Germany's Minijob Compromise: Employers Face Higher Taxes as Coalition Preserves Low-Wage Model

Germany hikes employer flat-rate tax on Minijobs to 5% and health contributions to 17.5%, part of a 34-measure reform with income tax cuts, a rich tax, and pension decision delayed.

For the roughly 6.8 million workers on Germany's signature low-wage "Minijob" contracts, nothing changes directly – their gross pay still equals net pay. But the companies hiring them will see costs climb significantly. Under a deal struck by the coalition committee on Thursday, the flat-rate wage tax employers pay on Minijobs jumps from 2% to 5%, while the health insurance contribution rises from 13% to 17.5%.

Take a typical Minijob earning 603 euros a month. The purely tax-related burden for the employer more than doubles from 12.06 to 30.15 euros. The extra revenue helps finance the broader reform package, which also calls for the state development bank KfW to transfer 500 million euros in 2027 and 2028.

Mixed relief in business circles

Labour-intensive industries welcomed the preservation of the Minijob model – but only partly. Angela Inselkammer, president of DEHOGA Bayern, along with the hospitality associations in Hamburg and Bremen, praised the decision. They thanked the Bavarian state government for its lobbying efforts. The Bavarian Farmers' Association under president Günther Felßner called the outcome an important signal for agriculture. Its federal counterpart, led by Joachim Rukwied, had previously slammed plans to scrap the scheme altogether.

Yet the national DEHOGA federation warned of the higher operating costs that now hit businesses. The line between relief and fresh burden, it said, is a thin one.

Pension question kicked down the road

Despite the deal, one critical issue remains unresolved: long-term pension treatment. Chancellor Olaf Merz postponed a decision on whether to require Minijobbers to pay into the statutory pension system, leaving it for autumn. Labour Minister Bärbel Bas must present concepts by then.

Researchers and the government's own pension commission have long viewed Minijobs with scepticism. Silke Übelmesser of the University of Jena labelled them a "potential trap" leading to old-age poverty. One commission proposal would have scrapped social-security-free Minijobs entirely – except for student jobs. Switching to standard social insurance would trim the employer's contribution from roughly 30% to about 21%, but would then make employees liable for payments too. Currently, around 80% of Minijobbers opt out of pension contributions. Since July 1, they can voluntarily pay 3.6% of their income.

Part of a 34-measure overhaul

The Minijob changes are just one plank in a broad reform package encompassing 34 measures. Chancellor Merz called it "a big step for economic development." Key additional decisions:

• A phased income-tax reform, taking effect from January 1, 2027, aiming for a total relief volume of 10 billion euros per year by 2028.
• A parallel "rich tax": 45% on annual income over 250,000 euros, 47% over 280,000 euros.
• Labour-law changes: Fixed-term contracts without cause will be allowed for up to 48 months and renewable six times.
• Sick-pay rules tightened: the telephone sick note is abolished; a doctor's certificate must be presented from day one.
• A comprehensive pension reform – including a capital-funded pillar from 2028 and a gradual rise of the retirement age to 67.5 years by 2041 – is to be finalised by the end of 2026.