Information for foreign companies providing construction services in Germany. Operations carried out by foreign construction companies in Germany are subject to mandatory contributions to SOKA-Bau.
1. What is SOKA-Bau?
SOKA-Bau is a funding scheme in the construction industry that was set up to safeguard workers’ entitlement to leave, because their claims are often jeopardised by very short periods of service with any given company. This is done by collecting various contributions from those employers who are classified as construction companies.
SOKA-Bau is not a government institution; instead, it is run by the parties to the wage and salary agreements applying in the construction industry. It does not therefore have any access to the funds of public institutions or social security agencies. No official “contribution assessments” are made – instead, straightforward charges are levied which cannot be enforced by the administrative authorities.
2. Mandatory contributions
SOKA-Bau’s services are financed by contributions in accordance with the German collective agreement on social security in the construction industry (Tarifvertrag über das Sozialkassenverfahren im Baugewerbe – VTV).
All companies that provide construction services mainly in Germany are required to pay contributions. This also applies to foreign companies only working in Germany temporarily.
The size of the contribution depends on the gross wages paid to an industrial employee, and also varies depending on whether the company’s head offices or operations are located in the new or old federal states. Since the calendar year of 2022 the total contribution to the social security system amounts to 20.8% in the old Länder, 18.7% in the new Länder, and 25.75 % and 23.65% in Berlin (West) and (East) respectively. The main portion of the contribution (15.2%) is earmarked for the leave fund.
3. Leave scheme
The most important aspect is the leave scheme. The collective agreement stipulates here that an employer is required to pay an employee who takes leave an allowance covering that employee’s entire leave entitlement. The leave fund responsible (Urlaubskasse – ULAK) then reimburses the employer for the leave allowance it has paid to the employee.
If SOKA-Bau demands contributions from the company, any leave allowance already paid to the workforce may also be offset at a later date. This is subject, however, to the following preconditions:
- Prior notification has been issued (cf. section 12 (1) VTV)
- Leave allowance has actually been paid (cf. section 12 (1) VTV)
- Contributions have been paid in full (cf. section 12 (2) VTV) .
4. Scope of application of VTV
Companies in any given enterprise that are classified as “construction companies” (cf. section 2 (2) clause 1 VTV) are obliged to pay contributions irrespective of any association membership. This in turn depends on whether it falls within the scope of the VTV. Like other collective agreements, the VTV distinguishes between the geographical and the operational scope of application.
In geographical terms, the VTV’s scope of application covers the territory of the Federal Republic of Germany. Where a foreign element is involved this must always be verified on a case-by-case basis, although liability for contributions will often be affirmed.
Classification in operational terms poses major difficulties. In short, the companies must predominantly provide construction services, i.e. more than 50% of the hours worked. This is defined more precisely in section 1 (2) VTV, which in turn is divided into seven sub-sections.
The examination begins with section 1 (2) section V VTV, which lists 42 typical examples of individual construction sectors whose operations are subject to the VTV as mandatory members. If the relevant trade is not listed here, it may still be classed as a construction company in other sections, because according to sections I and II companies are also subject to the VTV if their purpose – as identified by the nature of their operations and their operational equipment – is the commercial construction of buildings of all kinds, or the provision of construction services serving the erection, repair, maintenance, alteration or removal of buildings.
However, even if an obligation to pay contributions is established, the matter still has to be clarified. This is because the so-called “reset exception” may now apply under section 1 (2) section VII VTV. If construction work accounts for more than 50% of operations, the company may cite the reset exception under section VII provided it meets 20% of the criteria specified therein: thus at least 20% of the company’s overall working time must be spent on tasks which can only be attributed to those trades which are excluded from its own operational scope, such as painters, varnishers, scaffolders, plumbers or glaziers.
In the case of companies which carry out not just one but several activities (mixed enterprises), this will depend on which activities are mainly pursued, i.e. for more than 50% of the hours by headcount (Federal Labour Court ruling of 25.1.2005 – BAG, Urt. v. 25.1.2005 – 9 AZR 146/04). If activities are allocated to separate (organisationally independent) divisions, the question about the main activity will apply to each division (cf. section 1 (2) section VI VTV). It may then also be the case that only one independent division of a company is subject to SOKA-Bau contributions, while the remaining parts are exempt. Only the working hours of employees subject to social security contributions are counted in the calculation. Self-employed persons and subcontractors, etc. are not included in the evaluation. It is therefore possible that a company which is seen to “build” prefabricated turnkey homes and therefore also recruits staff accordingly is not a building company as defined in VTV, because it is engaged exclusively in planning and selling. Only when work is carried out under one and the same management within a single organisational unit will sub-contractors then be taken into account by way of exception (Federal Labour Court ruling of 14.3.2012 – BAG, Urt. v. 14.3.2012 – 10 AZR 610/10).
A distinction is drawn in respect of classic auxiliary and secondary activities, such as transporting materials to the construction site, clearing operations or cleaning work. The time spent on these tasks does not constitute a separate purpose; instead, it is deemed part of the main activity of the company and therefore counts as pure construction work. According to consistent practice of the Federal Labour Court (Bundesarbeitsgericht – BAG), the preliminary, follow-up and ancillary tasks which are required for proper execution of construction work and are therefore interrelated with it must be taken into account when assessing what construction work includes. This has to be assumed in the case of construction site clearance and journeys to and from the site for merely disposing of rubble and excavated earth that result from the building contractor’s own work, since the distances involved are usually within its operational scope. This also applies if the excavated earth could be disposed of by external transport companies. If these secondary activities account for more than 50% of the total working time, however, then a threshold is reached after which a construction company otherwise subject to contributions is subsequently classified as a transport company exempt from contributions.
The management can often put organisational measures in place to “tailor” companies and divisions. In doing so, it can significantly reduce the number of persons liable to pay contributions or even eliminate the obligation to pay contributions entirely.
5. Liability of the principal for foreign sub-contractors
Under section 14 of the German Posted Workers Act (Arbeitnehmer-Entsendegesetz – AEntG, a principal domiciled in Germany is held liable for the social security contributions of its foreign sub-contractors. It will therefore always ensure that each sub-contractor has duly paid its contributions.
- Introduction to issues arising in connection with liability for contributions; calculation of possible contributions
- In-depth analysis as to whether there is actually a duty to pay contributions, taking into account the main areas of activity abroad and the specific operating conditions; assessment of the extent to which social contributions paid abroad can be offset against contributions to the German SOKA-Bau scheme
- Advice on matters to which the Posted Workers Act applies
- Negotiations with the German social security funds • Litigation