Social security contributions in Germany are high and, especially for employers, are often a matter that even experienced people often get confused about. The question is whether? and how? While it is usually quite clear for employees or employees, there is often a lack of clarity among managing directors and freelancers, which in the event of an incorrect assessment means high additional payments or, at the other extreme, overpayments without protection.
1. Take social security obligations seriously
The obligation of a company to pay social security contributions on time and in full for employees subject to social security contributions is not a burdensome obligation whose neglect would have no consequences. Companies are regularly audited under social security law and should then not have to expect any unpleasant surprises. If the contributions paid fall short of those actually owed or if no contributions are paid at all, additional payments will be due. In addition, failing to pay social security contributions is a criminal offense, so managing directors in particular should not expose themselves to any risk. This also applies to new managing directors: If you continue a previous practice of not paying social security contributions properly, you can also be liable to prosecution.
2. Social insurance obligation of managing directors
When it comes to the question of the social insurance obligation of managing directors of a GmbH, the decisive factor is whether the managing director is dependent on instructions, i.e. whether he has to answer questions from the shareholders. In the
At first glance, this may always be the case. However, this view can quickly become cloudy if the managing director is also a shareholder. The next question is whether he is the majority shareholder or has special rights as a minority shareholder. But first things first:
The managing director, who is employed by the GmbH without also being a shareholder, is subject to the instructions of the shareholders. He is employed and is therefore fully subject to social security contributions.
A managing director who is also a partner but holds less than half of the shares in the company cannot significantly influence the company's business. The majority shareholder or shareholders can always overrule him and enforce their instructions, to which the managing director is then bound. This managing director is also employed and is therefore subject to social security contributions. However, something different applies to this type of managing director if he holds less than half of the shares, but has approval or veto rights on important issues, for example. If, for example, a minority shareholder can prevent instructions that are burdensome to him, this may not constitute dependent employment. Then there is no social security obligation.
Practical tip: Since in such a constellation, which occurs quite often in practice, it is often not clear whether social security contributions have to be paid because what is crucial is what veto or approval rights the minority shareholder manager has, a so-called status determination procedure should be used to clarify this be performed. In this procedure, the German Federal Pension Insurance makes a binding check as to whether there is a social insurance obligation or not.
The managing director, who is involved as a shareholder at exactly 50%, can prevent shareholder decisions if he votes against them. As a managing director, he is not dependent on instructions and is therefore not employed on a dependent basis. If he does not have any special rights under which he can unilaterally enforce decisions, he is not subject to any social insurance obligation.
This particularly applies to the managing director, who is also the majority shareholder. As a rule, there is no social security obligation for him.
Practical tip: These principles cannot be transferred one-to-one to special constellations such as family companies. Even if the managing director may be a majority or minority shareholder “on paper”, it may be that as the majority shareholder he pays close attention to family concerns or, on the contrary, as a minority shareholder he can act as he wishes because the shareholders do not interfere with him . Expert advice should be sought here in order to avoid negative social security consequences.
3. Social security obligation for freelancers
Even for freelancers, the dependence on instructions in the specific individual case is important. On paper, the freelancer is not employed - the freelancer contract often expressly stipulates that the freelancer is responsible for ensuring that social security contributions are paid properly - so the client feels safe. However, this can be dangerous. The decisive factor is not what has been agreed, but rather whether the freelancer is so integrated into the company's operations, in particular with regard to working hours, place of work, work equipment and execution of the specific activity, that the freelancer is to be viewed as an dependent employee. This does not automatically make him an employee, but he is subject to social security obligations!
If a social security audit determines that freelancers are employed, then the company must pay the entire social security contributions, i.e. the employer's and employee's share, possibly for several years. This can trigger very high demands that have already cost some companies their existence. In addition, the managing director may not only have committed a criminal offense, but may also now be liable for damages because failure to pay social security contributions regularly represents a breach of duty.
An exception exists if the freelancer works for several clients and does not receive more than 5/6 of his income from any of them. However, it will often be difficult for the entrepreneur to determine whether this is the case.
Practical tip: The more freelancers are integrated into a team, the greater the risk that they will be viewed as dependent on instructions and therefore subject to social security contributions. If you want to be on the safe side, you can also carry out a status determination procedure here.
4. Consequences of mistakes
If social security contributions are underpaid or “overlooked,” especially because individual freelancers are not considered subject to social security contributions, the missing contributions must be paid without the company being able to limit itself to the employer’s contributions. At the same time, managing directors are at risk of committing a criminal offense. Payments without social security obligations are also annoying. There is no criminal risk here. However, overpayments can only be reclaimed under certain restrictions. In addition, despite payments, there is no social insurance protection where there was no social insurance obligation!
Conclusion:
The question of whether and to what extent social security contributions must be paid can be tricky in individual cases. Overpayments of social security contributions are annoying, underpayments can endanger the existence of the company due to additional demands and can have criminal and liability consequences for the managing directors. If you want to be on the safe side, you should carry out a status determination procedure in order to have legal certainty.
