The Relevance of German Labour Law to the Posting of Employees Abroad
During the posting of the employee abroad, German employment law still has a major role to play. The existing employment contract with the German entrepreneur can be put into a dormant mode (suspension agreement) and replaced by a secondment agreement for the period of posting to the foreign subsidiary. It is also possible that the original employment contract may contain a posting clause. The general provisions of the employment contract are therefore used to review this agreement.
- The employment contract – the foundation of the employment relationship
Due to the special situation, the following aspects must also be contractually agreed upon for postings abroad lasting more than one month per § 2 (2) NachweisG
- Duration of posting abroad,
- Currency in which the remuneration is paid,
- Additional remuneration or benefits in kind resulting from the stay abroad,
- Conditions for return.
It is recommended that specific topics also be contractually regulated. These include, for example, the bearing of costs in the event of an early return, choice of legal jurisdiction in disputes, continuity of occupational pension provision, and reimbursement of additional expenses or the assumption of further costs incurred. When making such decisions as to which legal jurisdiction will oversee the contract, bear in mind aspects such as unfair dismissal law, notice periods and, more generally, the strength of employment law within that jurisdiction, whether or not a certain arrangement is appropriate must be decided in each case. Working with an employment law expert is the best way to determine what should be negotiated.
There are many different contractual considerations to bear in mind in the context of the posting of employees abroad. Whether the agreements reached fit together smoothly so that neither the employee nor the employer is at a disadvantage also varies from case to case and requires close examination. Looking to undermine employee protection through postings abroad can lead to legal issues for companies and can also contribute to poor motivation within the company.
When bringing in employees from foreign subsidiaries into Germany, it should be noted that exceeding the minimum standards is expected. The posting of foreign employees must be measured against the Employee Posting Act (AentG), the Minimum Wages Act (MiLoG) and the Temporary Employment Act (AÜG). If their consideration is incomplete, this can lead to severe fines of up to € 500,000 (§ 23 AentG). In addition, the official basis for gainful employment in the form of a visa must also be created here.
The Relevance of Immigration Law to the Posting of Employees Abroad
When posting an employee abroad, it is vital that the employee in question can work in that other jurisdiction. When it comes to posting German employees abroad, this will not be an issue should the posting be in the European Union. As EU citizens, German citizens can work and live in other EU jurisdictions. This also applies to sending EU citizens to work in Germany.
However, should the posting be further afield, other considerations need to be taken into account. Such considerations primarily concern the visas for these jurisdictions. The visas which need to be applied for will depend on factors such as:
- the jurisdiction in question,
- the nature of the work,
- how long the posting of the employee abroad will last,
- the qualifications of the employee.
Applying for the wrong visa and other bureaucratic issues can result in a slowdown of the process and a delay in posting employees abroad. Working with an experienced legal partner will ensure that the right precautions are taken and that the deadlines are not exceeded.
Our lawyers are experts in the field of immigration and business immigration matters. We have wide experience in this field and will gladly assist you in this issue. However, specialised assistance is required when moving from more generalised assistance to helping you in your specific case.
Social Security without Double Burden
For postings to non-EU states, the central regulation is § 4 para. 1 SGB IV (Social Security Code) must be considered. According to this article, German insurance law applies to employment if the posting abroad is due to the nature of the employment or is limited in duration. Still, the employment relationship between the domestic company and the employee continues. Therefore, the limitation of duration should be agreed to in advance.
Note: If there is no social security agreement between the country of employment and posting, there is a risk of double taxation.
If the above conditions are not met, German insurance cover can still be maintained, and upon application, the German pension and nursing care insurance can also be continued. Contact a German lawyer in advance to determine whether agreements are in place and to what extent those agreements cover issues such as social security.
Efforts to simplify economic networking within the EU/EEA or with Switzerland lead to increasingly clearer handling of conflicting social security laws. Harmonisation places the obligation to pay social security contributions, regardless of residence and company headquarters, to the country where the work is carried out, provided the posting does not last longer than 24 months. The authoritative regulation for EU/EEA and Swiss citizens, stateless persons and refugees in this regard is European Regulation (EC) 883/2004.
If there is a social security agreement between the country of assignment and the country where the work is carried out, this usually contains a 24-month rule. Therefore, determining whether such a social security agreement is vital before making plans for the posting of employees to the country in question.
Tax Trap Potential – Posting of Employees Abroad
The posting of employees abroad can lead to taxation conflicts. On the one hand, taxes can be levied by the sending state and by the state in which the work is carried out. Therefore, it is vital to have a plan in place to avoid double taxation from occurring. In Germany, residence and world income tax law principles apply (§ 1 para. 1 EStG).
- Residence principle: Taxation of income in the state of residence (the employee’s place of residence),
- World Income Principle: Taxation in the state of residence regardless of where the income was earned
To avoid double taxation, so-called double taxation agreements (DTAs) exist between Germany and over 70 countries. A list of tax law agreements can be found on the German Federal Ministry of Finance homepage. Thus, an exception can be made to the residence principle and the world income principle. In this case, the employee pays income tax in the country of employment or the tax paid abroad is credited against the tax due in Germany.
Rule of thumb: If you work abroad for 183 days or more, you are subject to tax in the country of employment.
Cross-border commuter regulations have been agreed upon with immediate neighbours, such as Austria or France. According to these regulations, the income earned by Germans in these countries must be taxed in Germany. Concerning the Swiss tax authorities, which levy a wage tax of 4.5 %, the above-mentioned imputation method is applied. Special regulations must be observed here regarding civil servants and public sector employees.
Contact our lawyers today to find out what the situation is at the destination of the employee posting and how this coincides with German taxation law.
Both as a company and an employee, the benefits and disadvantages of posting abroad should be considered. Posting an employee abroad may not only assist a subsidiary in another jurisdiction but also provide your employee with more experience, which they can bring back to your company afterwards. Moreover, experiencing the work culture in another part of the world can be a huge advantage in global business.
Considering the relevant regulations, we want to support you in making the posting of employees abroad a successful experience while minimizing the risks. Therefore, our lawyers will advise and assist you in preparing the necessary contracts or retirement agreements. We are also happy to check existing contracts and conditions regarding a posting abroad.
Even if the stay abroad does not run smoothly or disagreements regarding the reintegration into the original business have arisen, we offer the legally sound support needed to solve the conflict. Here are some of the services we offer in this field:
- Advice regarding insurance cover, prevention of a double burden,
- Review of relevant tax and social security obligations
- Advice and development of a well–thought-out concept for a posting, especially regarding the corresponding contractual construction
- Contractual analysis and advice,
- Counsel and support in applying for the required visas.
For more specialised assistance relating to your specific situation, please contact us directly using the contact form below this article. Our lawyers look forward to working with you.