German Severance Rules Tighten as Zalando Closure, Tax Changes, and Pension Reform Reshape Employer-Employee Payouts
24.06.2026 - 04:06:05 | boerse-global.de
Workers in Germany who lose their jobs after 2025 can no longer expect their employer to automatically apply the preferential “fifth rule” tax treatment to severance payments. Since the start of the year, the tax break under Section 34 of the Income Tax Act (EStG) is no longer handled during payroll withholding. Employees must now file for the relief themselves in their annual tax return, with the severance initially taxed as regular income. Tax experts advise careful planning of the payout date; a lump sum in a single calendar year is often the most advantageous route.
The length of a worker’s tenure remains the cornerstone of severance calculations. Under Section 613a of the German Civil Code (BGB), when a business is transferred to a new owner, prior service years with the former employer must be fully credited — a new contract with the acquiring company cannot shorten that period. That tenure history also dictates social selection criteria and severance offers in settlement agreements or social plans. In operational dismissals, the social selection process remains a flashpoint.
Artificial intelligence can now legally assist employers in selecting staff for redundancy, but the final decision must rest with a human manager. Transparency and involvement of the works council, as required under Section 95 of the Works Constitution Act (BetrVG), are mandatory to avoid discrimination risks.
Two high-profile restructuring cases illustrate how severance deals are hammered out through collective bargaining — there is no automatic statutory right to a payout. On Tuesday, Germany’s mediation board (Einigungsstelle) held its first session over the planned closure of Zalando’s logistics center in Erfurt. Roughly 2,100 employees face losing their jobs when the facility shuts at the end of September. Company and worker representatives are negotiating severance terms. Separately, production at Playmobil’s site in Dietenhofen ended the same day. A social plan already in place covers about 350 affected staff, offering severance payments and a transfer to a transitional employment company.
For senior executives, the trend is moving away from one-off lump sums. High severance can trigger forfeiture of pension entitlements, so companies increasingly offer salary continuation or degressive transitional pay over six to 18 months. Non-compete compensation also factors in — it must amount to at least 50 percent of the executive’s most recent salary.
Since January 22, 2026, the Second Pension Strengthening Act (Betriebsrentenstärkungsgesetz II) has expanded options for cashing out tiny vested pension entitlements. Employers are now allowed to pay off unvested claims of former staff under higher thresholds, a change intended to reduce long-term administrative burden.
The wider retirement landscape could shift under proposals from Germany’s pension commission, which delivered its report on Tuesday. The commission recommends linking the retirement age to life expectancy starting in 2032. Under that model, the retirement age would rise to 67.5 by 2041 and to 68 by 2051. Any such change would have long-term consequences for early-retirement arrangements and the severance strategies that companies deploy when managing workforce exits.
