Guide to Hiring Freelancers in Germany
Are you looking to work with a freelancer based in Germany? Freelancing is rather common in Germany which enables businesses to hire and work with people with a specific set of expertise, and without having to sign up for a long-term employment relationship. The labour laws in Germany have defined clear rules around who is considered an employee vs. a freelancer so it’s important to clarify the type you need before making the decision.
Hiring a freelancer, also referred to as a contractor, in Germany is rather simple: you define the task and the compensation in a service agreement and have it signed. The freelancer then performs the tasks, delivers the work, and sends you an invoice. It’s, however, important that the service agreement between you and the freelancer covers the necessary aspects of your working relationship.
There are ready-made templates for such contracts that you can find online. However, it’s important you fully understand the terms, especially if you’re not a fluent German speaker. Luckily there are bilingual templates (German and English) for such purposes that are up to date with the current laws, and which can be completed using an online form on Termz.Legal. Find a contract template for freelancers here.
The main points in a freelancing contract to be discussed and agreed on are the following:
- kind of services to be performed, and the expected deliveries to be made by the freelancer
- hourly/daily/weekly rates to be paid to the freelancer for the work
- notice period for terminating the contract
- service period, i.e. the duration of the assignment
- payment periods
- forecast of overall cost (Kostenvoranschlag) of the services. According to German court rulings in the past, a freelancer is entitled to go 15 to 20% above this forecast. If the total sum exceeds this buffer, the employer can terminate the contract, or the terms have to be revised and agreed upon by the two parties.
There are, however, a number of pitfalls to be aware of when hiring freelancers in Germany:
Correct Invoicing by Freelancers
One of the most important things in German business is correct invoicing. There are strict requirements for a correct invoice. An incomplete invoice may be rejected by your tax advisor (if they do the accounting) or – worse – the Finanzamt (tax authority) in a tax audit.
A correct invoice in Germany requires:
- name and physical address of the contractor
- name and physical address of the hiring party (you)
- date of service provided or goods delivered
- amount and kind of goods delivered, or duration and kind of services provided
- the net amounts payable
- the respective VAT (if different VAT rates apply the contractor has to split the net amounts and calculate the respective VAT amounts separately)
- the invoice date
- An invoice number
- the VAT ID/income tax ID of the contractor
- in case of “reverse charge” invoice (B2B within the EU): VAT ID of the hiring party (you)
If one of these data is missing, you have to request a corrected invoice from your contractor. Nothing is more annoying if an invoice is rejected in a tax audit several years later and you have to chase the contractor for a corrected invoice then.
Artist Pension Plan (KSK, “Künstlersozialkasse”)
If you hire freelancers you often have to pay contributions to the KSK (Künstlersozialkasse, Artist Pension Plan). This pension plan was set up as it became clear that many contractors do not have enough savings for their retirement funds, therefore the German state established this mandatory pension plan for businesses who work with freelancers.
This scheme was developed with freelancers working in artistic fields in mind. However, don’t be fooled by the name: almost all freelancers are considered “artists” under this plan. Web designers, copywriters, translators, PR experts: they are all considered “artists” so it is more a “freelancer pension plan”. Also, certain businesses have to pay by default, no matter if they hire artists or not (publishers, advertisement agencies etc.). As an employer, you will receive this questionnaire by the KSK sooner or later which needs to be completed and returned in order for calculating your payment obligations to the scheme. The obligation to pay contributions is also subject to the social security payment audit which takes place every five years.
Currently, the annual contribution by the employer to the Künstlersozialkasse is set at 4.2% of the total paid to the contractors.
Read our article on hiring employees to better understand which employment type is best suited for your needs.
Read our guide on hiring employees in Germany to better understand which employment type is best suited for your needs.