What Is an Employer of Record in Germany?

If you are expanding into Germany, a natural first question is what is an Employer of Record and how does it actually work in the German market. This page explains the concept in plain language and shows how Agility EOR’s AÜG‑licensed solution lets you hire compliantly without opening a local entity.​

Understanding what is an Employer of Record

At its core, what is an Employer of Record? It is a third-party company that becomes the legal employer of your workers on paper, while you still direct their day-to-day tasks and performance. The EOR handles contracts, payroll, tax, social security, and HR administration so your team can focus on running the business rather than learning a new legal system.​

In Germany, an Employer of Record is treated as a licensed labor‑leasing agency under the Arbeitnehmerüberlassungsgesetz (AÜG), which is why choosing a provider with the right license and on-the-ground expertise is essential.

How the EOR model works in Germany

Germany uses strict rules for “leased” employees, so the mechanics of an EOR relationship are more structured than in many other countries. Your employee signs a German law contract with the EOR but performs all work for your company, using your systems, processes, and culture.​

Behind the scenes, the EOR will:​

• Maintain the required AÜG license and registrations with German authorities.
• Draft compliant employment contracts, including probation, notice, and working‑time clauses.
• Run monthly payroll in euros, remit tax and social security, and issue payslips.

You then manage objectives, workload, and feedback, while the EOR handles contracts, payroll, and related employment formalities in line with the framework described on the Employer of Record in Germany page.​

AÜG, the 18-month rule, and equal treatment

Because an EOR in Germany is operating under AÜG, you must respect specific limits and employee‑protection rules. One of the most important is the typical 18-month cap on assigning the same leased worker to a single client, after which you may need to adjust the structure or move to a direct hire via your own German entity.​

Equal treatment is another key concept: employees hired through an AÜG-licensed EOR must not be disadvantaged relative to comparable employees directly employed by the client.

Payroll, tax, and social security in practice

German payroll is detailed and deadline-driven, which is where an EOR adds immediate value. The provider calculates gross-to-net pay, withholds income tax, and manages mandatory contributions for health insurance, pension, unemployment, and long-term care, all in accordance with German thresholds.​

Employees are typically paid monthly, and a compliant EOR ensures salaries are paid on time and that every payslip includes the information German employees expect to see. For your finance team, this typically consolidates into a single monthly invoice covering salaries, employer costs, and the EOR fee.

When to use an Employer of Record in Germany

For many businesses, the real question is not only what is an Employer of Record, but when does this route make more sense than setting up a GmbH or hiring contractors. An EOR is usually the best fit when you are hiring a small team, moving quickly to test the German market, or supporting an individual relocation before you are ready to commit to a full legal entity.​

Compared with running everything yourself, an EOR helps you:

• Enter Germany faster, often in weeks rather than months.
• Reduce the risk of misclassification or non-compliant employment structures.
• Keep your fixed costs low until you have proven long-term headcount needs.

Once your German operation reaches a size or level of stability where setting up your own entity may be more efficient, you can revisit the options outlined on the Employer of Record in Germany page and consider a transition path.