The client

An aero engine company front-runner in Germany employing engineers in the following disciplines: Software, Hardware, Systems Engineering, Configuration Management, Structural Engineering, CAD and Performance/Fluid Dynamics. Capital International has acted as preferred supplier since 2006, supplying freelance contract engineers from countries throughout the EU to work onsite with this client.

The challenge

To change the employment status of all contractors from freelancers to Capital International employees to avoid the risk of non-compliance and complications relating to deemed employment for the client.
In Germany, Arbeitnehmeruberlassungsgesetz (AŰG), also known colloquially as the Labour Leasing License, is required by all companies wishing to hire their own labour out to a third party.

Our customer clearly stood to benefit from the AUG as it affords them protection from potential non-compliance of individuals (non-payment of tax and social security, for example) and removes the risk of heavy penalties (similar to IR35) associated with deemed employment.

Nevertheless, contractors can be resistant to the change as it involves additional costs (employee/ employer contributions, for example) and results in a significant loss of income.

We were mindful of the fact that a major risk of implementation would be a sudden and widespread staff exit, which could expose the client to project delays and late delivery penalties.

In addition to this risk, our client announced a brand new joint venture with another leading engineering company resulting in the creation of a new company and necessitating a move for the Software, Hardware and Configuration Management departments. Therefore, all contractors within these areas were faced with a considerable income loss (due to the AUG) and the uncertainty of a move to a newly established company. Capital International faced quite the challenge in terms of  guiding our client through complex legal compliance and mitigating risk through effective staff communication.

The solution

Capital International were engaged as the sole recruitment agency. We were able to approach the market discreetly, taking care to uphold the client’s reputation. The first placement within the aero gine company, was made within three months and ten positions have been filled on time and in budget.

The approach

Capital International consulted throughout the process to ensure a timely, sensitive and effective transition. In order to minimise the early departure of contractors, it was agreed that the change to AUG would coincide with the start of the new company.

We managed the entire change process. We worked closely and transparently with our client and, crucially, each individual contractor. Through open, honest and constructive support, we were able to achieve the best possible outcome:

• We successfully transferred all self-employed engineers to AUG employees
• We convinced all staff invited to join the new joint venture to make the move.

With our AUG in place and our transfer expertise, we were best placed to assist other agencies who were either unable to provide an AUG or had failed to convince their own contractors to work with them due to the complexity of the task.

The outcomes

• Project milestones were achieved without penalty, and project delivery is on schedule without exposure of non-compliance and deemed employment.
• We are working with the parent company and the newly formed joint venture, solely using AUG with over 30 individuals.
• With the new joint venture, there are 25 suppliers, 10 of which are preferred suppliers. Capital International is proud that 30% of all external staff are employed by us, despite the high number of suppliers.
• We communicated effectively with our candidates and convinced them of the lasting benefits of the new arrangement.