Cross-border employee leasing / Employer of Record


On 15 October 2024, the Federal Employment Agency updated its Technical Instructions on the Employee Leasing Act (Arbeitnehmerueberlassungsgesetz – AUG). The most serious change concerns the scope of the authorisation requirement under the Employee Leasing Act. The inclusion of employees who work virtually for a company in Germany from abroad will affect employer of record models in particular.

1. Scope of the authorisation requirement under the Employee Leasing Act

In principle, the scope of the authorisation requirement under the Employee Leasing Act is limited to the Federal Republic of Germany in accordance with the territoriality principle. The Employee Leasing Act applies if the assignment has sufficient domestic relevance.

Therefore, the Employee Leasing Act covers the following areas:

  • the assignment in Germany,
  • the assignment extends across borders into Germany,
  • the assignment across borders from Germany,
  • the hiring out of an agency worker (Zeitarbeitnehmer) by a provider based abroad to a hirer/client based abroad if the agency worker is working in Germany

Hiring out by a foreign provider to a domestic client is not covered if the agency worker is deployed exclusively abroad. This constellation relates to cases in which the performance of the work generally requires the employee to be present at a specific location.

2. Extension of the scope of the authorisation requirement under the Employee Leasing Act in accordance with the updated Technical Instructions

The Federal Employment Agency extends the geographical scope under section 1.1.1. of the Technical Instructions as follows:

“Work that does not require presence at the company or at a specific location, that can be performed independently by the employee and that can generally be completed entirely using modern communication and information technology, such as a PC and internet connection, is generally suitable for exclusive teleworking or exclusive home office. A distinction must be made if agency employees work exclusively in a home office abroad or perform telework exclusively in their home abroad.

Whether a German employee leasing licence is required and the AUG applies is a question of trade law that falls under public law. The assessment under social security law, tax law or employment law is not decisive. In order to protect the sub-labour market for employee leasing, the location of the agency worker’s physical location cannot be the sole criterion for work that is performed exclusively in the home office or as exclusive telework, regardless of location. Under authorisation law, the decisive factor is whether the assignment has a domestic connection. This is generally the case for location-independent services if the assignment takes place from within Germany or the agency worker works virtually for a domestic hirer.”

The last sentence in particular harbours enormous explosive power:

  1. Firstly, it is more than questionable whether a domestic connection can be affirmed in the case of location-independent services if the person from abroad works virtually for a company in Germany. In this respect, there is likely to be a violation of the territoriality principle.
  2. Secondly, the Technical Instructions lead to increased legal uncertainty. In particular, there is a great deal of debate about what is meant by “virtual activity” – does it depend on virtual integration or should any virtual activity, e.g., brief email communication, be sufficient?
  3. Since the Federal Employment Agency regularly checks the reliability of staffing companies under trade law, the question arises as to how this can be done with respect to work that is done from abroad in a purely virtual manner.