Payroll Overhaul: German Employers Brace for Sweeping Reforms From Sick Pay Rules to Tax Shifts
Published on 08/01/2026 at 00:23 | Redaktion boerse-global.de
The final days of July brought a wave of regulatory changes that payroll departments across Germany must now navigate. From revised rules on partial incapacity to higher protection thresholds for garnished wages, the adjustments touch nearly every payslip processed in the country.
One of the most significant shifts concerns employees who can no longer work full hours. As of July 30, amendments to Book Nine of the Social Code (SGB IX), introduced via the GKV Contribution Rate Stabilisation Act, require that periods of partial work incapacity be factored into the calculation of regular remuneration under Section 67 SGB IX. The same legislative package also gives legal teeth to the employer's obligation to offer occupational reintegration management (BEM) in such cases, now anchored in Section 167 SGB IX.
Payroll teams had already been adjusting to new garnishment thresholds that took effect on July 1. The protected basic amount rose from €1,555 to €1,587.40 per month. Net earnings up to €1,589.99 remain shielded from seizure, provided no maintenance obligations exist. For each additional dependent, the exemption increases by allowances ranging from roughly €332 to €597.
Tax Reform Looms for 2027
Looking further ahead, employers face a major income tax overhaul scheduled for January 1, 2027, with its full impact expected by 2028. The federal government's plan carries an annual relief volume of around €10 billion. The basic tax-free allowance is set to climb gradually from €12,348 to €12,900 by 2028, while child benefit rises from €259 to €272.
Several flat-rate provisions are also being adjusted. The employee expense allowance (Arbeitnehmer-Pauschbetrag) would increase by €200 to €1,430. For mini-jobs, the flat-rate tax is slated to jump from 2 to 5 percent. Additionally, tax-free supplements for Sunday and public holiday work could apply to hourly wages up to €75, a significant increase from the current €50 ceiling.
Pension calculations will not escape the reform either. Starting in January 2027, projecting final earnings under Section 194 SGB VI becomes the standard procedure, requiring no separate application. This particularly affects new retirees with fluctuating incomes or those who received bonuses shortly before retirement.
Court Rulings Reshape Termination and Free Speech Protections
The Federal Labour Court delivered a landmark decision in spring 2026, striking down blanket clauses in employment contracts that allow employers to unilaterally place workers on garden leave after notice of termination. Such clauses are now void when they unreasonably disadvantage the employee. Release from work duties is only permissible when the employer can demonstrate a prevailing interest in the specific case.
A separate ruling from the Leipzig Labour Court in July drew widespread attention. A DHL employee who had publicly criticised arms transports won his case against dismissal. The court found no breach of trade secrets, determining that the company's customer relationships were already publicly known.
While German courts are tightening employer obligations around workplace protections, UK employers face their own compliance pressures under the Health & Safety at Work Act 1974. A free toolkit with 9 ready-to-use tools — including risk assessments, checklists and a director liability guide — helps you identify gaps before inspectors do. Download the free Health & Safety at Work Act 1974 Toolkit
Data Protection Guidance Tightens
On the data protection front, the European Data Protection Board (EDPB) released revised guidelines on anonymisation in July. Companies must now document re-identification risks in a context-specific manner. A new perspective-based approach evaluates identifiability from the standpoint of the relevant party — a development with direct implications for how HR systems process employee data.
Software Certainty and Digital Mandates
Payroll software users received reassuring news as GDI Software confirmed it will continue developing its products for payroll, salary, and construction wages long-term, reversing earlier statements about discontinuing them. This provides planning security for payroll operations.
Digitalisation continues advancing at the European level through the ViDA reform (VAT in the Digital Age). From July 1, 2030, structured e-invoicing becomes mandatory for cross-border B2B transactions.
Remote Work Eases Skills Shortage
Demand for specialised payroll professionals remains intense. Companies including CEVA Logistics, SD Worx, and Acconsis are actively recruiting experts proficient in SAP HR, DATEV, or Sage systems. The sector is responding with flexible arrangements — many openings now advertise extensive home office options or fully remote positions to attract scarce talent.
As workplace regulations evolve on both sides of the Channel, staying compliant with general health and safety duties is a year-round responsibility. Over 37,000 UK businesses already use a free Health & Safety Toolkit with ready-made risk assessments, checklists and toolbox talks covering COSHH, PUWER and more. Get the free Health & Safety Toolkit
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