Types of Work Contracts in Germany
Updated: Nov 2, 2021
This blog post is transcribed from Episode #21 of the Empower to Grow Career Podcast. Being employed in Germany for the first time can be confusing if you are exploring this from your home country, have just moved here or have studied in Germany, but never worked full time. In this article, my aim is to give you an overview of the 3 1/2 most common ways of employment for engineers and technical experts.
Full-time permanent contract - limited and unlimited
Permanent contract with AUG labour leasing to another company
Essentially, there are three, maybe four different types of job contracts that are worth knowing about if you are an engineer or technical expert looking to start your career in Germany.
1. Permanent Contracts
The most common one and the contract type that most of my clients aim to get is a full-time permanent contract. Basically, a company will select you as their employee and will give you a full-time unlimited contract - the easiest option.
This contract will then provide a framework for your tasks, for the hours of work that you're required to do, the holidays you're eligible for, overtime work and its remuneration, how to terminate the contract, the notice period and how to give notice and what happens if the company is planning to give notice to you. You will usually have something about data protection as an addition to your contract. There might be some company-specific rules and frameworks in your contract as well. An unlimited permanent contract is the most common option.
But for various reasons, quite often, this contract is limited either to a certain date or for a specific project. This is not uncommon in Germany - so if a company offers you a limited contract, maybe for the duration of one year or two years, do not worry so much about it. Just consider what this means for you in your specific situation.
Reasons for having a limited contract:
It might be that your contract is limited to a specific project - the company might be working on a project where they require an additional workforce or where they require specific skills that they might not need again afterwards. So they are looking for people and offer them a contract for a limited amount of time. They also do that for example, if somebody is on maternity or parental leave. For the duration of that, maybe for one year, 2 years or three years they are looking for someone to replace that person and offer a limited contract.
The same thing also happens, for example, if there are companies sending somebody on an assignment abroad, and they are getting somebody to fill the initial vacancy, with the contract being limited. Quite often, the case is that after the period ends, you will get either another limited contract or an unlimited one. It is your responsibility to check what will happen when the limitation of your contract ends very well ahead of time with your manager so that you can plan what you will do in case your contract does not get extended. This might mean that you have to go on a job hunt or assess how likely the chances are that you will get extended or receive an unlimited contract.
2. Labour Leasing
The second most frequent way to be employed in Germany is to have a full-time contract with an agency or an engineering service provider, which can be limited or unlimited.
Then that agency or service provider will lease you out to one of their clients. In Germany, this is called Arbeitnehmerüberlassung - the short term is ANÜ, or in English, usually called AUG, and this is the term that I'm going to use hereon.
Essentially, this is part of Labor leasing or body leasing, as it is often referred to. Usually, in this scenario, you will spend most of your time working on-site at the client's location.
From my experience in the German automotive market: A lot of the German OEMs hire people this way quite often for projects where they need a higher workforce than their permanently employed staff, and this is basically how a company operates.
It is a much nicer way of working with people than hire and fire mentalities, so essentially what companies could theoretically do is hire a lot of people if they have a new big project and then make them redundant again when the project is completed. But for various reasons that you can probably imagine for yourself, this is not a very common practice in Germany and therefore we have this practice of AUG or body leasing, because it helps companies to operate better, to increase their staff and to reduce it again easily with the transparency that people usually know from the beginning.
Still, you need to be a little bit careful when companies send you into an AUG assignment. Every company that is eligible for AUG needs a license from the Federal Employment Agency. So make sure that the company who is trying to lease you actually has that license because only that way is actually a legal way of working in Germany.
Apart from that, you do not have to worry too much because your contract will be with the agency, so they are responsible for you, for your insurance and for your social contribution, for your taxes, and for everything that has to do with you. As an employee, your contact person at the agency or engineering service provider will be responsible. At the clients' location, you will be treated as if you were a full-time employee, but then there are restrictions in terms of which meetings you can attend and sometimes in their buildings they will have areas that are restricted to their permanent employees, usually due to data protection laws. So this is something that you need to be aware of.
A lot of my clients who get offered such a contract by an agency or service provider quite often worry about this. Usually, I always say that if this is for example your first job after your studies or also your first job in Germany, there is not a lot to worry about. Essentially with an AUG contract, you will be on-site at an interesting company. You usually have an interesting project you're working on. You have the ability to create a great network there to learn a lot and it is never a bad thing to start your career this way. So it will never be negative for your CV if you have worked in an AUG contract.
The only slightly negative part with this contract that you have to be aware of is that the AUG assignment is also limited and when the end of the assignment is approaching, you should check back very early with the contact person at the agency what they are planning to do after the contract expires. You might want to explore if there is a chance to get hired permanently by the client you're working at, or you have to check on time if the agency is planning to find you a new project, either at the same client or somewhere else. This might sometimes involve you moving to a different location. Definitely make sure to check early before your AUG assignment ends.
What will happen if your agency cannot give you another project?
If they don't have anything, then you will be out there job hunting again. So this is just something to be aware of, but if they manage to get you a follow-up project at a different client, it is an interesting and good way to explore different types of companies in Germany before you actually make the decision to go for full-time permanent employment in one of them, and you have a good way to expand your network, to gain knowledge and to explore different areas. So essentially I see it as completely neutral. It has advantages and the disadvantage are just the same thing as being employed full time somewhere in Germany.
Of course, you also have the possibility to freelance in Germany. Now, this is something that I would not essentially recommend if you are not living in Germany yet. To easily become a freelancer, I would recommend you to live in Germany first, to register as a citizen and have a resident permit here as well as health insurance in Germany, because this will make it easier for you - and this is what you will need to do, for the paperwork to register as a freelancer in Germany.
You might have seen in earlier episodes I did an interview with financial advisor Alicia Aswani, who will support everyone coming to Germany with any financial issues, as well as insurance, is and she also advises about taxes.
If you are looking to explore a career as a freelancer in Germany as I said, it might make sense to be here for a while, maybe in a permanent job or as a student first and then start registering as a freelancer. Essentially, the process of registering with our Finanzamt is not that hard nowadays. You could do it online and basically, all you need is a tax number and then you can start your work.
Freelancing in Germany means that you are responsible to have your own health insurance that you're paying for and to provide for your pension entirely on your own so it needs a little bit of planning because you don't have an employer who will contribute to your taxes and to your insurance is, but it's entirely your responsibility. So you need to take that into account when you are calculating your freelance rates. Apart from that, I would say it is a career with great freedom with a lot of opportunities that are certainly worth exploring.
These were the three major types of contracts that I wanted to talk about with you. Because these are also going to be the ones that are most applicable for engineers and technical people coming to work in Germany.
3.5 Mini Jobs
If you are, for example, bringing your partner who might not be able to work full time, we also have a different type of contract called mini-jobs. These are basically jobs where you do supportive work and the maximum salary here is €450 per month. That might be something worth exploring if you have a partner or a spouse who's just planning to work on the side in the beginning before getting a full-time career.
Thank you so much for reading!
Bye for now!