- Evidence of the application for an extract from police records
- Employer liability insurance certificate
- Central business register information
- Health insurance certificates of employees
- Proof of liquid funds (minimum €10,000 for up to five employees; €2000 for each subsequent employee)
- Work contract model
- Temporary employment contract model
If a staffing agency or individual does not have a registered business within Germany, there are further documents required on a case-by-case basis. If all required documents are approved then an AUG license will be granted for an initial term of one year. Renewals must be made before 3 months of expiry. In order to become eligible for an open-ended AUG license, the company or individuals must comply with all regulations as outlined in the Temporary Employment Act and have had no complaints for a period of three years.
How long does an AUG contract last?
An AUG contract can only last up to 18 months. If a company keeps the contractor on longer than this (either knowingly or unknowingly), then they automatically become their legal employer and will be subject to all statutory obligations listed under German Labor Law. It is possible to re-enter into a new AUG contract with the same contractor and client only after the contractor has had a 3-month “cooling off” period after the original contract has ended.
What are the benefits of an AUG license?
There are several benefits associated with an AUG license and the relationships involved in the collaboration. Although benefits differ for all parties in an AUG license, as a whole, doing things in this compliant manner can be a lucrative endeavor for all parties involved. Some key benefits include:
For the original company (client company)
- Your company can acquire and retain top talent in Germany
- You can be assured you are meeting your tax and labor obligations in Germany
- You can quickly expand your business operations into Germany without having to open a German entity
- You can hire for seasonal or short-term projects that would not fit permanent employment
- It is a good opportunity to test the local market as contracts last 18 months
As the acting employment entity
- As a holder of a AUG license, the entity can legally operate as the staffing provider to international companies
For the Contractor
- Holiday pay is accrued
- Sick pay is accrued
- Health insurance can be organised by the contractor or by the acting employment entity
- Unused holiday pay will be paid at the end of the contract
- Expenses associated with employment can be used as a tax-deductible expense that may be returned upon annually filed tax return by the German tax authority.
What are the shortcomings of an AUG license?
Despite the benefits, an AUG license does have some shortcomings. These shortcomings relate to complex compliance obligations, hefty fines for breach and the restrictive time limits that AUG contracts can be termed with.
- There is a processing fee of €1,300
- AUG licenses have a deployment limit of only 18 months
- There are a total of 28 regulations that must be considered and complied with for any holder of an AUG license
- Not everyone that applies for an AUG will be approved.
- Fines vary between €30,000 to €500,000 for non-compliance
- Auditing and oversight activities by the FDA are frequent, especially for newly AUG licensed companies
- Maintaining a AUG license is a costly endeavor with renewals required annually until open-ended license is attained
- It is difficult to be granted an open-ended AUG license and appeals are common
- Open-ended licenses do not have an open-ended expiry in cases of non-use, and can expire if not in use for three years. This would require an agency or individual to reapply for a new AUG license.
Horizons as your AUG licensee in Germany
If you are looking to expand into Germany quickly or even just want to test out the market and see what it can do for your company, then Horizons can help support you with hiring highly skilled German contractors. Horizons is a leading German PEO or Employer of Record(EOR) that has a valid AUG license meaning they can take care of all administrative, tax, payroll and compliance tasks associated with any contractors being hired in Germany.
Frequently Asked Questions (FAQ)
An AUG license is a mandatory labor permit required for any person or company that lease their employees out as contractor to German end clients. International companies can apply to have their own AUG license; however, it is then required that they be well versed in all aspects of German employment law to ensure all tax requirements and compliance obligations are maintained.
An AUG contract is generally a collaborative contract between a client company, an AUG licensed entity and a contractor. All parties play a role in ensuring all obligations are met for each new AUG contract. The AUG licensed entity is responsible for all payroll and compliance obligations under the Temporary Workers Act in Germany. Each AUG contract can only last up to 18 months.