Germany is the second largest market in Europe for fixed-term contracts after the UK. The current German government regards fixed-term contracting as a vital element in a flexible labour market and actively promotes the use of temporary labour (in spite of the fact that it is not popular with the trade union movement).

There are many UK-based recruitment agencies active in the German market but it is vitally important to recognise that there are many legal differences between contracting in Germany and contracting in the UK and any agency contemplating doing contract business in Germany should first of all inform itself about the specific legal environment and the nature of the market.

The most significant matter for agencies to be aware of is the labour leasing legislation. Labour leasing in Germany is governed by the AUG, the German employment agencies law. This requires each separately incorporated entity that wishes to lease employees to obtain a licence from the appropriate state labour office. Licences for all UK-based businesses are issued by the state labour office of North Rhine-Westphalia in Düsseldorf. Licences are valid for one year and may be renewed. Renewal applications must be made within three months of the expiration of the existing license.

Many German end user clients will only contract with foreign agencies who are actually in possession of an AUG license. If this is the case and the agency already has a license, then it will be necessary to employ the contractors directly in Germany under a German payroll. The alternative would be to persuade the client to permit the use of a third party supplier (in possession of a license) to employ the personnel on its behalf. However, because of the fact that the license must be in the hands of the organisation that contracts directly with the client, this would mean that the contract could only proceed on a ’margin only’ basis for the agency.

However, many contracts can escape the labour leasing rules. If the nature of the work is such that the contractor is required to provide all materials and personnel required to achieve a desired result (and this is explicit in the contract), it is likely that the business will fall outside of the scope of labour leasing.

Quite often, a framework agreement is concluded between the relative parties stipulating the basic conditions under which the German client and the supplier agree to work together in the future. Such conditions usually include a fee structure, the right to ask for improvements or amendments to the ’result’, the division of liabilities and wherever relevant the making available of materials.

However, each time that a specific ’result’ is achieved an individual particular agreement should be drawn up describing the work in detail. This should be done on each occasion that the German client mandates the contractor with a particular duty. This agreement should include the price, the deadline and conditions specifically relating to this piece of work. Such agreements at the conclusion of an assignment serve to avoid the impression that there is any attempt to circumvent the labour leasing laws. This is a common structure for contracts between German clients and UK-based agencies.

Most ’high level’ contractors in Germany work as freelancers (freiberuflers). However, agencies should ensure that they get all relevant incorporation, tax and VAT registration documents at the commencement of the contract and that they pay all of the income directly to a German bank account. The German tax authorities have been extremely active over the past two years with regard to foreign contractors in particular and there have been prosecutions of contractors, German tax advisers and some of management companies in relation to under declarations of income in Germany. These proceedings have not directly affected agencies or their clients however.