Germany’s Labour Overhaul Tightens Oversight and Loosens Dismissals for High Earners
03.07.2026 - 05:34:23 | boerse-global.de
German companies face a new era of workplace compliance and flexibility after the coalition government approved a 34-point reform package in early July. The measures range from mandatory electronic time tracking and same-day doctor’s certificates for illness to relaxed firing rules for top earners and revised tax rates for Sunday work and mini-jobs.
Under the new fixed-term contract rules, employers can hire staff without a specific reason for up to 48 months, with as many as six extensions allowed. This provision is valid through the end of 2030. At the same time, the government is easing dismissal protection for highly paid employees: anyone earning an annual salary exceeding 1.75 times the contribution assessment ceiling — roughly €15,000 per month — can be let go more easily in exchange for a severance payment.
Tightening sick leave policy, the reform eliminates the option of a phone-based sick note. From now on, all workers must present a medical certificate from the very first day of illness, regardless of their role or industry.
Digital time tracking becomes mandatory
A draft bill to update Germany’s Working Hours Act, published in June 2026, will require employers to record working time electronically. Experts expect the law to take effect between late 2026 and 2027. A key feature is the audit trail — a tamper-proof change log that lets authorities track every correction made to time entries. Companies violating the rules face fines of up to €30,000.
Implementation costs vary. Office-based firms can use software-as-a-service tools costing €3 to €8 per employee per month. Facilities with factory floors often rely on RFID terminals, which cost between €400 and €1,500 each to purchase.
Home office allowances get stricter documentation rules
The tax administration is also demanding more proof. Workers claiming the daily home-office allowance of €6 must now provide detailed time records or a certificate from their employer. Per calendar day, they can claim either the home-office allowance or the commuter allowance — not both. The commuter allowance, set at a uniform 38 cents per kilometre from the first kilometre, has been in effect since 1 January 2026.
Tax adjustments take effect from 2027
Starting in January 2027, the ceiling for tax-free base pay on Sunday and public holiday supplements rises from €50 to €75. In exchange, the flat tax on mini-jobs increases from 2% to 5%. For top earners, the income tax rate climbs to 45% on earnings above €250,000 and to 47% above €280,000.
Labour costs and overtime strain public sector
The reform lands amid intense debate about Germany’s competitiveness. Average labour costs stood at €45 per hour in 2025, well above the EU average. Business associations are pushing for a return to a 40-hour work week without wage compensation. Meanwhile, public administrations are struggling with large overtime backlogs. One town hall in Baden-Württemberg closed on Wednesdays in July to reduce overtime, saying it could not afford to hire new staff.
