Alarm over 18-month cap on German contracts

German labour law reform that has already triggered the termination of 180 local contractors - and seems to threaten UK contractors’ prospects – is a “leap backwards.”

Tremayne Elson, Germany managing director of agency body APSCo, made this criticism in light of chancellor Angela Merkel signalling that the reform will be put in place without delay.

The reform centres on imposing a cap on the Arbeitnehmerüberlassungsgesetz (AüG) licence, which allows outfits in Germany  to ‘lease’ temporary labour, including UK contractors.

While there is currently no restriction on the period that workers can be engaged through an AüG licence, the proposal is to classify contractors as employees after 18 months in the job.

So from January 2017, a contractor faces automatically becoming their end-user’s employee after a year-and-a-half, or will have to seek an alternative workplace if they wish to remain freelance.

Alongside recruiters SThree and Hays which have formed lobby group ADESW to fight the planned reform, APSCo believes the cap would have numerous disastrous effects.

Rather than clarifying the definition of a freelance relationship, it would add “additional levels of confusion” and make it “even more difficult to be confident of a contractor’s status.”

As well as this blight on flexible workers (both in Germany and those out of Germany such as UK contractors wishing to work in Germany) it would also hurt the nation’s businesses and its economy, APSCo says.

“The German economy is a ticking demographic time bomb with a shortage of qualified new entrants coupled with a rapidly ageing workforce,” said Mr Elson.

“Increasingly, the only way to resource a project…is by attracting freelancers. Assignments can easily last longer than the maximum 18 months, particularly on complicated technical projects.”

In line with his concerns, 88 German business leaders have published an open letter in their national press, urging a rethink with the tagline “Don’t destroy good work through unnecessary laws.”

Germany's recruitment market creates over €22bn (£17bn) for the country, making it the world’s fifth most active employment market, where the number of contractors estimated is almost 500,000. 

“We see this a little bit as King Canute trying to stop the tide,” says Timo Lehne, Germany director of SThree. “German industry, contractors and the professional staffing companies which provide them will all potentially lose out”.

He pointed out that the proposed reform was conceived to protect vulnerable workers but, in its current form, says it represents a “significant disincentive” to contractors and other highly skilled workers.

Mr Elson agrees. “In a world economy with an ever increasing flexibility in the professional workforce - and technology that is enabling a more creative work model – this is a leap backwards,” he said.

Despite the concerns, partly evidenced by one German multinational terminating 190 freelancer contracts in anticipation of the reforms, the Federal Ministry of Labour and Social Affairs appears keen to legislate.

In particular, officials want to address the increasing use of ‘sham’ contracts, typically in low-wage sectors, where workers are treated as off-payroll contractors because employers want to avoid the costs of having to grant them ‘employee-style’ rights.

Editor’s Note: Related Reading –

Contractors’ Questions: How to go freelance in Germany?

Contractors’ Questions: What about PII in Germany?

Contractors’ Questions: Does the 183-day rule let me avoid tax?

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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