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The AUG License Guide: Top Things Companies Hiring in Germany Should Consider

November 29, 2022

Germany is well known for its rich culture and traditions. In addition, it has one of the strongest economies in Europe, making it attractive for business opportunities. However, it's crucial to understand German labour laws because they can affect your workforce strategies and growth.

Germany has strict labour laws that work for the benefit of the labour market and workers. Despite the strictness of the laws, you can achieve growth by employing experts across the globe without the unnecessary cost of establishing a local entity. But how?

Through an Employer of Record (EOR), you can hire employees in 150+ countries with local expertise from your EOR to achieve your growth objectives.

To better understand labour laws in Germany, we will explain AUG licensing, and which labor and tax laws companies should comply with before hiring in Germany.

What is the AUG license?

AUG (Arbeitsnehmerüberlassung), or the labour leasing act, is a mandatory employment permit in Germany that allows agencies to contract or lease out labour to the end user (Germany-based companies). With AUG, the end user isn't the official employer of the contingent employee because the contract is between the employee and the agency.

To get the AUG license, it's a requirement that you be well-versed in German employment laws, tax requirements, and compliance obligations.

An AUG contract involves the client company, a contractor, and an AUG entity. Under the temporary workers' act, an AUG entity is responsible for any compliance and payroll obligations.

How to obtain an AUG license

The license is applied at Bundesagentur für Arbeit (the Federal Employment Agency). To obtain the permit, you need to follow the laid-out procedure from the Federal employment authority.

First, ensure you submit the following documents to the Federal Employment Agency.

  • Articles of association
  • Trade register excerpt
  • Applicant information and the legal representation of the business. (the data should be obtained from the commercial central register)
  • Certificate of good conduct
  • A certificate issued by health insurance to confirm that employees have been insured according to their contributions.
  • Proof of liquid assets, including bank deposits and credit data regarding overdrafts. For instance, an agency that plans to hire five employees must provide proof of liquid assets of a minimum of EUR 10,000. The amount increases with an increase in employees.
  • Declaration of consent so that the tax office can request information whenever needed
  • A valid certificate from the agency's liability insurance association
  • Samples of employee leasing contracts and employment contracts

The documents to be submitted are often changed, and it's always good to consult with the federal employment agency to check which additional documents need to be submitted.

How long does it take to get the AUG license?

According to the Federal Employment Agency, the license is usually granted 12 weeks from the date of submitting the application. A clearly and professionally filled application and complete documents might accelerate the application process.

Conditions of the AUG licensing

The AUG comes with its fair share of conditions, such as:

1. Contracts run for a maximum of 18 months. After the 18 months have elapsed, the employee then enters a three-month + 1-day reset period before they can proceed to a different entity. Subsequently, the client can do the following after the 18 months:

  • End the contract
  • Hire the worker full time
  • Pause the contract for a period of 6 months

2. Under AUG, employees have rights such as the right to access job opening information posted by the employer, the right to a minimum wage, and the right to fully access communal work facilities.

Is an AUG license necessary?

Your entity needs an AUG license if you plan on employing workers and contracting them to a third party. Operating without a license can be catastrophic on your end because of the repercussions involved, such as:

  1. Heavy fines that range up to 500,000 euros
  2. The hirer who had contracted the employees might be required to absorb them as direct employees

Benefits of AUG to the hiring companies

The AUG license adds significant value to the companies running operations in Germany. Some of the benefits the companies enjoy are:

  • The companies are able to cover production bottlenecks, meet business requirements, and quickly downsize workers when a particular demand is met without having to worry about legal repercussions.
  • The AUG lowers hiring costs. For instance, companies can now hire workers for project-related jobs and release them afterwards rather than hiring them for the long term, which is a bit costly.
  • Companies can also leverage the skill sets of staff members temporarily without having to form a traditional staffing model.

Shortcomings of an AUG license

The AUG license comes with its share of benefits, but it has its own downside of shortcomings.

  • AUG licenses have a maximum deployment period. After 18 months, which is arguably a short time, the current employee has to be released and swapped with another one to avoid a breach of contract.
  • You will have to pay EUR 1,300 as a processing fee
  • As a holder of an AUG license, you must comply with the 28 regulations listed by Federal Employment Agency
  • If you're not compliant with the labour laws, the fines imposed are quite heavy, ranging from EUR 30,000 to EUR 500,000. Such penalties can discourage new businesses looking to venture into the German market.
  • AUG licenses are not always approved just because you made an application. For such a complicated process, failing to get approval can demoralize companies.
  • The Federal Employment Authority conducts frequent oversight and auditing activities for new companies that have just acquired an AUG license. Any case of non-compliance leads to hefty fines.
  • Renewals for AUG licenses are done every year until you're eligible for an open-ended license, which has no expiration date. However, getting the "unrestricted" license is an uphill task that involves submitting several appeals to obtain the permit.

Employee benefits in Germany

When looking for a prospective candidate for employment, keep in mind that they will be entitled to the following benefits:

  1. During maternity leave, female employees are covered by the maternity protection act, which ensures they don't suffer any financial strain during the maternity period.

Expectant mothers may not report to work six weeks before the delivery date. Additionally, they may also not work for the next eight weeks after delivery. Females will not work for 12 more weeks after delivery day especially if they had premature or multiple births.

Furthermore, expectant mothers enjoy maternity benefits from their respective health insurance policies during maternity leave.

  1. Employees who work five days a week are entitled to a 20-day vacation each year. The other employee who works six days a week gets 24 days' leave, including public holidays.
  2. Employees who decide to work on a public holiday are entitled to a day off as compensation.
  3. During sick leave, employees are entitled to sick pay (100% of their salary) for up to six weeks under the Continuation of Remuneration Act.

Once the six-week limit is attained, the health insurance takes over and sorts out the employees' sickness allowance.

Make it easier with Remofirst

When you work with an Employer of Record (EOR) like Remofirst, you can hire and manage employees in Germany and 150+ other countries without having to worry about the nuances of local employment laws. Simply bring us your remote candidate, and we will take care of all of the international HR, global payroll, and health benefits for your employees.

Want to learn more about how easy it is to hire and manage a global team? Request a demo today to learn how Remofirst can help you hire compliantly in 150+ countries.