Hiring German Employees Without a Company and Legal Structure in Germany


Hiring employees in Germany can be a complex process, especially if you do not have an existing German company and legal structure. Germany’s strict investment laws often attempt to force foreign companies that want to hire German employees to form a company in the country.

The following article discusses the two potential options to hire an employee in when you do not have a legal entity in Germany and the legal and other challenges you may be confronted with.

Hire the Employee as a Freelancing Contractor

In case a Foreign company is looking to hire a local German employee, but does not have a registered entity onsite, the staff can be hired as freelancing contractors. In other words, instead of a mutual employment agreement in place, both parties sign a services agreement. The employee in Germany is required to independently declare his income with the tax and social insurance authorities. Therefore, it will be very challenging to find adequate talents in Germany as local employees prefer to have in place a full-scale and compliant employment relationship rather than being hired as a contractor.

It is important to note that employees hired as freelancing contractors in Germany are not protected under the applicable severance scheme as per the German Labor Law. Hence, in case a project is to be stopped and the employee is to be terminated, there is no legal protection whatsoever.

Hire Staff Through a Professional Employer Organization

The second option to hire staff in Germany without a company or legal structure can be facilitated through partnering with a Professional Employer Organization, also referred to as a PEO, or Employer of Record (EoR). The PEO will become the official Employer of Record of the foreign company’s staff in Germany and takes care of all the employment liabilities. In practice, this includes the entire set up of the staff’s employment relationship and monthly payroll in Germany.

In other words, the client does not have to put in place anything since the PEO will be responsible of this.

In practice, the PEO is responsible for paying employee wages, withholding taxes and payments to third parties, administering benefits and other administrative and human resources duties and responsibilities. The host company retains day-to-day control over the employee while delegating the tedious administrative aspect to a trusted third party, such as Universal Hires.

The PEO can help recruit top talent and help with the onboarding process. It then provides ongoing services to the foreign company while the company handles the daily management of the employee. It also handles all compliance matters so that the business remains compliant with relevant governmental authorities.
PEO’s offer several important advantages, including:
* Greater flexibility since you can scale your business up and down as the market dictates
* Less initial investment because you do not have to go through the long, drawn-out process of setting up a separate entity
* Able to hire staff in just few days, so you can gain the first to market advantage
* Able to focus on the operations of your business since a competent party is handling administrative tasks
* Ability to compete with larger businesses and offer competitive benefits to your staff

Conclusion: PEO / EoR as the Best Solution to Hire Employees in Germany
Given all of the risks and disadvantages when incorporating an entity in Germany, hiring staff through a PEO is the easiest, fastest and most compliant way to establish an in-country presence in Germany.

As Germany's leading Staffing Agency, Universal Hires provides foreign corporations with a one-stop solution when entering the German market. The company's services scope includes talent search, executive search and headhung as well as PEO / employer of record services.