Employer of Record hub / Local entity
Employer of Record or a local entity in Germany?
An EOR is a bridge with a time limit, not a destination. Here are the five triggers that mean it is time to found your own entity — and a twelve-week plan for moving people across without losing them.
Short answer
Start with an EOR. Plan the entity from day one.
Use an Employer of Record to get your first one or two people working while the market case is still unproven. Set a review date at month nine, and found the entity when headcount passes three to five, when the AÜG 18-month limit comes into view, or the first time a German buyer asks who they are contracting with.
The expensive version of this decision is making it late: a formation started in month sixteen means either a rushed GmbH or a lost hire.
Switch triggers
Five reasons to found the entity.
Headcount passes three to five
Below three people the EOR's per-head fee is cheaper than a GmbH's fixed accounting and filing burden. Above five it almost never is. Model your twelve-month hiring plan, not today's headcount — founding a GmbH takes six to twelve weeks, so the decision has to be made before the break-even is reached.
The AÜG clock is running
Assignments under the Arbeitnehmerüberlassungsgesetz are generally limited to 18 months with the same client. If a key hire is at month twelve and you have no entity plan, you are one quarter away from either losing the person or scrambling a formation.
A buyer requires a German counterparty
Enterprise procurement, public tenders, Mittelstand purchasing departments and most landlords want a German legal entity with a Handelsregister number and a local signatory. No EOR structure solves this — the contracting party either exists or it does not.
You need a Geschäftsführer or a local bank
A managing director is an office of a company, not a job title you can assign to an EOR employee. The same applies to opening a German business bank account, signing a lease, or registering for anything that requires a domestic legal person.
Equity, benefits and culture
Stock options, a company pension scheme on your terms, your own onboarding and your own handbook are all easier inside your entity. Senior German candidates read an EOR contract as a signal that the parent has not committed to the market yet.
Side by side
What changes when you own the entity.
| Employer of Record | Your own GmbH | |
|---|---|---|
| Time to first compliant hire | 1–3 weeks | 6–12 weeks |
| Upfront capital | Deposit of 1–2 months payroll | ~EUR 12,500 paid-in plus EUR 1,500–3,500 fees |
| Fixed annual overhead | None beyond per-head fees | EUR 5,000–12,000 accounting, payroll and filings |
| Cost per additional employee | EUR 4,800–10,800 / year | Marginal — payroll admin only |
| Can sign German contracts | No | Yes |
| Geschäftsführer possible | No | Yes |
| Duration limit | Generally 18 months under AÜG | None |
| Exit | Contract termination | Formal liquidation, 12+ months |
| Permanent establishment risk | Driven by activity, not structure | Entity is taxed in Germany by design |
Transition
Twelve weeks from EOR to your own payroll.
Week 0
Decide the target date and confirm notice periods in the EOR contract and each employment contract.
Week 1–6
Notary appointment, Handelsregister entry, business bank account, trade office (Gewerbeamt) and tax number.
Week 5–8
Payroll registration with the tax office, health insurers and Berufsgenossenschaft. Appoint a Steuerberater for payroll runs.
Week 7–9
Issue new employment contracts carrying over start date, vacation, notice period and pension. Collect signatures before deregistration.
Week 9–10
Deregister with the EOR at month end, run one parallel month, reconcile deposits and final invoices.
Week 11–12
First payroll on your own entity. Confirm employees see identical net pay and unchanged social insurance numbers.
FAQ
Questions before you commit to a structure.
When should I switch from an EOR to a local entity in Germany?
Switch when any one of five triggers fires: you pass roughly three to five employees, an AÜG assignment approaches its 18-month limit, a customer or public buyer requires a German contracting party, you need a Geschäftsführer or a German bank account, or you want to grant equity and benefits on your own terms. Cost alone is usually the last trigger, not the first.
How long can you use an Employer of Record in Germany?
Where the arrangement falls under the Arbeitnehmerüberlassungsgesetz, assignment of the same worker to the same client is generally capped at 18 consecutive months. Some providers structure around this, and collective agreements can extend it, but you should plan the transition from day one rather than discover the ceiling in month sixteen.
Does an Employer of Record protect me from permanent establishment risk?
No. An EOR removes employment-law and payroll risk, but permanent establishment is determined by what the person actually does. An employee who habitually negotiates or concludes contracts in Germany can create a taxable presence for the US parent whether or not an EOR holds the contract. Sales roles carry the highest exposure.
How do I move employees from an EOR into my own GmbH?
Found the GmbH and register for payroll first, then agree a transfer date, issue new German employment contracts that preserve seniority, vacation entitlement and notice periods, deregister with the EOR at month end and register the employee with the tax office and their health insurer under your new payroll number. Budget six to twelve weeks and run one parallel payroll month.
Will employees lose anything in the transfer?
They should not, and German candidates will ask. Carry over start date for seniority purposes, accrued vacation, any pension (bAV) arrangement and the same or better salary and notice terms. A transfer that reduces terms is a change of contract requiring consent, and it is the fastest way to lose the person you spent months hiring.
Can I keep some people on an EOR and hire others directly?
Yes, and it is common during transition — for example a GmbH for the commercial team while a single specialist in Austria or Switzerland stays with the provider. It costs a little more in admin, but it avoids forcing every country onto the same structure before the business case exists.
Next step
Get a structure recommendation for your plan.
Tell me your hiring plan for the next twelve months and what you sell in Germany. You get a recommendation on EOR versus entity, the trigger points to watch, and the sequence to run it — within one business day.