Germany’s 2027 Labour Shake-up: Longer Temporary Contracts and Tax-Linked Severance for Job-Switchers

Germany doubles fixed-term contracts to 48 months, introduces severance for top earners, and offers tax perks for rapid re-employment — sparking union and expert backlash.

Starting in 2027, Germany will allow companies to hire staff on fixed-term contracts without a specific reason for up to 48 months — double the current 24?month limit. Labour market experts and trade unions warn the move will particularly affect younger workers and women, who already face greater job insecurity. The reform is part of a broader government package aimed at making the labour market more flexible and reducing long?term unemployment.

Under separate rules for top earners, employers will be able to dismiss employees who earn more than €15,000 a month (roughly €177,450 annually) by paying a severance package. That threshold applies to just 0.27% of all workers, according to the Institute for Employment Research (IAB). More than half of this group are older than 55, and roughly one?third have children. Economists at the German Institute for Economic Research (DIW) say the measure is largely symbolic because the affected pool is so small. The trade union ver.di has rejected it outright.

To encourage faster re?employment, severance payments will receive tax advantages that increase the sooner a dismissed worker finds a new job. The exact sliding scale is still being drafted, but the plan is meant to complement or replace the current “fifth?rule” taxation method. Critics worry, however, that employers might try to cap salaries just below the €15,000 threshold to avoid the rules, potentially stalling wage growth for high?performing staff.

Alongside the job?market changes, the government is phasing out the option of a telephone sick note. From 2027, employees will have to submit a medical certificate from the first day of illness. Employer associations back this, while employment lawyers argue that a mandatory waiting day before entitlement to sick pay would be more effective.

The labour package is linked to a broader fiscal reform. By 2028, the basic tax?free allowance will rise to €12,900, and child benefit will increase to €272 per month. The so?called “rich tax” will also be adjusted: earnings above €250,000 per year will be taxed at 45%, and those above €280,000 at 47%.

Separately, the Bundestag has approved health?sector savings that freeze doctors’ and hospitals’ reimbursement rates from 2027 to 2029. Midwives’ associations and medical professionals have already protested, warning of care gaps and potential closures of specialist units. Health Minister Warken defends the cuts, saying that without them the sector’s deficit would be around €3.5 billion higher in 2027.

Economists point to the Austrian model as a possible blueprint: there, employers pay a fixed percentage of gross wages each month into a fund that follows the worker when they change jobs. Germany’s new rules stop short of that, but the tax incentive for rapid re?hiring is seen as a first step toward making severance more portable.