The Parakar Guide to AUG License
If you’re considering hiring employees in Germany, it’s important to understand the AUG license and the labor laws that apply. Germany offers great business opportunities, but you need to comply with the country’s regulations for sustainable growth. Parakar, can help you enter the German market with or without establishing a local entity. In this article, we’ll discuss the AUG license and the laws you must follow when hiring in Germany.
Understanding the AUG License
The AUG (Arbeitsnehmerüberlassung) license, also known as the labor leasing act, is a mandatory employment permit in Germany. It allows agencies to provide labor to companies not based in Germany. Under this arrangement, the employee is contracted with the agency rather than the end user company. In other words, the employee has an employment contract with the agency but is deployed to the end client, which is typically not located in Germany.
Obtaining an AUG License
To obtain the AUG license, you need to go through the Bundesagentur für Arbeit (Federal Employment Agency). They have a specific process that you must follow. The following documents are usually required:
- Articles of association
- Trade register excerpt
- Applicant information and legal representation details
- Certificate of good conduct
- Certificate from health insurance confirming employee insurance coverage
- Proof of financial stability, such as bank deposits and credit data
- Declaration of consent for the tax office to access information
- Valid liability insurance certificate from the agency
- Samples of employee leasing contracts and employment contracts
It’s a good idea to check with the Federal Employment Agency for any additional document requirements, as these may change over time.
Processing Time for the AUG License
Typically, it takes about 12 weeks for the AUG license to be granted after submitting the application to the Federal Employment Agency. Submitting a complete and professionally filled application on time can speed up the process.
Conditions of AUG Licensing
The AUG license has certain conditions, including:
Contracts can last a maximum of 18 months. After the 18 months, there are different solutions. After the 18 months, the employee can be deployed to another entity of the client for another 18 months. Another option is that the employee has a three-month + 1-day break before being engaged by the same entity of the client. The employee can also be put on the “bench”: he will keep being paid but will not be allowed to perform any work-related activities for the client (this solution is usually not preferred).
A distinct solution for the client would be to move the employee to the client’s own ‘non-resident’ payroll (NRP) in Germany. Parakar can support the client with the setup of the NRP and continue to provide the same HR and Payroll services. Parakar can also support the client with setting up their own entity in Germany. Parakar will support the client in the setup and then handle the compliant transfer of employees over to the client’s entity, support all onboardings, continue to offer the same supportive HR and Payroll services, on behalf of the client’s entity.
Why you need the AUG License
If you plan to employ workers and contract them to third parties, you must have an AUG license. Operating without the license can lead to severe consequences, including heavy fines and the requirement to directly employ workers previously contracted through non-compliant means.
Benefits of the AUG License for Hiring Companies
The AUG license provides significant advantages for companies operating in Germany, such as:
- Flexibility in covering production needs, meeting business requirements, and downsizing without legal complications.
- Reduced hiring costs by engaging workers for project-based jobs rather than long-term employment.
- Temporary utilization of staff members’ skills without establishing a traditional staffing model
Shortcomings of the AUG License
While the AUG license offers benefits, it also comes with limitations.
The license has a maximum deployment period of 18 months but after the 18 months, there are different solutions:
- We terminate the employment through a mutual termination agreement. After a break of 3 months + 1 day we can deploy the employee to the end client again.After the 18 months, the employee can be deployed to another entity of the client for another 18 months
- We put the employee on the “bench”: he will keep being paid by us but will not be allowed to perform any work-related activities for the client (this solution is usually not preferred).
- The client moves the employee to the client’s own ‘non-resident’ payroll (NRP) in Germany. Parakar can support the client with the setup of the NRP and continue to provide the same HR and Payroll services.
- Parakar can support the client with setting up their own entity in Germany. Parakar will support the client in the setup and then handle the compliant transfer of employees over to the client’s entity, support all onboardings, continue to offer the same supportive HR and Payroll services, on behalf of the client’s entity.
Besides this there is a processing fee of EUR 1,300 that needs to be paid. Additionally, compliance with the 28 regulations mandated by the Federal Employment Agency is obligatory, and failure to comply can lead to substantial fines, potentially deterring new businesses from entering the German market. Furthermore, there is no guarantee of approval for the AUG license, and unsuccessful applications can be disheartening for companies. The Federal Employment Authority regularly conducts oversight and audits, posing the risk of fines for non-compliance. Moreover, AUG licenses must be renewed annually until a company becomes eligible for an open-ended license, which involves a complex appeals process.
Employee Benefits in Germany
When hiring employees in Germany, you need to consider the following benefits they are entitled to:
- Maternity protection for female employees, providing financial support during maternity leave.
- Maternity leave starts six weeks before the delivery date and continues for eight weeks after delivery. For premature or multiple births, an additional 12 weeks of leave is granted.
- Employees working five days a week are entitled to 20 days of annual leave, while those working six days a week receive 24 days, including public holidays.
- Employees working on public holidays receive compensation in the form of a day off.
- Sick pay, equivalent to 100% of the salary, is provided for up to six weeks under the Continuation of Remuneration Act. After this period, the health insurance covers sickness allowance.
Simplify the Process with Parakar
By partnering with Parakar, an Employer of Record (EOR), you can simplify your hiring and employment processes in Germany. We handle international HR, global payroll, and health benefits, allowing you to focus on your core business; growing your business. We’ll take care of the complexities of local employment laws, ensuring compliance and peace of mind. Contact Parakar and unleash your global potential!