According to a decision of the Bundessozialgericht, Germany’s federal court of appeals for social security matters, GmbH managing directors are ordinarily deemed to be employees of the company and hence subject to mandatory social security contributions.
It is not uncommon for disputes to arise over whether GmbH managing directors are subject to mandatory social security contributions. We at the commercial law firm GRP Rainer Rechtsanwälte note that it can prove to be a costly affair for the company if it is determined that the managing director is subject to mandatary social security contributions but no payments have been made to this end and therefore supplementary contributions become payable.
In rulings from 14 March 2018, the Bundessozialgericht set out clear criteria for assessing whether GmbH managing directors are subject to mandatory social security contributions (Az.: B 12 KR 13/17 R and B 12 R 5/16 R). According to these judgments, the managing director of a GmbH is ordinarily deemed to be an employee of the company. The Court held that they are only considered not to be employees if they own more than 50 per cent of the company’s share capital and are thus majority shareholders. The Court went on to state that if they have a 50 per cent stake in the share capital, a presumption in favour of self-employed status is then only possible if the articles of association clearly confer a full blocking minority on the managing director and this enables him or her to prevent instructions from being issued by the general meeting of the shareholders. The Court therefore concluded that the decisive factor for the managing director’s status as self-employed is whether he or she has the legal power to determine the fate of the company by influencing the general meeting of the shareholders.
In doing so, the Bundessozialgericht has set high standards for recognizing managing directors as self-employed. It also made clear that the crucial factor in assessing whether the managing director is an employee and thus subject to mandatory social security contributions is not how he or she acts in relation to third parties. Even if he or she is granted broad powers and freedoms, this alone does not indicate that they are self-employed. Instead, it is the extent to which the managing director has recourse to legally enforceable measures for the purposes of influencing resolutions of the general meeting of the shareholders that is the key factor.
Companies should keep in mind the issue of mandatory social security contributions for managing directors as early as when agreements are being drafted in order to avoid unpleasant surprises at a later date. Lawyers who are experienced in the field of company law can provide companies as well as shareholders with expert advice on matters that go beyond mandatory social security contributions.