How do companies avoid covert employee leasing?
Hidden temporary employment is a recurring issue in practice that can have significant legal consequences for both companies and employees. Hidden temporary employment refers to cases where a company employs temporary workers but does not openly assign them as such. Instead, these employees are often listed as freelancers or contract workers, even though they are fully integrated into the company's operations. This practice carries the risk of circumventing the rights of employees and bringing the company into conflict with the Temporary Employment Act (AÜG).
For companies that regularly use temporary employment or recruitment services, it is therefore of the utmost importance to familiarize themselves with the legal requirements of temporary employment. Failure to comply with these requirements can lead to significant penalties or the loss of a temporary employment permit.
Table of contents
- How do companies avoid covert employee leasing?
- What is hidden temporary employment?
- Why do companies conceal the supply of temporary workers?
- What are the possible legal and financial consequences of hidden employee leasing?
- What measures can be taken to prevent hidden temporary employment?
- What are the advantages of legally compliant employee leasing?
Estimated reading time: 8 minutes
What is hidden temporary employment?
The term "hidden employee leasing" refers to situations in which an employment relationship is formally designated as a service or work contract, but in practice a typical employee leasing takes place. In practice, this means that the employee is de facto integrated into the company's operations like a permanent employee and receives instructions from the company without a formal employee leasing agreement being in place. In the case of actual employee leasing, the right to issue instructions remains with the temporary employment agency, as the employee is employed there and is only loaned to another company.
What are the signs of a concealed temporary employment agency?
There are various indicators that may suggest that an employee leasing arrangement is being concealed. A key feature is the lack of entrepreneurial freedom on the part of the supposed external service provider, who is nevertheless closely integrated into the company's organization. For example, it is often the case that employees are deployed in companies without owning their own work equipment, receive the same instructions as permanent employees or are permanently employed in the company.
What is the legal basis for temporary employment?
In Germany, the Temporary Employment Act (AÜG) regulates the conditions under which employees may be leased from one company to another. Companies wishing to hire out employees are obliged to apply for a temporary employment permit. If this permit is not obtained, there is a risk of substantial fines and consequences under labor law if the law is violated.
Why do companies conceal the supply of temporary workers?
Companies often try to disguise the fact that they are hiring out employees in order to save costs or avoid the bureaucratic effort involved in complying with the AÜG. They commission contracts for work and services or work with recruitment agencies to give the impression that there is no employee leasing. In reality, however, these contracts often comply with the conditions that would be required for a temporary employment agency.
What are the possible legal and financial consequences of hidden employee leasing?
Hidden temporary employment can have serious legal and financial consequences for companies. The practice violates the AÜG and can lead to high penalties. Companies can face the following consequences in the event of a covert supply of temporary workers.
Fines and penalties
If the hidden hiring out of employees is discovered, the company can be fined heavily. The amount of these fines varies depending on the extent and duration of the violation and can amount to several thousand euros. There is also a risk that the company will lose its license to provide temporary workers, which can lead to a further significant restriction of operational flexibility.
What claims do affected employees have?
Temporary workers who have been employed as contract workers or in a similar way can claim the same rights as regular employees. This includes claims to equal pay, i.e. the same salary as permanent employees, as well as other company social benefits. If hidden temporary employment is discovered, employees have the right to claim back pay and other entitlements retroactively.
Do I have to make back payments of social security contributions?
Another risk for companies is the subsequent payment of social security contributions. Contracts for work and service contracts are often subject to different contribution rates than regular temporary employment. However, if it is proven that an employee was actually hired out, companies must pay the missing contributions, which can lead to considerable financial burdens.
What about loss of image and reputation?
The discovery of a hidden temporary employment agency can also cause lasting damage to a company's reputation. Particularly in industries where temporary work plays an important role, a loss of trust can lead to difficulties in recruiting qualified workers and in working with business partners.
What measures can be taken to prevent hidden temporary employment?
Companies wishing to minimize the risk of disguised employee leasing must be fully aware of the legal framework for employee leasing and apply it correctly. There are clear guidelines to ensure that companies act in accordance with the law while protecting the rights of their employees. If a company does not have specialists or a compliance department for this area, lawyers can definitely help.
How are contracts drawn up clearly and transparently?
The first step in avoiding problems is to draft employee leasing agreements transparently. They must be clearly worded and state unambiguously that the contract is for the supply of temporary workers. The contract must contain key points such as the duration of the assignment, remuneration and the rights of the temporary workers. Otherwise, imprecise or ambiguous wording in the contract may lead to a concealed supply of temporary workers.
How can I apply for a temporary employment permit?
Every company that wants to employ temporary workers or hire them out to other companies must apply for a temporary employment permit from the Federal Employment Agency. This permit must be renewed regularly. Companies are obliged to ensure that they meet all requirements, even if they work with personnel service providers.
What is the difference between contracts for work and temporary employment?
Companies must make a strict distinction between genuine contracts for work and temporary employment. A contract for work and services is based on the delivery of a clearly defined result in which the contractor works largely independently. However, if the employee is integrated into the client's business and is subject to the client's instructions, this is a temporary employment contract.
Does training and advice from the HR department help?
It is advisable for the HR department to receive regular training and to keep up to date with the current legal provisions on temporary employment. This can be done through internal training or advice from specialist lawyers to ensure that all legal requirements are met. In cases where the company itself is not sure, it should seek external help and have specialists provide training and advice.
Should internal audits be carried out?
Regular audits are a good way to ensure that all legal requirements are being observed. Companies must regularly review their employment relationships in order to determine whether concealed temporary employment may exist in certain cases.
What are the advantages of legally compliant employee leasing?
The legally correct handling of temporary employment offers numerous advantages for companies and employees. When companies comply with legal requirements and act transparently, they not only create a legally compliant working environment, but also build trust with their employees.
How do you ensure legal certainty and avoid sanctions?
Companies that obtain the required temporary employment permit and apply it correctly enjoy legal certainty and do not have to fear any penalties or legal consequences. They also reduce the risk of back payments, for example in the area of social security contributions.
Does a positive working atmosphere and employee loyalty help?
A transparent approach to temporary staffing contributes to a positive working environment. Temporary workers feel recognized as valuable team members, which boosts morale and promotes employee retention. Treating temporary workers fairly makes it easier to attract and retain skilled workers in the long term.
How can you enhance your corporate image?
Companies that deal openly with temporary staffing improve their image as a trustworthy employer. In industries where temporary work plays an important role, a positive image is crucial to attracting the best talent and optimizing cooperation with personnel service providers.
Is better planning and flexibility possible?
If there is a clear legal basis for the work, a recruitment agency can plan better for the company's personnel requirements. If the employee leasing contracts are clearly formulated and applied, a company can react flexibly to market changes and quickly compensate for staff shortages. This can be particularly important for companies that are exposed to seasonal fluctuations.
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