Germany's 31-Month Severance Bill Prompts Labour Overhaul for High-Income Workers
04.07.2026 - 05:34:55 | boerse-global.de
Restructuring a workforce in Germany costs employers an average of 31 months' salary per employee — nearly five times more than in the United States (7 months) and ten times more than in Denmark or Switzerland (2 to 3 months). That gap is the driving force behind a 34-point labour market reform package presented by the leaders of the CDU, CSU and SPD, which would loosen dismissal protection for top earners, extend fixed-term contracts and impose stricter sick-note rules.
Severance for high earners without special justification
From 1 January 2027, companies could apply to dissolve an employment relationship against severance payment even if a dismissal is deemed invalid, without having to cite special grounds for termination. The rule would apply to employees with an annual gross salary above €177,450 — about €15,000 per month, or 1.75 times the pension insurance contribution ceiling. The mechanism mirrors existing provisions for risk-takers in the banking sector.
The severance amount would depend on age, length of service and labour-market prospects, with a range of 12 to 18 months' pay. The new rules would primarily cover employment contracts signed from 2027 onward.
Fixed-term contracts doubled; sick notes required from day one
The package also extends fixed-term employment without a specific reason. For staff hired by the end of 2030, the maximum duration would rise from 24 months to 48 months, with up to six renewals allowed. The written-form requirement for fixed-term contracts would be dropped from January 2027.
Sick-leave rules are tightened significantly. The option of a phone-based sick note — currently possible in certain cases — would be abolished. Employees must present a medical certificate starting from the very first day of incapacity. The coalition also plans stricter sanctions if employers have doubts about the authenticity of a sick note.
Tax relief and higher levies
To accompany the labour measures, the coalition announced tax incentives: severance payments would receive preferential treatment if the affected worker quickly takes a new job. For small and middle incomes, relief worth around €10 billion is planned from 2027, including higher basic and child allowances and a flattening of "cold progression" — where inflation pushes workers into higher tax brackets without real income gains.
Financing would come partly from raising the flat tax on mini-jobs from 2% to 5%. Very high incomes face steeper rates: 45% above €250,000 and 47% above €280,000.
Business cheers, unions rage
Chancellor Merz presented the plan at the Chancellery, saying the goal is to strengthen Germany economically. Employer association president Dulger called the decisions a long-overdue course correction. The start-up association also voiced approval.
Unions reacted sharply. ver.di chief Werneke described the changes as "a sign of distrust" toward employees. IG Metall termed the loosening of dismissal protection an "attack on workers' rights." DGB chairwoman Fahimi acknowledged positive signals in the relief plans, but criticised the new sick-note regulations.
Economists are split. "Wirtschaftsweiser" (economic adviser) Felbermayr called the adjustments fair and necessary. DIW president Fratzscher, by contrast, labelled the package "symbolic politics" without meaningful economic impact.
