Social security contributions for managing directors of a GmbH in Germany

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  1. Inleiding
  2. What is social security and what forms of employment are subject to social security contributions?
  3. What criteria determines whether managing directors of a GmbH are subject to social security contributions?
    1. Evidence of an obligation to contribute to social security (noncontrolling managing directors)
    2. Evidence of an exemption from contributions to social security (controlling managing directors)
  4. How high must the capital stock be to ensure exemption from social security?
  5. What are the consequences of incorrectly assessing a managing director’s social security contribution obligation?
  6. What exceptions apply to pension insurance?

For managing directors of a limited liability company, it is important to determine whether they are subject to social security contributions. Should the status be incorrectly assessed, the business will either pay contributions that are too high, or it will be subsequently liable for unpaid contributions. Both cases would result in financial losses for the business. In this article, we will explore the topic of social security and roles that require social security contributions to be paid. We will also explain what criteria determine the need for managing directors of a limited liability company to pay social security contributions, what exceptions exist, and the consequences of an incorrect assessment.

What’s in this article?

  • What is social security and what forms of employment are subject to social security contributions?
  • What criteria determines whether managing directors of a GmbH are subject to social security contributions?
  • How high must the capital stock be to ensure exemption from social security?
  • What are the consequences of incorrectly assessing a managing director’s social security contribution obligation?
  • What exceptions apply to pension insurance?

What is social security and what forms of employment are subject to social security contributions?

As a key cornerstone of the social safety net, social security helps people when they have an emergency, become ill or unemployed, have an accident, or require care in old age. In Germany, more than 90% of people are currently covered by social security. According to the legal basis, the Fourth Book of the Social Code (SGB IV), social security comprises five core elements: statutory pension insurance, statutory health insurance, nursing care insurance, unemployment insurance, and statutory accident insurance.

Any form of employment relationship for which social security contributions are paid is designated as employment subject to social security contributions. Whether there is an insurance policy or not depends on the respective gainful employment of each employee. As a rule, “employment” is subject to social security contributions. According to Section 7 of the SGB IV, this includes any nonindependent work, particularly in an employment relationship. Therefore, dependent employment, salaried, and employee relationships are subject to social security contributions. Vocational training, studies, and internships are also covered.

As a rule, there is no social security contribution requirement for self-employment activities. However, there are exceptions, including for artists, craftspeople, and farmers. Due to the number of exceptions and special regulations, it is not always easy to assess whether something counts as employment or self-employment. This should always be checked in detail. To confidently determine a person’s employment status, individuals and businesses can apply for a status determination procedure at the clearing house of the German Pension Insurance Association in accordance with Section 7a of the SGB IV. Further information can be found on the Federal Ministry of Labor and Social Affairs website. In individual cases, the relevant social security provider is responsible for determining a person’s employment status. In the event of a dispute, responsibility falls to the social court.

A detailed breakdown of contribution amounts, jobs concerned, and regulations for short-term, mini- and midi-jobs can be found in our article Employment subject to social security contributions in Germany.

What criteria determines whether managing directors of a GmbH are subject to social security contributions?

In addition to the meeting of shareholders, managing directors are the second corporate body of the limited liability company. Without one or more managing directors, the limited liability company is unable to act, since managing directors run the business and represent it externally. Despite their significant influence, managing directors are also employees of the business. Therefore, like other employees, they are generally subject to social security contributions.

However, there may be exceptions to this principle if managing directors hold stocks in the company. The key question to determine is whether this capital stock has such a decisive influence on the business that the limited liability company no longer has any authority to issue instructions to the managing director. Here, a distinction is made between noncontrolling and controlling managing directors of a limited liability company. A noncontrolling director’s capital stock is low enough that any personal influence on the business is limited. In this case, there is an obligation to contribute to social security. A controlling director’s percentage share of the stock capital is large enough that they can exercise significant influence on the limited liability company. Controlling managing directors are not subject to social security obligations.

Any assessment of whether managing directors should be classified as controlling or noncontrolling is based solely on legally-relevant criteria and contractual relationships, especially regarding capital stock. For example, a managing director will not be exempt from contributing to social security solely because they effectively act alone due to close informal ties or a vast expert knowledge. This “head and soul ruling” was overturned by the Federal Social Court in 2012. Nonlegally bound actions, which could (in theory) be changed at any time, no longer serve as a basis for assessing whether the limited liability company’s managing directors are controlling or noncontrolling. In addition to the capital stock (see below), the following evidence can also indicate whether there is an obligation to contribute to social security.

Evidence of an obligation to contribute to social security (noncontrolling managing directors)

  • Subordination to another person or own areas of responsibility with several managing directors
  • Involvement in the work organization as specified by the limited liability company
  • Fixed annual salary
  • Agreed annual leave
  • Agreed noncompetition clause
  • Agreed remuneration for overtime
  • Agreed continuation of salary and employer allowances in the event of illness
  • Conclusion of accident or life insurance for the benefit of the managing directors
  • Prohibition on self-dealing

Evidence of an exemption from contributions to social security (controlling managing directors)

  • The right to direct and sole representation of the business
  • Influence on business structure and business policy
  • Free organization of tasks in regard to place, time, duration, and scope
  • Performance-related pay
  • Provision of a guarantee
  • Presence of own business premises
  • Informal consideration regarding nonexercise of the right of instruction as stipulated in the articles of incorporation
  • Exemption from the prohibition on self-dealing

How high must the capital stock be to ensure exemption from social security?

Whether a managing director’s shareholding results in an exemption from obligation to contribute to social security depends primarily on the extent of the shareholding. The following table contains the most important guidelines:

Omvang van aandelenkapitaal
Is het verplicht om socialezekerheidsbijdragen te betalen?

100%
De algemeen directeur bezit 100% van de aandelen in de vennootschap met beperkte aansprakelijkheid en is dus enige aandeelhouder/algemeen directeur.

Nee.
Bij bezit van 100% van de aandelen is geen sprake van loondienst. Daarom is er geen verplichting om socialezekerheidsbijdragen te betalen. Een uitzondering hierop is een algemeen directeur die de enige aandeelhouder is, aandelen in het vennootschap met beperkte aansprakelijkheid heeft als trustee en als gevolg van de fiduciaire relatie volledig beperkt is in de uitoefening van diens aandeelhoudersrechten. In dit specifieke geval is wel sprake van loondienst.

Meer dan 50%
De algemeen directeur bezit meer dan 50% van de aandelen van de vennootschap met beperkte aansprakelijkheid en is dus meerderheidsaandeelhouder/algemeen directeur.

Nee.
Bij bezit van meer dan 50% van de aandelen is geen sprake van loondienst. Daarom is er geen verplichting om socialezekerheidsbijdragen te betalen. Mogelijke uitzondering: zie 100% hierboven.

50%
De algemeen directeur bezit 50% van de aandelen van de vennootschap met beperkte aansprakelijkheid en is dus aandeelhouder/algemeen directeur.

Nee.
Bij bezit van 50% van de aandelen is geen sprake van loondienst. Daarom is er geen verplichting om socialezekerheidsbijdragen te betalen. In dit geval wordt de vennootschap met beperkte aansprakelijkheid wettelijk niet aangemerkt als werkgever voor socialezekerheidsdoeleinden. Mogelijke uitzondering: zie 100% hierboven.

Minder dan 50% met blokkeringsminderheid
De algemeen directeur bezit minder dan 50% van de aandelen van de vennootschap met beperkte aansprakelijkheid en heeft een blokkeringsminderheid.

Nee.
Zelfs als iemand minder dan 50% van de aandelen bezit, zorgt de blokkeringsminderheid ervoor dat hij of zij niet wordt aangemerkt als medewerker in loondienst die socialezekerheidsbijdragen moet betalen. De doorslaggevende factor is echter de reikwijdte van de blokkeringsminderheid. Als deze niet geldt voor het volledige bedrijfsbeleid of hiermee geen wijzigingen kunnen worden afgedwongen in de aandeelhoudersovereenkomst, kan wel sprake zijn van loondienst. Doorslaggevend is of een algemeen directeur tastbare invloed op het bedrijf uitoefent en schadelijke besluiten persoonlijk kan blokkeren.

Minder dan 50% zonder blokkeringsminderheid
De algemeen directeur bezit minder dan 50% van de aandelen van de vennootschap met beperkte aansprakelijkheid en heeft geen blokkeringsminderheid. Bovendien kan hij of zij niet op een andere manier daadwerkelijke invloed uit oefenen op het beleid van de onderneming.

Ja.
Ja, zonder een blokkeringsminderheid is een algemeen directeur met een aandelenkapitaal van minder dan 50% een medewerker in loondienst en dus verplicht socialezekerheidsbijdragen te betalen.

Niet betrokken
De algemeen directeur is niet betrokken bij de vennootschap met beperkte aansprakelijkheid en is dus een externe algemeen directeur.

Ja.
Een algemeen directeur zonder aandelenkapitaal is een medewerker in loondienst en is verplicht om socialezekerheidsbijdragen te betalen.

What are the consequences of incorrectly assessing a managing director’s social security contribution obligation?

Two possible scenarios exist with respect to an incorrect assessment of a managing director’s obligation to contribute to social security. First, a scenario could occur in which the limited liability company does not collect and pay social security contributions for the managing directors by error, even though they are subject to contributions to social security. In this scenario, the limited liability company as the employer is liable for unpaid contributions. This can prove costly. Second, a limited liability company may pay social security contributions for the managing directors even when this is not required. In this scenario, the limited liability company suffers financial damage since it pays out money unnecessarily. However, social security agencies can refund incorrectly paid contributions within the period of limitation.

What exceptions apply to pension insurance?

Even if managing directors meet the relevant criteria for exemption from obligations to contribute to social security, an obligation to contribute to pension insurance may apply in certain cases. This affects “employee-like” self-employed individuals who do not regularly employ employees subject to insurance obligations, or who essentially work only for one client over a long term (see Section 2 (9) of the SGB VI). A work activity becomes essential when it generates 5/6 of the overall annual turnover. Individual projects may be exempt from this. For these, the reference period for the essential activity is increased to three years.

The obligation for pension insurance is intended to protect business owners who are considered by lawmakers to be particularly in need of protection. However, it is possible to request an exemption of up to three years. This special regulation can be used by startups as well as by self-employed people paying social security for the first time who—upon reaching the age of 58—would be required to have insurance for the first time.

To learn more about the several exceptions and special regulations relating to social security, and to keep up to date with the latest news, businesses should conduct a detailed examination of the topic. For detailed information on a wide range of financial issues affecting businesses, visit the Stripe resources page. There, you will find explainers on topics such as incorporating a startup. For support and advice on all aspects of your business’s finances and payments, contact our sales team.

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