Temporary work agency: what it is, how it works and which obligations apply

What is a temporary work agency?

A temporary work agency carries out temporary agency work: it hires employees on regular employment contracts and assigns them to clients that need staff temporarily – for example during peaks in orders, illness, projects or as a trial before permanent employment. In the Act, the temporary work agency is the Verleiher, the client is the Entleiher (user undertaking) and the employee is the Leiharbeitnehmer (temporary agency worker).

Many companies describe themselves as staffing providers (Personaldienstleister). The term is broader: besides temporary agency work, it often also covers recruitment (Personalvermittlung), contracts for work and service contracts, or on-site management.

How does a temporary work agency work?

1. Client request: The client describes the work, qualifications, place of work, working hours and duration.
2. Assignment contract: The temporary work agency and the client conclude a temporary agency work contract in text form, often as a framework agreement with individual assignments.
3. Staff: A suitable employee is selected or newly hired; the employment contract usually refers to the DGB/GVP set of collective agreements.
4. Before the assignment: specification of the employee to the client (Konkretisierung), informing the employee about the user undertaking in text form, occupational health and safety instruction at the client.
5. During the assignment: recording of working hours, support from the scheduling team (Disposition), monitoring of the deadlines for industry supplements, Equal Pay and the maximum assignment period.
6. Month end: the employee's wages and the client's invoice are produced from the same hours.

How does a temporary work agency make money?

The client pays a charge rate (Verrechnungssatz) for every hour worked, plus agreed supplements, for example for night, Sunday and public holiday work. From this, the temporary work agency must cover considerably more than the hourly wage: employer social security contributions, holidays, continued pay during sickness, public holidays, wages during periods without assignment, administration, scheduling and sales. If collectively agreed wages rise or industry supplements and Equal Pay take effect, the charge rate must be adjusted accordingly.

If the client takes on an employee, the temporary work agency may charge a reasonable placement fee (Vermittlungsvergütung). A ban on employing the worker later, on the other hand, would be invalid (§ 9(1) nos. 3 and 4 AÜG).

Which permit does a temporary work agency need?

• Permit requirement: Anyone who assigns employees in the course of their economic activity needs a permit from the Federal Employment Agency (§ 1(1) AÜG). The application can also be submitted via the Federal Employment Agency's online portal; fees are charged for processing.
• Time limit: The permit is initially valid for one year. The renewal application must be submitted at least three months before expiry; unless renewal is refused in good time, the permit is extended by one year (§ 2(4) AÜG).
• Unlimited: After three consecutive years of permitted activity, the permit can be granted without a time limit. It expires if it is not used for three years (§ 2(5) AÜG).
• Refusal: The permit is refused if the applicant is unreliable – for example because they do not comply with social security, tax or occupational health and safety law – if their business organisation does not ensure that employer obligations are met, or if they do not grant Equal Pay or the collectively agreed conditions (§ 3(1) AÜG).
• Ongoing obligations: The relocation, closure and opening of establishments and new managing directors must be reported; business records must be kept for three years (§ 7 AÜG).

What obligations does a temporary work agency have?

In addition, there are the usual employer obligations: registration for social security, wage tax, working time recording and occupational health and safety – the latter together with the client (§ 11(6) AÜG).

Temporary work agency, recruitment agency, contract-for-work company

Anyone who assigns employees without assuming the usual employer obligations or the employer's risk is presumed to be engaged in job placement (Arbeitsvermittlung, § 1(2) AÜG). If a contract for work (Werkvertrag) is in reality performed as an assignment, the consequences of covert temporary agency work (verdeckte Arbeitnehmerüberlassung) apply.

Common mistakes

• The renewal application for the permit is submitted too late.
• Employees start at the client before the contract, specification and information are in place.
• No wages, or too little, are paid during periods without assignment.
• Deadlines for industry supplements, Equal Pay and the maximum assignment period are kept in Excel lists and overlooked.
• Hours are typed in several times for wages and invoices, and in the end the wages and invoices do not match.
• Assignments to construction businesses are not checked against the restrictions of § 1b AÜG.

Software for the daily work of a temporary work agency

The more employees are on assignment with more clients, the more depends on clean data: who works where, since when, under which collective agreement and with which supplements. Our SBM staffing software shows how scheduling, time recording, payroll preparation and invoicing come together in one system.