Umbrella Company for Freelancers in Germany
If you come from the UK or from another country and you wish to work in Germany on a temporary assignment you will need some sort of legal framework in which you can work.
As a matter of fact, many German companies will not accept a freelancer if he is not employed by some sort of German legal entity due to the risks und missing compliance involved.
What are the risks for an employer / Why an Umbrella Company?
In Germany a freelancer does not need to pay the social insurances, which can be quite expensive (about 20% for the employer, 20% of gross for the employee). As a consequence, Germany has laws to avoid “false freelancing”. If someone works exclusively for one company over a longer period of time, he can be deemed to actually be an employee, even if the freelancer has written proper invoices etc.
If this is found to be the case, the company will have to pay the social insurances for the complete time during which the freelancer was active. For instance, if a freelancer earned € 100,000 during the last 12 months, then the company would have to pay not only its share of the social insurances, in this case about € 17,000, but also the portion that the freelancer would have had to have paid which would be another € 17,000, in other words a total of € 34,000. Next to the financial impact, this is also covered by the criminal code and can result in hefty fines and in extreme cases even a jail term of up to 5 year.
The longer an engagement runs, the greater the risk is of course. As a consequence, companies have greatly reduced the direct work with freelancers and have insisted that these now work through some sort of legal entity (umbrella company) that actually employs these people and pays the social insurances.
Payroll Services Germany can offer this sort of employment arrangement.
If you are based in Germany:
If you are based in Germany we can employ you through our daughter company, HRsolution service GmbH and deploy you to the client company. HRsolution would take care of the contractual work and the payroll. Effectively we can employ you on a minimum wage contract and then, based on your approved timesheets, pay you bonuses based on actual work done.
If you have your primary residence in Germany, then this would, however mean, that all social insurances need to be paid. Therefore from your gross billings we would need to subtract the employer’s portion of the social insurances and of course your portion of the social insurances. For a rough calculation of the total social insurance costs, see here.
Furthermore, since we are actually employing you, we need to agree to an arrangement regarding sick leave or holiday since by German law we would be required to continue to pay your basic salary during this time.
Please note: In order to stay legal, we would need to have a direct contractual relationship with the client company.
If you are from another EU country:
If you are from another country and you are coming to Germany for an assignment you have, you are required to file taxes for the amounts earned within Germany. Similar to the above, many companies do not wish to give you a direct assignment for the reasons outlined. Therefore you need an umbrella company that takes care of billing and taxes.
If you are based, for instance in the UK and have another local source of income (in the UK), and in addition come to Germany for a limited time period (for instance 3 days per week in the course of one year), you can remain in the UK social insurances. What you need is an A1 Form indicating that you are paying social insurances in your country of residence. As soon as you are working in Germany and generating billings, however, you become taxable in Germany on a limited basis.
What therefore happens is, that we can employ you for the term of the assignment and run a shadow payroll for you. We deduct the pay able taxes but because you are resident of another country, we do not have to deduct social insurances (for the UK this works as long as the EU rules still apply. What happens after that remains to be seen).
Again, we would need a direct agreement with the company involved.
We can therefore offer you the following:
- Arrangement of a legal employment contract
- Billing of your hours to the client
- Regular health insurance payments (as mandated by law)
- Pension insurance
- We can advance you your payments, paying you your bonus 5 days after approval of the billing or on a monthly basis, regardless of whether the company has paid or not.
- If desired we can handle all personal tax matters with the help of competent tax accountant so that you can concentrate on delivering the service you deliver.
- If desired we can handle expenses / expense reports
- A1 forms
If you are from a non-EU country
If you are from a non-EU country and require a work permit / Blue Card, we cannot offer you the services of an Umbrella Company. This is because staffing companies are restricted in hiring people with work permits unless they have specific exemptions allowing this form of employment.
Talk to us about hiring an employee in Germany
We can guide you through the necessary steps to employing people in Germany and offer help and guidance along the way