Being a managing partner at FMC Group, especially for Germany, I have found that employers face many problems when using an EOR in the country. I have shortlisted them in this post. I also took it a step further and am going to list the problems real-world employers have faced and mentioned on online platforms like Reddit, Trustpilot, G2, Capterra reviews, and other online communities.
Knowing EOR pitfalls is useless until you know how to avoid them. Using my EOR experience of over a decade, I’m providing the solution for each problem you may face with an EOR.
Author
Being a managing partner at FMC Group, especially for Germany, I have found that employers face many problems when using an EOR in the country. I have shortlisted them in this post. I also took it a step further and am going to list the problems real-world employers have faced and mentioned on online platforms like Reddit, Trustpilot, G2, Capterra reviews, and other online communities.
Knowing EOR pitfalls is useless until you know how to avoid them. Using my EOR experience of over a decade, I’m providing the solution for each problem you may face with an EOR.
Author
In this section, I am specifically mentioning the risks you may face despite carefully validating an EOR before selecting one. This is because Germany has rules and regulations governing the use of an EOR, and both you and your EOR must comply with them.
Germany treats EOR employment as Arbeitnehmerüberlassung (employee leasing) under the AÜG. Employers can continue this employee leasing for 18 months. In some sectors covered by a relevant collective bargaining agreement (Tarifvertrag), such as metal and electronics, this limit can be legally extended, in some cases up to 48 months. Many use an EOR without knowing this law and face challenges when the leasing period ends. One founder had to shift the entire engineering team because nobody had informed them about the leasing limit.
First, you need to understand that the 18-month time frame is not a real issue. Most businesses, even in other countries that don’t have this rule, use an EOR for a similar time period because the real use case of an EOR is to enter a market, build a team, and test business opportunities. Second, if you plan to continue beyond 18 months, there are several compliant ways to do so without establishing a German legal entity. Contact FMC Group to determine the most suitable solution for your business.
It is legally important for an EOR to have a valid AÜG license to provide these services. It is true that most reputable EORs have one, but some providers operate through subcontracted local partners or informal arrangements that lack a valid license entirely, or that rely on entities whose license has lapsed or been revoked. Operating with an unlicensed EOR triggers automatic direct-employment status. Without a valid license, an EOR and its client can face fines of up to EUR 30,000 per violation under the AÜG, with fines rising to EUR 500,000 in cases involving the employment of foreign workers without a valid work permit, on top of the automatic direct-employment status.
Partner with a fully licensed German Employer of Record.
Beware that some EORs use shortcuts to provide employees to their client companies. They do this to cut costs. For example, they hire contractors, and client companies treat them as employees, causing worker misclassification issues.
If a foreign employer has leased an employee for 18 months, does using another EOR reset the 18-month clock? Not really. It is risky, but some EORs promote this as a solution just to sell their services.
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Here is the hidden truth that puts foreign companies at legal risk. If an employee hired through an EOR represents the foreign company or signs contracts on its behalf in Germany, it can create a permanent establishment (PE) and trigger unexpected German corporate tax obligations for the foreign company.
Structure employee responsibilities to reduce PE exposure.
Some EORs do not explicitly explain what a client company should do if the tax authorities audit the business. A Reddit legal-advice thread titled “we hired through an EOR in Germany, still not sure what happens if Finanzamt asks questions” shows the ongoing anxiety employers experience despite using a valid EOR provider.
Ask your EOR to maintain proper documentation and provide ongoing compliance support.
I found a user complaining about payslip errors at a large and well-known EOR platform (I prefer not to mention the name). It led to significantly reduced pay during the first three months of employment and tax errors.
Ask your EOR to apply multi-level payroll reviews before salary processing.
One user was using a well-known EOR platform when the EOR’s local bank account was frozen. Eventually, the client had to transfer the employees to another EOR. Clients can also experience salary delays when using an EOR.
An EOR must use reliable local payroll infrastructure and payment processes.
As you may know, an EOR also handles payroll taxes, social security contributions, and statutory benefits. An EOR may quote a single fee per employee but later charge additional fees for managing these services that were not disclosed when signing the contract.
Work with an EOR that offers transparent pricing with no unexpected charges.
Sometimes, invoices generated by an EOR can be very confusing. The actual payment may not match the invoices, creating the false impression that bills were unpaid.
Get clear, itemized billing and dedicated finance support for your EOR.
For example, one real employee missed life insurance coverage for two years due to an error on the EOR platform. After following up with the support team for three weeks, the employee received the response, “Thanks for informing us.”
Actively monitor benefits enrollment and ask your EOR to resolve issues quickly.
Germany has rules for creating employment contracts. They should not be random drafts focused on benefiting only one party. Clients may face inconsistent employment terms that can lead to legal scrutiny and penalties.
A good EOR standardizes employment terms while meeting German legal requirements.
In my experience, employee benefits in the UK are not necessarily the same as those in Germany. It means Employer of Record providers that offer services in the UK should not assume the same benefits apply when providing services in Germany.
You must receive an explanation of mandatory and optional benefits before employment begins.
Trustpilot reviews of an EOR platform repeatedly cite generic AI-style answers, unresolved tickets that were closed prematurely, and cases where customers had to do their own troubleshooting for backend platform issues.
A good EOR must have dedicated local HR and compliance specialists.
I’m not here to criticize EOR platforms, and I believe they have their own unique benefits. However, clients seem to complain about slow, scripted, and unhelpful customer support, poor response times for support tickets, and the lack of dedicated phone or live chat support in urgent situations. This often occurs with SaaS platforms due to the high number of users, and employers are sometimes unaware of the importance of choosing a people-first EOR service provider.
You must have direct, transparent communication throughout the employment lifecycle.
This is not a problem or a legal issue if an EOR uses a third-party legal entity to hire employees in another country. However, I found an employer complaining that the EOR did not disclose that it was hiring through a third-party entity. In such cases, employers can lose credibility in front of their employees.
An EOR must clearly explain the legal employer structure before onboarding.
I read a review while preparing this post in which a client was stuck in an 18-month partnership contract and described “frequent system glitches, errors, login issues, and automations not working”.
Combine reliable technology with human oversight (like an EOR that uses a people-first approach, including FMC Group itself).
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