Germany: Remote, but not Out of Reach – New Guidelines Expand the Scope of the German Temporary Employment Act

The new guidelines for the German Temporary Employment Act expand and clarify its application in an international context.

With the recent update to its guidelines on the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, “AÜG”), the Federal Employment Agency has clarified and expanded the application of the AÜG in an international context. The new guidelines have been effective since 15 October 2024 and are decisive for legal application.

A significant update concerns the so-called Employer of Record (“EoR”) model, where the host company and the employee are typically located in different countries. In this model, the EoR is contracted to employ the worker as the formal employer abroad. However, the work itself is performed exclusively for the EoR’s client, i.e., the host company. Essentially, this arrangement is generally nothing other than employee leasing. Previously, the guidelines included an exemption, indicating that leasing “into Germany” did not fall under the geographical scope of the AÜG if the employee worked exclusively abroad and the EoR was also based abroad. In practice, this primarily meant that the EoR did not need a temporary employment license, the contractual relationship did not have to be explicitly designated and conducted as a temporary employment arrangement, and the parties were not bound by the maximum lease duration.

Now, however, the exemption has been explicitly restricted to cases where the nature of the work necessitates the employee’s physical presence abroad. In cases of location-independent work (e.g., home office, remote work), a virtual connection to Germany is deemed a sufficient basis for the geographical scope of the AÜG – and thus the regulatory authority of the Federal Employment Agency.

If the foreign-based employee is indeed integrated into the German host company and receives instructions from it, violations of the AÜG can have severe consequences. Foreign EoRs generally do not possess a German temporary employment license. Under these circumstances, German companies utilizing the EoR model may unexpectedly face fines of up to EUR 30,000 per violation. The Federal Employment Agency’s new guidelines signal an intention to closely monitor cross-border and virtual employment relationships.

Practical Point

Providers of EoR services that serve the German market face the challenge of finding creative and legally compliant solutions.

• For their German-based clients, this means that existing and planned international structures should undergo careful compliance review. When it comes to location-independent, cross-border remote work, attention to compliance with the AÜG is increasingly important in personnel leasing.
• A possible “quick fix” may involve structuring the contractual relationship as a contract for work or services—if this aligns with the framework and interests of the parties involved.