Germany Doubles Max Duration for Fixed-Term Contracts as Coalition Overhauls Labour, Tax Rules
02.07.2026 - 18:25:32 | boerse-global.de
German employers can now sign workers to fixed-term contracts without a specific reason lasting up to four years—double the previous limit—after the coalition committee approved a sweeping 34-point reform package on Thursday. The new rule applies to anyone hired before 31 December 2030 and allows up to six renewals within that period, up from three under the old law. Re-hiring the same person on these terms is also permitted.
The government says the change gives companies more hiring flexibility and removes a barrier to taking on new staff. Business federations cheered the move. The BDA employer association called it long overdue. But unions reacted with fury. The DGB and Verdi warned that precarious employment will become entrenched and that job insecurity will rise sharply for millions of workers.
Alongside the labour overhaul, the coalition scrapped the phone-in sick note. From now on, employees must present a doctor’s certificate from the first day of illness unless their employer explicitly allows an exception. Previously, a medical note was only mandatory after the fourth day. Doctors’ groups, including the Hausärzteverband, condemned the change, saying it will overwhelm practices as patients stream in for even minor ailments. Penalties for forging sick notes are being tightened at the same time.
The government wants to cut bureaucracy in parallel: one in four documentation requirements will be eliminated, and applications to public authorities will be automatically approved after four months if no decision is made. Data protection rules are being trimmed back to the EU minimum.
On taxes, the package introduces an income tax reform effective 1 January 2027 worth roughly €10 billion annually in relief. Low and middle earners are the main beneficiaries—a typical household could save up to €600 per year. By 2028, a family with two children and an income of €60,000 would see a proportional cut. Child benefit will rise to €272 by then. To pay for it, the top rate is being raised: 45% applies from €250,000 income and 47% from €280,000. The regular top rate stays unchanged. Business groups DIHK and BDI oppose the surcharge, while the SPD defends it as necessary social balance.
Other decisions in the deal touch housing and pensions. The coalition will ban the expropriation of private rental housing by federal law and instead create a state-owned housing company. Pension commission proposals are to be implemented by the end of 2026. High earners—those with incomes above roughly €180,000—get easier dismissal protection rules from 2027, including a severance option. Severance payments for quick job changes will receive tax privileges. Retail and service sectors gain flexibility: bakeries, confectioneries, and libraries may open more often on Sundays. A plan to combat welfare abuse is due in July.
