Employer of Record now not subject to authorization after all – change of heart at BA

On October 1, 2025, the Federal Employment Agency (BA) updated its technical directives and made a U-turn with regard to the so-called employer-of-record model: In the eyes of the BA, the employment of foreign remote workers should now not require a permit after all.

Just under a year earlier, on October 15, 2024, the BA had – completely unexpectedly and without any recognizable legal support – wanted to apply the German Temporary Employment Act (AÜG) to this type of external personnel deployment. As a result, the BA was of the opinion that this form of skilled worker recruitment, which was gaining momentum in business practice, would have been subject to authorization. Violations could therefore also have constituted an administrative offense for German companies using foreign temporary workers remotely.

The BA has now changed its opinion again. It now only classifies the employment of temporary workers provided by a foreign temporary employment agency to a company based in Germany as temporary employment requiring a permit if the foreign workers are deployed in Germany on site.

The employer-of-record model has become a popular tool

Due to the shortage of skilled workers in Germany, more and more employers have recently been recruiting skilled workers abroad to work remotely for the German company. However, some companies are reluctant to recruit workers abroad themselves. The reason for this is the bureaucratic effort involved in hiring workers abroad. In addition, hiring workers often does not provide the desired degree of flexibility. The employer-of-record model is a popular way of avoiding recruitment. An agency abroad, the employer of record, hires a skilled worker locally in accordance with local labor, tax and social security regulations and transfers the right to issue instructions to the company in Germany.

Without the foreign connection, this arrangement would undoubtedly be a temporary employment agency under German law. This is because the employees are integrated into the work organization of the German client company and are subject to its instructions. However, according to the prevailing opinion, the AÜG was – and still is – only applicable if there is a domestic connection. In the employer-of-record construction, this is at best the case if the activity also includes business trips to Germany or mobile activities in Germany. If both the employer of record and the foreign workers are located abroad without interruption, the German Temporary Employment Act is not applicable in accordance with the territoriality principle.

BA now considered the virtual activity from abroad to have a domestic connection

This view was initially also held by the BA, but it was – quite surprisingly – abandoned with the technical instructions of October 15, 2024. In these directives, it stated that the virtual activity for the German company was sufficient for the domestic connection and thus for the obligation to obtain a temporary employment permit. It therefore also applied the AÜG to cases in which the foreign employees had never set foot on German soil. This was seen as a significant legal risk for the employer of record construct, as the foreign temporary employment agencies generally do not have a German temporary employment permit. Therefore, just like the German client company as the hirer, they could have faced consequences such as fines.

The Federal Employment Agency rows back

The technical directives published on October 1, 2025 now make a U-turn on this issue. It now states in section 1.2.3 para. 2:

The lender is based in another EU/EEA country (or a third country). The hirer is based in Germany. The temporary worker remains in another EU/EEA country (or a third country) and works exclusively online for the hirer in Germany without traveling to Germany even once to work there. The reservation of permission in Section 1 (1) sentence 1 AÜG does not extend to these cases due to the lack of a sufficient domestic connection.

The BA thus explains: If foreign temporary workers work exclusively remotely from abroad for a German company without ever traveling to Germany, the German Temporary Employment Act does not apply.

What the technical directives mean in practice

Even if the technical directives of the Federal Employment Agency are not legal norms, they provide companies with important guidance. After all, the BA is the competent supervisory authority for the implementation of the Temporary Employment Act.

From the company’s point of view, it is therefore very pleasing that the employer-of-record model is (again) outside the German AÜG in the eyes of the BA. However, this legal status is not set in stone: the BA itself points out that there is still no supreme court case law on this issue. The courts are not bound by the BA’s technical instructions. It is therefore theoretically possible that the courts could come to a different conclusion. In any case, companies that make use of the employer-of-record model should follow the case law closely.

Temporary workers’ stays in Germany can lead to fines

Caution is required if the foreign employees visit the company in Germany, for example for training or meetings. In this case, the activity would be deemed to have a domestic connection. Every assignment in Germany, no matter how short or insignificant, can open up the scope of application of the AÜG. The consequence would be that the employer of record, i.e. the foreign hirer, would require a German temporary employment permit. Without this, the German company employing the temporary worker would be in breach of regulations and could be fined up to 30,000 euros.

Employer-of-record model remains attractive

The employer-of-record model is still a practical way of employing foreign specialists. However, care should be taken to ensure that they do not have any assignments in Germany, but work remotely throughout. Otherwise, fines may be imposed.

If the foreign skilled worker is to be deployed in Germany from time to time, the safer option is to employ them in the German company or to hire them out on the legal basis of the AÜG. If the employer does not have the appropriate local structures in place, payroll could be handled by a global payroll service provider.