Permanent workers based in Germany will be normally entitled to the benefit of German employment law (at least in parts with regard to social security), regardless of whether they have an English law contract or a contract that is expressly subject to German law. The fact that they are working remotely for a UK employer will not be relevant as long as they are in Germany for more than 180 days a year.
Many of the protections conferred by German law will be familiar to UK employers, since they derive from EU law – for example the laws on discrimination and working time. However the elements of employment protection that derive solely from German local law are different, and in some important respects more generous to a worker than the corresponding rights under UK law – e.g. the regulations on unfair dismissal in Germany. In the case of a remote worker contractual provisions should be made regarding the distinction between working from home and mobile working. Especially working from home is subject to German occupational health and safety regulations.
Assuming German law applies to the working relationship, it is unlikely that the worker would be able to bring proceedings in an employment tribunal as well as the German employment courts in the event of a dispute. However there may be some circumstances where such a claim may be possible – for example if the remote worker is a UK national, or there are additional factors connecting the employment to Britain, other than the mere fact of the employer being based in the UK.
Tax and social security
If the worker engaged is resident in Germany, they will be subject to German tax. The basic rate is currently between 14 and 45 % depending on the total gross income and the tax “bracket” (having children, being married etc.). They will also be subject to employer and employee social security contributions (currently 41 % up to a threshold of currently EUR 58.050 regarding the health insurance and EUR 85.200 with regard to the pension insurance) on their earnings, even though these are derived from a UK employer. Social contributions are to be borne by both parties, so it is roughly 20 % for each side
The UK employer is therefore advised to appoint a payroll agent in Germany to facilitate the appropriate deductions from the worker’s salary. In Germany, you usually need a company number to register an employee with social security and the tax authorities. In general, there is some bureaucracy that is best solved through a payroll provider.
Assuming the worker is not conducting any business on behalf of the employer in Germany, and is simply working from home, the engagement of a sole remote worker is not likely to amount to the creation of a permanent establishment to tax purposes, which would trigger an obligation for the UK employer to pay German tax on the income it derives from any operations in Germany, as well as having potential liabilities in relation to the German equivalent of VAT. However, since it depends on the circumstances of the individual case and quite a lot is disputed, tax advice should be sought in Germany beforehand in any case.
If the worker is moving from the UK, there is a possibility that for a least the first tax year, they may need be liable for tax in both jurisdictions. Any adverse impact for the worker would however be alleviated by the UK/Germany double taxation treaty (though it is necessary to apply in advance for treaty treatment to avoid the need to pay double tax up front). The same may apply to social security contributions, though there are some exceptions for temporary employment arrangements (known as the “detached worker” provisions) under the UK/EU Trade and Cooperation Agreement, which would avoid the need for social security contributions to be paid in both the UK and Germany.
Company law considerations
The arrangement envisaged above (ie the appointment of a single home-based worker) is not likely to result in a requirement for the UK employer to register with the German authorities as an overseas corporate entity.
However the position would be different if the worker is conducting any business on behalf of the employer in Germany, if more than one worker is involved, or if any office or other facilities were to be made available for them to use.
Provided the worker is EU national, there will be no requirement to obtain a visa or work permit.
However if the worker is a UK national they would need to comply with German immigration rules, unless they were already resident in Germany as at 31 December 2020. The UK/EU Trade and Cooperation Agreement does not contain any provisions to facilitate new remote working arrangements of the kind envisaged by UK nationals.
UK citizens who were already in Germany by the end of 2020 must apply for the "Residence Document-GB" at the Foreigners' Registration Office by 30.06.2021.
According to German immigration regulations UK citizens are generally considered third-country nationals when entering the EU. However, under Regulation (EU) 2019/592, facilitations apply with regard to a visa requirement. No visa is required for visits or business trips to the Schengen area as long as the length of stay does not exceed 90 days within a period of 180 days. For a stay exceeding this period a visa according to paragraph 4 of the Residence Act is required.
This is document is a very brief summary of complex legal provisions. Specific advice should always be sought, based on your organisation’s precise situation.
For advice on German law please contact Christof Kleinmann, Managing partner at Graf von Westphalen
For advice on English law please contact David Mills, Employment partner at Mills & Reeve.