Temporary agency work, a contract for work and materials, or the provision of services?

What are the consequences of disguised temporary agency work?

The main consequence under civil law is the legal presumption that: If an employee is supplied without the required authorisation or without the required clear identification, the employment contract between the temporary worker and the agency is invalid and, by operation of law, an employment relationship arises with the user undertaking (Sections 9, 10 of the German Temporary Employment Act (AÜG)). In such cases, the user company’s pay scale, protection against dismissal and length of service apply. The worker may object to this by issuing a declaration of continued employment within a specified time limit. However, the user organisation cannot rely on this. For the procurement department, this means that a flexible service provider contract can, overnight, turn into a permanent workforce that nobody had planned for.

Under public law, fines of up to 30,000 euros may be imposed for supplying and hiring staff without a licence, as well as for breaches of the maximum supply period, and fines of up to 500,,000 euros per case for breaches of equal pay and equal treatment provisions (Section 16 of the German Temporary Employment Act (AÜG)). Added to this are the loss of authorisation and consequences under public procurement law. The most serious consequences relate to social security contributions: if the fictitious employment relationship is detected, the social security authorities will demand back payments for the past. The hirer is also liable, as a directly liable guarantor, for the agency’s contributions. In the event of deliberate non-payment, Section 266a of the German Criminal Code (StGB) also applies, which holds the responsible officers personally liable. The question of the employment status of external staff is therefore not a mere technicality under employment law, but a matter of compliance at management level.

Special cases: Group loans from abroad, EOR and the care sector

In our practice, we deal with three scenarios in particular. Firstly: foreign groups with German teams. Anyone who permanently integrates employees of a foreign group company into the operations of the German entity is engaging in cross-border temporary agency work. This requires a German temporary agency licence. Matrix structures with functional reporting lines are not automatically problematic in this context. Disciplinary management of staff by the German entity without a temporary agency structure, on the other hand, certainly is. Secondly, the Employer of Record model, in which a service provider formally acts as the employer for a company without a German entity. Legally, this typically constitutes temporary agency work, subject to all the relevant licensing requirements and maximum duration limits, as we demonstrate in detail in the article ‘Employer of Record in Germany’. Thirdly, there are labour-intensive sectors such as home care, where agency, posting and service provision models coexist, and where the distinction between employment statuses determines the viability of the entire business model.

What all these cases have in common is that the structure must be in place before the first day of assignment. It is not possible to rectify the situation retrospectively in the case of disguised agency work, and the obligation to disclose the employer’s identity cannot be fulfilled retroactively. You can find out how to set up international deployment models in a legally compliant manner on our solutions page for international staff deployment.

Compliance in the use of agency staff: the building blocks

Robust compliance regarding the use of external staff begins in procurement and ends on the shop floor. The first step is to check the status for each assignment: whether it is a works contract or a service contract with a clearly defined scope of work, or the supply of staff with the necessary authorisation and identification. The contracts must reflect reality and therefore contain service specifications with deliverables that can be accepted, provisions for the contractor to have sole responsibility for personnel management, designated coordinators on both sides, and a prohibition on work-related direct instructions. On site, training for managers, separate communication channels for technical clarification and personnel management, and regular assignment audits ensure that actual practice does not deviate from the contract. In the case of temporary agency work, contract management must include proof of authorisation, monitoring of the maximum assignment period, and equal pay cut-off dates. The works council of the host organisation must be involved in the transfer of temporary agency workers in accordance with Section 99 of the Works Constitution Act (BetrVG).

Compared with the scenario it prevents, the effort involved is manageable: there would otherwise be status proceedings, back-pay claims covering several years, fines and sham employment relationships right at the heart of the core workforce. Temporary staff are a legitimate and often necessary resource. Their use almost never becomes illegal through malicious intent, but rather through unmonitored practice.

Legal status: July 2026.