Employer of Record in Germany: what the AÜG means for you

If your company is based in Switzerland, Austria or anywhere else outside Germany and you want someone in Germany to work for you through an Employer of Record (EOR), German staffing law is the first thing to check. In a typical EOR set-up, the worker is employed by the provider but integrated into your team and directed by you. That is how the German Temporary Agency Work Act (Arbeitnehmerüberlassungsgesetz, AÜG) defines the leasing of workers. The arrangement can be lawful, but only if the provider’s employing entity holds an AÜG permit, and it comes with an 18-month maximum, equal-treatment rules and strict formalities.

Quick answer

Why does an Employer of Record fall under the AÜG?

Section 1 of the AÜG says that employers who lend employees to third parties in the course of their economic activity need a permit. It then defines lending: employees are lent for work when they are integrated into the user’s work organisation and are subject to the user’s instructions.

That describes the usual EOR model. The EOR signs the employment contract and runs payroll, but your company assigns tasks, sets priorities and manages the person as part of your team. In AÜG terms, the EOR is the lender (Verleiher), your company is the user (Entleiher) and the worker is the leased employee (Leiharbeitnehmer).

The Federal Employment Agency (Bundesagentur für Arbeit, BA) supervises the permit system. In its technical instructions on the AÜG, valid from 1 July 2026, it states that leasing in the course of economic activity is prohibited in principle unless the lender holds a permit. It also says that the business content and actual performance of the contracts decide, not the name the parties give them. Calling the contract “EOR services” or “payroll services” does not change the analysis if the worker is in fact integrated and directed.

The agency’s instructions are its own administrative position, not a statute or a court judgment. They are, however, what the authority that grants and checks permits applies.

Does it matter that our company is not in Germany?

Usually not for the permit requirement. The BA’s instructions state that what matters is the leasing of a worker with a sufficient link to Germany. They add that it is irrelevant whether the lender has a business seat in Germany, and, given the AÜG’s protective purpose, also irrelevant whether the user has one.

For a Swiss or Austrian company, that means:

• A worker who works in Germany for you through an EOR should be treated as within the AÜG, even though your company is abroad. The BA’s worked cross-border examples assume a user in Germany and treat work performed in Germany as covered. Combined with its statement that the user’s seat is irrelevant, the safe planning assumption is that a Germany-based worker brings the arrangement within scope.
• A worker who stays abroad and works only online for a user in Germany, without ever travelling to Germany to work, is outside the permit requirement in the BA’s view. The BA does not address a user outside Germany in this example, and notes that there is no supreme-court case law on these constellations yet.

Be careful with the second point. It concerns German staffing law only. It does not decide the worker’s social security, tax or employment law, and a few working days in Germany can change the picture.

Who can hold the AÜG permit?

The permit belongs to the lender, so the question is which entity employs your worker.

• Lenders based in the EU or EEA receive the permit under the same conditions as German applicants (Section 3(4) AÜG). The BA’s instructions say an EEA-based lender needs a German permit when it leases workers to a user in Germany.
• Lenders operating from outside the EU or EEA cannot get one. Section 3(2) requires refusal where establishments outside the EU or EEA are intended for the activity, and the BA describes leasing from outside the EU or EEA as prohibited without exception. A lender that operates from Switzerland, for example, cannot obtain the permit, so check which EU or EEA entity of the provider employs your worker.
• New permits are time-limited. The first permit is limited to one year (Section 2(4)). After three consecutive years of permitted activity, a permit without a time limit is possible (Section 2(5)).

In practice: ask the EOR which entity will employ your worker, ask for a copy of that entity’s AÜG permit, and check that it is current.

What rules apply once the arrangement is in place?

Labelling and identifying the worker

Before the worker starts, the lender and your company must expressly call their contract a contract for the leasing of employees (Arbeitnehmerüberlassung) and identify the specific worker by reference to it (Section 1(1) sentences 5 and 6). Missing either step makes the worker’s employment contract with the lender invalid under Section 9(1) no. 1a. Read the EOR’s service agreement for this wording rather than assuming it is there.

The 18-month maximum

The same worker may not be leased to, or work for, the same user for more than 18 consecutive months (Section 1(1b)). Earlier assignments with the same user count in full if the gap between them is three months or less, even through a different lender. Exceeding the maximum makes the employment contract with the lender invalid (Section 9(1) no. 1b).

A collective agreement of the user’s sector can set a different maximum. Within its scope, a works agreement can also set or adopt a different maximum; for a user not bound by the collective agreement, this is generally capped at 24 months unless the agreement says otherwise. Both routes depend on a German sector collective agreement and, for most users, a works agreement in their establishment. A non-German client should not assume either is available. Plan for 18 months unless qualified German counsel confirms otherwise for your case.

Equal treatment

The lender must give the worker the essential working conditions, including pay, of comparable employees at the user for the duration of the assignment (Section 8(1)). A collective agreement can deviate on pay, but only for the first nine months of an assignment to one user, subject to the exceptions in Section 8(4). If your company has no comparable employees in Germany, ask the provider in writing how it applies these rules to your hire.

Hiring the worker yourself later

Clauses that prohibit your company from hiring the worker once their employment with the lender has ended are invalid (Section 9(1) no. 3). A reasonable placement fee between lender and user remains possible. Agree the transfer terms when you sign, not when month 17 arrives.

What are the consequences if the rules are broken?

The consequences fall on your company as well as on the provider:

• Invalid contracts. Without the required permit, the leasing contract and, as a rule, the employment contract with the lender are invalid (Section 9(1) no. 1). The BA notes a Federal Labour Court ruling under which this does not apply where the employment contract is governed by another EU state’s law; the fines below apply either way.
• Deemed employment with your company. Where the employment contract with the lender is invalid under Section 9, an employment relationship between your company and the worker is deemed to exist (Section 10(1)). The worker can prevent this only by a written declaration to keep the lender contract (Festhaltenserklärung), which must be made in writing within one month, presented in person at an employment agency beforehand, and reach the lender or user within three days of that visit.
• Fines. Leasing without a permit, and letting a worker from an unlicensed lender work for you, are both administrative offences that can be fined up to EUR 30,000 (Section 16).

Where it applies, a deemed German employment relationship would leave your company as a German employer without the payroll, social-security and employment-law set-up that role requires. That is the outcome the permit check is meant to avoid.

Which hiring model fits a Germany-based worker?

For a Swiss employer, hiring in Germany from Switzerland explains the direct foreign-employer route, German social security, commuting and home-office cases. The employee, contractor or EOR framework compares the models in general, and what an Employer of Record is explains the model itself.

When does an EOR fit in Germany?

An EOR is worth considering when you need someone in Germany soon, the role is clearly employment, and the assignment is either expected to end within 18 months or you are prepared to move the person to direct employment or your own entity later. It can also suit a market test: you employ through the EOR while you decide whether Germany justifies an entity.

When does an EOR not fit in Germany?

An EOR is a weak fit when you already know the role is permanent and you cannot plan a transfer within the maximum duration, when the person will hold management or signing authority, which can raise a German permanent-establishment question for your company that needs its own tax review, or when the provider cannot show a current AÜG permit for the entity that will employ your worker. It also does not answer your company’s own permanent-establishment or corporate-tax position in Germany.

What does Deel say about its German set-up?

Deel publishes its own position on these rules. On its German AÜG page, last updated 30 April 2026, Deel states that it holds an open-ended (unbefristete) AÜG permit in Germany, describes the 18-month maximum and equal pay after nine months, and says the AÜG does not apply where the employee works exclusively abroad. Its English AÜG article, last updated 31 January 2025, names Deel Germany GmbH as the entity acting as Employer of Record says other compliant solutions exist beyond the cap and refers readers to a Deel hiring specialist.

The German page also describes the EOR model as separate from staff leasing, with no 18-month limit and no AÜG permit. That description fits a worker based outside Germany. For a worker based in Germany, ask Deel in writing whether it will treat the hire as Arbeitnehmerüberlassung and which entity holds the permit.

These are the provider’s statements. Before you sign, ask for a copy of the permit, the name of the employing entity in your contract and Deel’s written plan for month 18.

If the EOR route fits after this check, talk to Deel about an EOR hire in Germany under the AÜG (opens in a new tab). Bring your expected duration and role so the answer covers the 18-month question.

Key terms

Key terms

Employer of Record (EOR)

A third-party provider that legally employs a worker on behalf of a client company in a country where the client has no local entity, handling local payroll, contracts and compliance.

Employee

A worker engaged under a local employment contract, with the employer responsible for payroll, social security contributions and compliance with local labour law.

Contractor

A self-employed individual or business engaged for specific services under a commercial contract, without the employment protections or payroll obligations that apply to employees.

Misclassification

Treating a worker as a contractor when, based on the actual working relationship, local law would classify them as an employee, which can create back taxes, penalties and employment claims.

Permanent establishment

A tax concept describing a fixed place of business or sufficient business activity in a country that can trigger local corporate tax obligations for a foreign company.

Checklist for an EOR hire in Germany

• Record where the person will physically work and how your team will direct the work.
• Ask the EOR which entity employs the worker and get a copy of its current AÜG permit.
• Check that the service agreement expressly labels the arrangement as Arbeitnehmerüberlassung and names the worker before the start.
• Diarise the 18-month maximum, counting any earlier assignment with a gap of three months or less.
• Ask in writing how equal treatment under Section 8 AÜG will be applied to your hire.
• Agree transfer terms for hiring the worker yourself and the placement fee, if any.
• Review direct foreign-employer registration and a German entity on the same facts.
• Keep your own German tax and permanent-establishment review separate.
• If the EOR still fits, ask Deel how its German EOR handles the 18-month limit (opens in a new tab) and compare the answer with your alternative.