Yes, a foreign company can hire remote employees in Austria. However, the moment an Austrian resident begins working for you under an employment contract, Austrian labour law applies in full, and your company acquires payroll, social security, and tax withholding obligations in Austria. This guide explains what those obligations are, how to structure the engagement correctly, what risks arise if you do not, and which practical steps foreign employers typically follow.
Austria';s employment framework is built on several interlocking statutes. The Arbeitsvertragsrechts-Anpassungsgesetz (AVRAG) sets minimum standards for employment contracts, including written confirmation of terms. The Allgemeines Sozialversicherungsgesetz (ASVG) governs social insurance contributions for employees and employers. The Arbeitszeitgesetz (AZG) regulates working hours, rest periods, and overtime. Collectively, these laws apply to any person working in Austria, regardless of where their employer is incorporated.
A common mistake made by foreign founders is assuming that because their company is registered abroad, Austrian law does not apply to their Austrian-based worker. This assumption is incorrect. Under EU Regulation 593/2008 (Rome I), the law of the country where the employee habitually works governs the employment relationship. For a person working from home in Vienna or Graz, that country is Austria. Even if the employment contract nominates a different governing law, Austrian mandatory provisions - minimum wage, notice periods, annual leave entitlements - cannot be contracted out of.
In practice, this means a foreign employer must comply with Austrian standards from day one. Austria';s statutory minimum annual leave is five weeks. Notice periods are regulated by the Angestelltengesetz for white-collar workers and by collective agreements for most sectors. Collective agreements (Kollektivverträge) are sector-specific and legally binding; they often set pay floors above the statutory minimum. Identifying the correct collective agreement for your employee';s role is a non-obvious requirement that many foreign employers overlook.
Before the first salary payment, a foreign employer hiring in Austria must register with the relevant Austrian authorities. The primary registration point is the Österreichische Gesundheitskasse (ÖGK), the Austrian Health Insurance Fund, which also coordinates social insurance contributions across health, accident, pension, and unemployment insurance branches.
The employer must register the employee with the ÖGK before the employee';s first working day - not after. Late registration carries administrative penalties. Contributions are split between employer and employee, with the employer';s share representing a significant addition to gross salary costs. The exact split is set by ASVG and adjusted periodically, but employers should budget for employer-side social contributions in the range of roughly 20-22 percent of gross salary, in addition to the gross wage itself.
Payroll must be run in euros. Wage tax (Lohnsteuer) must be withheld from each salary payment and remitted monthly to the Austrian tax authority (Finanzamt). The employer is legally responsible for correct withholding; errors expose the employer to back-tax assessments and interest. A foreign company without an Austrian entity typically needs to appoint a local payroll agent or use a registered employer-of-record (EOR) service to meet these obligations mechanically.
A practical scenario: a US-based software company hires a developer in Linz on a full-time basis. The company has no Austrian entity. It must either establish a branch or subsidiary in Austria, use an EOR, or register as a foreign employer directly with the ÖGK and Finanzamt. Each route has different cost and compliance implications, but none of them allows the company to simply pay the developer gross and ignore Austrian payroll law.
Hiring remote employees austria creates a risk that goes beyond employment law: it may generate a permanent establishment (PE) for corporate tax purposes. Under the OECD Model Tax Convention, which Austria incorporates into its double tax treaties, a PE arises when a company has a fixed place of business in another country through which it carries on business. A home office used by an employee can qualify as a fixed place of business in certain circumstances.
Austrian tax law and the relevant bilateral tax treaty between Austria and the employer';s home country determine whether a PE exists. The analysis turns on several factors: whether the employee has authority to conclude contracts on the company';s behalf, whether the home office is at the company';s disposal, and how central the employee';s activities are to the company';s core business. A developer writing code for a foreign product is less likely to create a PE than a sales manager who habitually signs contracts with Austrian clients.
If a PE is found to exist, the foreign company becomes subject to Austrian corporate income tax on profits attributable to that PE. Austria';s corporate tax rate is currently in the mid-twenties percentage range. The company would also need to file Austrian corporate tax returns and maintain transfer pricing documentation if the PE transacts with the parent. Many foreign companies do not discover this exposure until an Austrian tax audit surfaces it, at which point back-taxes, interest, and penalties accumulate.
A second scenario: a German GmbH hires two remote employees in Salzburg to manage its Austrian customer base. Both employees negotiate and sign contracts with Austrian clients. Under the Austria-Germany double tax treaty, this arrangement is very likely to constitute a PE, requiring the GmbH to register for corporate tax in Austria and allocate profits to the Austrian PE. The GmbH';s management should take legal advice before the hiring begins, not after the employees are already in place.
If you are uncertain whether your hiring plan creates a PE, contact info@vlolawfirm.com. We can help structure the setup correctly the first time.
Foreign companies that want to hire in Austria without establishing a local entity often use an employer-of-record (EOR). An EOR is an Austrian-registered company that formally employs the worker on behalf of the foreign client. The EOR handles payroll, social insurance registration, tax withholding, and compliance with Austrian labour law. The foreign company directs the worker';s day-to-day activities under a commercial services agreement with the EOR.
The EOR model is practical and widely used, but it has limitations. The EOR charges a service fee, typically expressed as a percentage of gross salary or a fixed monthly amount, which adds to total employment cost. The foreign company does not have a direct employment contract with the worker, which can complicate matters if the relationship needs to be restructured. Some collective agreements impose obligations that the EOR must pass on, and the foreign client must ensure the EOR actually complies rather than assuming it does.
An alternative is to establish an Austrian branch (Zweigniederlassung) or a wholly owned subsidiary (typically a GmbH). A branch is simpler to set up and does not require share capital, but it does not limit the parent';s liability and may itself create a PE. A GmbH requires minimum share capital of EUR 35,000 (at least half paid in on formation), a registered office, and a managing director (Geschäftsführer) who can be a non-resident. The GmbH is a separate legal entity and is the cleanest structure for companies planning to hire multiple employees or conduct significant business in Austria.
A third option, sometimes used for genuinely independent contractors, is to engage the Austrian worker as a self-employed freelancer (freier Dienstnehmer or Werkvertrag). However, Austrian law applies strict tests to distinguish genuine self-employment from disguised employment. If the worker is integrated into the company';s operations, works fixed hours, uses company equipment, and has no other clients, Austrian authorities will reclassify the relationship as employment. The consequences of misclassification include back-payment of all social contributions, penalties, and potential criminal liability for the foreign manager responsible.
Setting up a compliant employment relationship in Austria follows a recognisable sequence, regardless of the structure chosen.
First, determine the correct employment structure - direct employment with Austrian registration, EOR, or local entity - based on headcount, PE risk, and long-term business plans.
Second, identify the applicable collective agreement for the role. Austria has over 400 sector-specific collective agreements. The correct one determines minimum salary, working hours, notice periods, and other conditions. Using the wrong collective agreement, or ignoring collective agreements entirely, is one of the most common errors made by foreign employers.
Third, draft an employment contract that complies with AVRAG, the applicable collective agreement, and any sector-specific regulations. The contract must be provided to the employee before or on the first working day.
Fourth, register the employee with the ÖGK before the first working day. Simultaneously, register as an employer with the Finanzamt for wage tax withholding purposes.
Fifth, set up payroll in euros, run it monthly, and remit wage tax and social contributions on the statutory deadlines. Monthly wage tax is due by the 15th of the following month.
Sixth, comply with ongoing obligations: annual leave tracking, working time records under the AZG, and any sector-specific reporting. Austria';s Arbeitsinspektorat (Labour Inspectorate) conducts workplace inspections and can audit remote work arrangements.
Seventh, review the home office arrangement against Austria';s Homeoffice-Gesetz, the law specifically governing home office work introduced in recent years. This law requires a written home office agreement, sets rules on equipment provision and cost reimbursement, and addresses data protection and accident insurance for work performed at home.
Austria is a high-cost employment jurisdiction by European standards. Employers should plan for total employment costs well above the gross salary figure.
Key cost components include:
Many foreign employers underestimate the total cost of employment in Austria because they focus on gross salary and overlook the employer-side social contributions, the severance fund, and the compliance infrastructure needed to run payroll correctly.
What happens if I pay an Austrian remote worker as a freelancer but they are actually an employee?
Austrian authorities - primarily the Sozialversicherungsanstalt der Selbständigen (SVS) and the ÖGK - conduct regular checks on the classification of working relationships. If they determine that a person classified as a freelancer is in fact an employee, they will reclassify the relationship retroactively. The foreign company becomes liable for all unpaid employer and employee social contributions from the start of the relationship, plus interest and administrative penalties. The worker may also claim employment rights such as notice pay and severance. Reclassification audits can reach back several years, making the financial exposure substantial. The safest approach is to apply the classification tests honestly before the engagement begins.
How long does it take to set up compliant payroll for an Austrian remote employee?
If using an EOR, the setup can be completed in one to three weeks, depending on the EOR';s onboarding process and the speed of document exchange. If registering directly as a foreign employer with the ÖGK and Finanzamt, the process typically takes two to four weeks, assuming all documents are in order. Establishing a GmbH takes longer - typically four to eight weeks from notarial deed to entry in the Firmenbuch (commercial register) - and requires additional steps such as opening a bank account and depositing share capital. In all cases, registration must be completed before the employee';s first working day, so planning ahead is essential.
Do I need an Austrian entity to hire remote employees in Austria, or can I hire directly as a foreign company?
A foreign company can, in principle, register directly with Austrian authorities as a foreign employer without establishing a local entity. This avoids the cost and complexity of setting up a GmbH or branch. However, direct registration still requires ongoing payroll compliance, wage tax remittance, and social insurance contributions. It also does not resolve PE risk if the employee';s activities could constitute a permanent establishment. For companies hiring one or two employees on a trial basis, direct registration or an EOR is often the most practical starting point. For companies planning to hire more than three or four employees or to conduct significant Austrian business, establishing a GmbH is usually the more efficient long-term structure.
Hiring remote employees in Austria is entirely possible for foreign companies, but it requires full compliance with Austrian employment, social insurance, and tax law from the first day of employment. The key decisions - structure, collective agreement, payroll setup, and PE risk management - should be made before hiring begins, not after problems arise. Getting the framework right at the outset is significantly less costly than correcting misclassification or unregistered employment later.
VLO Law Firms advises international clients on remote employees and employment structuring in Austria. We can assist with employer registration, employment contract drafting, collective agreement analysis, and permanent establishment risk assessment. To request a consultation, contact: info@vlolawfirm.com