13. Jun 17

GRP Rainer Rechtsanwälte: Assessing obligation to make social security payments in the case of managing directors

Whether a managing director is obliged to make social security contributions depends on various factors. GRP Rainer Rechtsanwälte has carried out an assessment of the obligation to make social security payments.

Whether a managing director is obligated to make contributions to social security depends on whether he is self-employed or classed as an employee. We at the law firm GRP Rainer Rechtsanwälte note that this is not based merely on the employment contract but also the factual circumstances as they relate to the managing director’s job. Things can prove to be particularly problematic if no social security contributions are made on behalf of the managing director despite there being an obligation to do so, with this potentially resulting in subsequent demands from the relevant social security agencies. To prevent this kind of legal dispute and the potential consequences associated with it, it is a good idea to look into whether there is an obligation to make social security contributions in a given case beforehand.

In principle, managing directors who are employees are required to pay social security contributions. This is the case if the managing director works for a third-party company and is subject to the directions of the employer, e.g. in relation to working hours, the place of work or even the type of work. These conditions are usually met in the case of external managing directors.

The situation is often different in the case of managing directors who are also shareholders in the respective GmbH. Notwithstanding this, it still needs to be clarified in these instances whether the managing director is in fact self-employed and whether he does not have to make social security contributions. Typical indications of self-employment include, e.g. if the managing director is free to determine how as well as how long and where he works. Similarly, a stake in the GmbH and assuming personal entrepreneurial risks point to self-employment.

In practice, it is not always possible to define the criteria without any problems. For instance, the employer may be able to give the managing director instructions, but this right is severely limited. Moreover, the extent of any financial interest in the company might indicate whether the relationship can be characterized as self-employment or employment.

That is why it is not simply the managing director’s employment contract that needs to be considered for the purposes of classifying the relationship. The factual circumstances need to be taken into account as well.

Lawyers who are experienced in the field of company law can advise managing directors and companies in relation to social security obligations.

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