In consulting practice, it has become apparent with some regularity that in some places it is prematurely assumed that a managing director is generally not subject to social insurance because he is self-employed.
This is not correct across the board.
It is even fundamentally wrong for external managing directors.
The legal situation becomes more complex when it comes to so-called shareholder managing directors.
It depends on the individual case.

To a certain extent, the case law of the Federal Social Court (BSG) provides guidance that gives the legal practitioner clues for classification.
However, it is not possible to make a reliable prognosis in every case.
This article is intended to provide practitioners with an overview of the legal situation and possible pitfalls in two parts.
In the first part, we present the basic principles according to which case law assesses the status decision.
In the second part, we develop specific case groups that practitioners can use as a guide.

I. Requirements for compulsory social insurance

The starting point still seems quite simple.
In principle, anyone who is in employment and receives pay for this is subject to social security contributions.
The legal concept of employment is crucial here.
Employment subject to social security contributions always refers to non-self-employed work (see Section 7 para. 1 sentence 1 SGB IV).
Anyone who works on a self-employed basis, on the other hand, is not employed within the meaning of social security law and is not subject to compulsory insurance.

But what exactly is non-self-employed work?
There is no clear definition in the law.
It depends on an overall assessment of the individual case.
In § 7 para.
1 sentence 2 SGB IV states that indications of employment are work according to instructions and integration into the work organization of the person giving the instructions.
The BSG is somewhat more precise.
According to established case law, the court presupposes that the person is personally dependent in order to be considered employed.
The BSG takes an overall view of the precise circumstances.
Personal dependency exists if the person is subject to a right to issue instructions regarding the time, duration, place and type of work.
On the other hand, self-employment is deemed to exist if the person bears entrepreneurial risk, maintains their own business premises and is essentially free to dispose of their own workforce and the organization of their work and working hours.

A clear case is work as an employee.
By definition, the employee is subject to the instructions of his employer and is integrated into his employer’s work organization.
If this were not the case, he would not be an employee.
The classification of the so-called external managing director of a GmbH, i.e. the managing director who is not also a shareholder of the GmbH, also presents few difficulties.
They are also subject to social security contributions.
Although he does not have an employer in the technical sense, he is subject to the instructions of the shareholders or the shareholders’ meeting.

II. Shareholder-Managing Director

However, the situation is much more difficult for managing directors who are also shareholders of the GmbH.
They may be subject to the instructions of the shareholders or the shareholders’ meeting.
However, as a member of the shareholders’ meeting, they are, to a certain extent, part of their own directing body.
This group of persons is examined in more detail below.

1. contractual conditions

The starting point for allocation to one category or the other is always the contractual structure of the collaboration.
If the managing director’s service contract contains elements that are typically also regulated in an employment contract with employees, this indicates personal dependency and, as a result, a social security obligation.
Examples include a fixed monthly or annual salary, Christmas bonus, vacation entitlement, continued payment of remuneration in the event of illness, etc.

Managing directors are often exempted from the prohibition on self-contracting in Section 181 BGB.
They should also be able to conclude transactions with themselves in their own name.
However, this circumstance is hardly ever observed by the courts in practice.
In any case, there is no known case in which the exemption from Section 181 BGB has been the deciding factor in favor of self-employment.

2. entrepreneurial risk

An entrepreneur initially invests his own capital in anticipation of future profits.
In doing so, he must accept the risk that his business model will not be successful and that he will lose his capital.
According to the case law of the BSG, the use of own capital can be an indication of self-employment.
The shareholder-managing director holds shares in the GmbH and therefore uses his own capital.
If the company fails, the shareholder-managing director loses the capital he has invested.

According to case law, however, not every capital invested and thus every entrepreneurial risk is sufficient to establish a self-employed activity.
The BSG restricts this considerably.
It requires that the capital invested must also be offset by greater freedom in shaping and determining the scope of the use of one’s own labor.
Accordingly, it has ruled that the economic risk resulting from the fact that the managing director has granted the company a loan is not sufficient.
In this case, too, there is a certain economic risk, as the company will not be able to repay the loan if it fails.
However, in the opinion of the BSG, a loan is not a reliable sign of an interdependence between the managing director and the company that precludes instructions being issued.
This is because even in a completely ordinary employment relationship, it is not beyond the realms of imagination for employees to grant their employer a loan or defer their salary payments (see BSG, judgment of 11.11.2015 – B 12 KR 10/14 R).

3. influence on the company’s decision-making

The criteria presented so far are only suitable for reliable differentiation to a very limited extent due to their low selectivity.
They may be indications that contribute to an overall picture that, depending on the perspective, is not black or white, but one of countless shades of gray.
The special feature of the shareholder-managing director is that he fulfills a dual role, so to speak.
As a shareholder, he is the giver of instructions; as an organ of the company, he is the recipient of instructions.
If, due to his position as a shareholder, the managing director can reject instructions from the shareholders’ meeting that he does not agree with at any time, case law rightly assumes that the managing director is free from instructions and is therefore not personally dependent.
This distinguishing feature is crucial in practice.
In contrast to the aforementioned, it is also the most tangible because it allows a clear classification based on legal subsumption under legal terms, at least for a large number of cases.

Ultimately, it boils down to the question of whether the managing director can influence the decision-making of the company in his capacity as a shareholder in such a way that he is not at the mercy of the decisions of other persons in his capacity as managing director.
In most cases, the question can already be answered with a yes or no under company law.
The person who ultimately makes the decision of the shareholders’ meeting is not at the mercy of the will of the shareholders’ meeting in any other capacity.
As always, however, there are also numerous cases in which a closer examination is required.

In the second part of the article, we will take a closer look at the case law and derive case groups on the basis of the criteria shown, which will help practitioners to apply the case law to their own cases.