Germany: Changes affecting temp labour and external services

New regulations Article

On April, 1st 2017  several major changes to the Temporary Employment Act and other laws came into force in Germany. Most prominent changes for temp labour were the limitation of the maximum leasing period to 18 month and the enforcement of Equal Pay after 9 month. Other important details (e.g. omission of the AÜG parachute  regulation, introduction of §611a of the German Civil Code, strike clause) have also changed and need to be adhered to if companies want to stay compliant. But the regulatory changes in Germany do not only affect labour leasing. As the name of the legislation indicates (‚other laws‘) external providers that perfom work based on service contracts or special-order (SOW) contracts are also in scope.

What is the rationale behind?

In an environment where companies are rapidly moving to more variable operating models and public social systems are under financial pressure the German government is eager to get in tax and social contributions. With the new regulations the state wants to prevent that external resources are deployed like employees despite service or SOW contracts (illegal labor leasing). For small size service providers or freelancers  pseudo self-employment shall be counteracted.

What are the legal risks?

Managers are responsible for the compliant deployment of external workforce  and theoretically face personal criminal liability if risks materialize (§266a StGB and §370 AO). Each case of non-compliance can cause severe administrative fines (up to 30.000 €). Additionally, enterprises risk claims for formal permanent employment and back taxes plus social security contributions. Last but not least,  companies impend negative press and a loss of reputation (as prominent examples of big German corporates have shown).

What are appropriate counter measures to mitigate risks?

Many companies have begun to implement more stringent policies and train their employees accordingly. In most cases new processes have to be set up to cope with the new legal requirements. To assure process compliance internal key stakeholders (Demand Owners, HR, Procurement, Legal) need to work together in an efficient, well-orchestrated way. In a nutshell, more transparency in approval and engagement processes for externals is required. Software solutions like Outerscore can be a powerful help: With customized decision trees, approval workflows, online compliance check questionnaires and documentation of the deployment processes.

More specific, benefits of system-based support include:

  • Possibility to reflect company policies and legislations per country
  • Tracking of external resources including capability profiles
  • Automatic notifications e.g. nearing end dates
  • Traceability of changes, stamping of entries and dates
  • Real-time transparency on external resources
  • Compliance with data storage and audit requirements
  • Internal process automations
  • Cost savings due to increased transparency (e.g. rate cards)
  • Increased provider impact due to performance monitoring

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