A Germany PEO is a label imported from the United States onto a German legal reality that does not recognise it. German law has no co-employment: an arrangement where one company employs a worker and supplies them to work under another company's direction is Arbeitnehmerueberlassung, employee leasing, and it is regulated by a dedicated statute, the AUG. Any provider employing people in Germany for your benefit needs a license for that, and the statute caps how long the arrangement can run.
Why US-style PEO does not map onto German law
In the US model, PEO and client share employer responsibilities by contract while the client remains an employer. German law instead asks a single question: who directs the work? When the entity paying the salary is not the entity directing the day-to-day work, the arrangement is employee leasing under the Arbeitnehmerueberlassungsgesetz, and the leasing company must hold a license from the Federal Employment Agency. This is the legal frame an EOR or PEO in Germany actually operates in, whatever its marketing calls the product. A provider that cannot name its license status is asking you to carry the risk of an unlicensed arrangement, and German law resolves that risk against both parties, not just the provider.
The 18-month cap and the rotation rule
The AUG limits the assignment of a leased employee to the same hirer to 18 months. After that, the arrangement must break: the worker cannot return to the same hirer until a rotation gap of more than three months has passed. If the cap is exceeded, the consequence is structural, not a fine alone: the hirer is treated as the employee's legal employer, which is precisely the outcome an EOR arrangement exists to avoid. The European Court of Justice ruled in March 2022 that a permanent position may be filled by rotating temporary workers without breaching the directive's temporary requirement, because what is assessed is each worker's assignment, not the nature of the underlying post; the 18-month clock still runs per worker under German law.
Equal treatment and the cost of non-compliance
Leased employees are entitled to equal treatment with comparable permanent staff at the hirer: pay including allowances and bonuses, leave, safety protections and access to facilities. Operating without a license exposes the parties to administrative fines, invalid contracts, deemed employment with the client, business closure orders and, for deliberate violations, criminal liability for the agency's management. Workers assigned beyond the limit can also declare to the Federal Employment Agency whether they wish to remain with the leasing company. None of this is theoretical; it is the enforcement architecture around every long-running Germany PEO arrangement.
Choosing PEO services, Germany: what to check
Ask for the provider's AUG license status in writing and which entity holds it, because group structures sometimes put the license in one company and the contract in another. Ask how the provider manages the 18-month clock for your hire and what it proposes at month 17: rotation, conversion to your own entity, or direct hire. Ask how equal treatment with your comparable staff is assessed and priced. For a hire you expect to keep beyond 18 months, plan the entity or direct employment route from the start rather than discovering the cap late. Statute and contract control; this page is not legal advice.
Questions people ask about Germany PEO
Is a PEO legal in Germany?
The service exists, but legally it is employee leasing under the AUG, requiring a license from the Federal Employment Agency. There is no US-style co-employment; the provider is the sole legal employer and the leasing rules apply to the arrangement.
How long can an EOR or PEO arrangement run in Germany?
Assignment of the same worker to the same hirer is capped at 18 months, after which a rotation break of more than three months is required. Exceeding the cap can make the hirer the legal employer by operation of law.
What happens if the provider has no AUG license?
Unlicensed leasing risks administrative fines, invalid contracts, deemed employment of the worker by the client, closure orders and criminal exposure for deliberate violations. The client company does not stand outside those consequences.
Do leased employees get the same pay as permanent staff?
Equal treatment with comparable permanent employees at the hirer is the statutory principle, covering wages, allowances, bonuses, leave and workplace facilities. Ask a provider how it implements the comparison for your roles.
How do I choose a PEO partner in Germany?
Treat the partner as a licensed employee leasing company, because that is what German law makes it. Ask which entity holds the AUG license and which one signs the employment contract, how it tracks the 18-month assignment cap for your hire, how it prices equal treatment with your comparable staff, and what it proposes before the cap is reached. A partner that answers those in writing is worth comparing on price; one that cannot is a risk you would share.