date | theme

10. November 2020 | GmbH Managing Director Liability: Duty of Care Damage & Liability Risks

17. January 2020 | GmbH shareholders: Managing Director salary or profit distribution?

9 July 2021 | Key industry figures on Managing Director salary

26. July 2021 | Appropriate GmbH Managing Director Salary – these four criteria make the difference

13. January 2022 | External Managing Director of a GmbH as an employee? Tax / Labour / Insurance assessment (this contribution)

A third-party managing director is a managing director who is not also involved in the GmbH. It is controversial whether he should be classified as an employee or employer. It even distinguishes between the individual areas of law. All this clarifies this contribution.

A third-party managing director is a managing director who is not at the same time a shareholder in the GmbH. However, it is difficult to judge whether the external managing director is to be classified as an employee or as an employer. This is treated differently, especially in the different areas of law. If the external managing director receives remuneration for his work, the underlying obligation is usually a business management contract within the meaning of §§ 611 to 630 BGB. The rules of the service contract apply to these. Nevertheless, these principles can be deviated from in individual cases, which then justifies a different assessment.

In principle, the external managing director acts on the basis of a free contract of service and not on the basis of an employment contract. The service contract is directed to a business management by exercising the office of managing director. Consequently, the external managing director in employment law is in principle to be classified as an employer. It is for this reason, in particular, that it is not entitled to the rules on the protection of workers.

An employment relationship, on the other hand, presupposes that the company has a power of instruction that goes beyond its company law. The right of instruction must include, in particular, the circumstances in which the managing director has to provide his services and the concrete modalities of the provision of services, i.e. time and place. A corresponding obligatory nature of the managing director can therefore be considered in extreme exceptional cases. A mere assertion that the contractual relationship is an employment relationship is therefore not sufficient. Rather, it is necessary to prove that the concrete drafting of the contract restricts the powers of the managing director to an exceptional extent or that the managing director is highly personal dependent. In the case of a foreign shareholder, this is conceivable, for example, if he is instructed by a sole shareholder himself in day-to-day transactions and is subject to permanent control. Therefore, such an embodiment can justify a different evaluation.

Also an employee-like position is not to be assumed. This requires, on the one hand, economic dependence and, on the other hand, a need for protection comparable to that of an employee. It can be stated that the external managing director is dependent on the utilization of the workforce and the income from their work to secure the livelihood. From this, economic dependence can be derived. Nevertheless, the services of a manager are not comparable to those of an employee. The same results from the legal status associated with the office of managing director. Rather, the position of the managing director as legal representative of the company according to § 35 GmbHG embodies the employer. Consequently, he has an externally unrestricted power of representation. In doing so, he performs employer functions.

In the context of social security, further distinctions are made. Third-party managing directors and minority shareholder managing directors are subject to the right of instruction of the other shareholders. Therefore, they are classified as insurance. Consequently, they are compulsory members of the statutory pension insurance, unemployment insurance and long-term care insurance. This applies in particular regardless of the employment classification.

As a third-party managing director, however, you have the opportunity to have a legally binding check whether you actually have to be a mandatory member of the statutory pension insurance, unemployment insurance and long-term care insurance. The classification as non-insurance can take place, for example, if the shareholders have no knowledge of the industry and are therefore completely dependent on the industry experience of the external managing director. Then the external managing director is not subject to any sufficient instructions.

The tax concept of the employee does not coincide with employment law or social law. Accordingly, for tax purposes someone is not classified as an entrepreneur because he becomes it under employment law. In terms of tax, the treatment of the third-party manager is rather based on other criteria. Employee in the tax sense is, in accordance with § 1 (2) sentence 2 LStDV, the natural person who is bound by instructions in an employment relationship and owes his workforce in an organizationally integrated manner and is exempt from the asset risk of gainful employment. On the other hand, he is self-employed, who acts on his own account and on his own responsibility.

In tax law, the external managing director is treated as an employee in the same way as the shareholder managing director. BFH argues that the managing director, as an organ of the limited liability company, is integrated into the company’s organism and has to follow the company’s instructions. These resulted from the appointment as managing director, from the employment contract and from the shareholder resolutions.

The managing director of a GmbH is the legal representative, he is responsible for the representation of the GmbH, as well as the management. According to § 6 paragraph 1 GmbHG, the managing director is therefore the acting body of the company. Nevertheless, he has a right of instruction towards the shareholders' meeting. It results from § 37 (1) GmbHG and is the result of the dominant position of the shareholders’ meeting. The shareholders’ meeting may issue instructions to the managing director in all areas of company management. The managing director is also obliged to carry out these instructions. The right of instruction applies regardless of the provisions in the employment contract and regardless of the actual position of the managing director. Accordingly, it is irrelevant for BFH in the context of the assessment of employee status whether the managing director is the sole shareholder.

This means that his salary is subject to payroll tax and is paid in the payroll tax deduction procedure. Accordingly, the managing director can deduct advertising costs like an employee.

The contribution shows that one and the same situation as the third-party managing director is treated completely differently in the different areas of law. Of course, this seems very complicated and suggests that the assessment is rather legally oriented. This naturally leads to certain discrepancies of evaluation. In particular, if in one area of law it is determined that the shareholder is subject to the right of instruction of the shareholders' meeting and not in the other.