The formation of a limited liability company cannot circumvent social security obligations. The actual circumstances are decisive in assessing a person's social security status. This was decided by the Federal Social Court in three appeal proceedings (BSG v. 20.7.2023 – B 12 BA 1/23 R, B 12 R 15/21 R and B 12 BA 4/22 R).
The plaintiffs were the sole shareholders and managing directors of limited liability companies (UG and GmbH). Third parties entered into service contracts with these companies. While one case concerned consulting services, two cases involved inpatient nursing care in a hospital. The services were actually performed exclusively by the plaintiffs themselves. The defendant, the German Federal Pension Insurance Fund, determined in all cases that compulsory insurance coverage applied due to employment.
The Federal Social Court has now rejected the practice of establishing an intermediary UG/GmbH (limited liability company) to avoid mandatory social security contributions. If and insofar as this activity, by its nature, leads to integration into the work organization of the other company and this entails being subject to instructions from the employer there (social security integration theory; Section 7a Paragraph 2 Sentence 2 of the German Social Code, Book IV), this results in employment that triggers mandatory social security contributions.
The absence of a contractual relationship between the sole shareholder and the client is irrelevant for social security purposes. Therefore, neither the corporation, nor the sole shareholder, nor the client can argue that contractual relationships exist only between the corporation and the client, thus preventing the de facto integration into the external business. Civil law contractual relationships between the sole shareholder and the hospital or client are not essential for the assumption of an employment relationship.
In practice, both employers and self-employed workers must bear in mind that the usual criteria of being subject to instructions and being firmly integrated into the company organization speak in favor of the status of an employee subject to social security contributions.
If you have questions about this ruling or would like an assessment of your individual case, please contact us. Mr. Attorney Alexander Günzel, specialist lawyer for employment law, is happy to assist you.