4 essential tips to prevent employee / independent sales reps misclassification in Germany
Preventing full-time employee / independent sales reps (manufacturer’s agents) misclassification is important in any country. This is especially true for Germany since the German labor laws have some of the strictest punishments when the courts decide that you willfully neglected the law. The claims for backdated social security contributions can go back as far as 30 years. If found guilty, the employer could also face criminal charges for tax evasion, which results in high fines and/or a prison term.
Unfortunately, the definition for employee misclassification (scheinselbständigkeit) is not very clear. There are however certain criteria you can take into consideration when trying to prevent full-time employee / independent sales reps (manufacturer’s agents) misclassification.
So here are 4 essential tips to prevent employee / independent sales rep misclassification for your German sales reps.
#1. Have an external party check the nature of the working relationship between your company and the sales rep
The golden tip is to have an external party check whether there is a case of full-time employee / independent sales rep misclassification or not. This will not prevent employee / independent sales rep misclassification cases.
Either the German labor laws or the relationship between your company and the independent sales rep could change. However, having the relationship verified by an external party will make it less likely that you will be charged with willful neglect. This is important because when found guilty you must ‘only’ pay social security contributions for a maximum of four years.
#2. Make sure the independent sales rep has multiple sources of income
If the sales rep receives approximately 80% of his income from one customer, then this will be a red light for labor authorities. As noted above, the relationship between the sales rep and the employer can change over time.
Keeping away from the 80% figure over a long period is essential to prevent full-time employee / independent sales rep misclassification.
#3. Don’t act as the employer
When working through independent manufacturer’s agents, don’t make the sales rep comply with a certain number of working hours. Don’t give too detailed instructions about how the work should be executed. Don’t let the sales agent work on your property. Don’t make the independent sales reps write detailed periodic reports about their activities. Don’t make investment in office supplies for your independent sales agents. Don’t prevent the sales rep from operating under his own tradename, etc.
#4. Use an Employer of Record solution
The above-mentioned measures can make it less likely to be charged with misclassification of employees as independent sales reps. However, if you want to eliminate the risk completely, then the best option will be to to use the services of an Employer of Record Organization in Germany.
Acumen International offers fully compliant global employment solutions in more than 190+ countries. Our Global Employer of Record solutions have already helped hundreds of manufacturing companies eliminate employee / sales rep misclassification (implying an obligation to pay backdated contributions and penalties when found guilty) as well as other legal, financial and business risks related to working through independent sales reps. Among them valuable customer base loss, recruitment costs required to replace the reps when they decide to leave, etc. Manufacturers are now free to focus on the ways to get higher revenues, while selling their product in the global marketplace in a fully compliant manner, irrespective of the number of foreign markets they operate in.