Temporary employment: Employer-of-Record model permitted again

Effective October 1, 2025, the Federal Employment Agency (Bundesagentur für Arbeit, BA) has revised its technical guidelines on the Temporary Employment Act (AÜG), thereby withdrawing a practical restriction from October 2024: Employer-of-Record services are now permitted again.  

The employer-of-record (EoR) model enables companies to employ staff abroad through a specialized service provider without having to set up a local branch themselves. The EoR assumes the role of employer in the employment contract, while the client company retains technical control. 

Employment agency largely classified EoR as temporary employment requiring a permit 

In October 2024, the BA tightened its technical guidelines to the effect that it largely classified employer-of-record constructions, i.e., the employment of foreign workers by third-party providers for German companies, as temporary employment requiring a permit.  

The decisive factor here was the new interpretation of the territoriality principle: even in the case of exclusively virtual activities from abroad, the AÜG should apply if the hirer is based in Germany. Previously, the rule was: without a physical presence in Germany, there was no domestic connection and therefore no application of the AÜG. 

This view meant that service providers needed a German AÜG permit if they provided German customers with employees working digitally abroad. If such a permit was not available, German customers faced considerable liability due to the fiction of an employment relationship with the EoR employee. 

This change was widely criticized in labor law practice and literature. In particular, it was criticized that the BA was overstretching the scope of the AÜG and misjudging the reality of global labor markets.  

New directive: Permission requirement under the AÜG does not apply to purely foreign activities 

The directive now in force (Directive 202509010 of September 18, 2025, Section 1.2.3 (2)) expressly repeals the restrictive interpretation from 2024. It clarifies that there is no permit requirement under the AÜG for purely foreign activities without a physical presence in Germany.  

The condition is that the employee deployed does not travel to Germany even once in the course of their work. This means that employer-of-record services are once again legally permissible, provided that no other conditions for temporary employment requiring a permit are met. 

The withdrawal of the restrictive interpretation is a clear signal for greater flexibility in the cross-border deployment of employees. Companies can once again use employer-of-record service providers to employ skilled workers abroad in a legally compliant manner.

Practical tip: Create the right framework and ensure transparency

Even though employer-of-record services are now permitted again, companies should proceed with caution when drafting contracts and selecting service providers. It is crucial that there is no obligation to follow instructions from the German client and that the work is carried out exclusively abroad, without any physical presence in Germany.

Transparent documentation of the employment relationship and the actual working conditions is recommended in order to be legally secure in the event of an audit by the Federal Employment Agency or other authorities.