AÜG vs EOR: the licence behind a compliant employer of record in Germany

Arbeitnehmerüberlassung, often shortened to AÜG after the law that governs it, is the German legal framework for placing employees with another company to work under that company’s direction. The provider stays the legal employer, while the client directs the day to day work. That structure is exactly what sits underneath an employer of record.

Because the arrangement puts one company’s employee to work for another, German law regulates it closely. It is not something a provider can do on a handshake. There is a defined legal basis, and a permission that has to be in place first.

To place its employees with client companies lawfully, a provider needs a licence, an Erlaubnis zur Arbeitnehmerüberlassung, granted by the Bundesagentur für Arbeit. It is not a formality. The authority checks that the provider is reliable and runs its employment and payroll properly before granting it.

Working without the licence where it is required is a serious matter, and it can put the employment arrangements it was used for in question. So the licence is not just paperwork, it is the thing that makes the whole arrangement stand up.

An employer of record in Germany operates on this framework. We employ your chosen hire on our German entity, and the licence is what lets us lawfully place that employee to work for your company under your direction. You get a compliant German employee, and the legal basis for the arrangement is already covered.

This is the quiet reason an EOR works at all. It is not simply payroll outsourcing. It is a licensed employment relationship where we carry the legal side and you carry the working relationship, on a footing German law recognises.

The same framework covers two different things, which is where confusion creeps in. Traditional staffing, Zeitarbeit, is where an agency recruits a pool of workers and supplies them to cover short-term needs, and the client takes whoever the agency sends. The relationship is temporary and the agency chooses the person.

An employer of record uses the same legal basis for a different purpose. You choose the person you want to hire, and we employ them for you on an ongoing basis. The mechanism is shared, but the intent is the opposite of temporary cover: it is a lasting hire that you selected, employed compliantly on our entity.

Because the licence is what makes the arrangement lawful, it is one of the most useful things to check when you compare providers. A serious EOR in Germany will either hold its own licence or be able to show you exactly whose licence the employment rests on.

Our German entity holds its own AÜG licence from the Bundesagentur für Arbeit. That means your hire is employed and placed on a lawful, licensed basis by the same company you are dealing with, not through a chain of third parties you cannot see. If a provider cannot answer the licence question clearly, that tells you something.