international employment law firm alliance L&E Global
Germany

Germany: 2025, Looking Ahead

In Looking Ahead 2025, we explore the most important trends and developments related to labour and employment law in Germany.

1. Bureaucracy Relief Act and its practical effects in employment law

The Fourth Bureaucracy Relief Act implements changes long awaited by HR practitioners and contains amendments to the Evidence Act, SGB VI, the Federal Parental Allowance and Parental Leave Act, the Agency Workers Act and the Industrial Code.

  1. The Evidence Act provides for an extensive catalogue of essential working conditions that must be handed over to the employee at the start of the contract. In summer 2022 a change to such law in practice resulted in a need for employment contracts to be in wet ink. Such change created a massive administrative burden for HR and was much criticised by HR practitioners and lawyers alike. Finally, as of 1 January 2025, the essential contractual conditions, i.e., the employment contract, can be drawn up in text form and sent to the employee electronically and no longer solely in wet ink. However, this only applies if the employee can access, save and print the document and the employer asks the employee to provide a confirmation of receipt when the document is sent. This is intended to provide additional security for the employee’s receipt of the confirmation in view of possible uncertainties associated with sending it electronically. This change means in practice that an exchange of signed pdf copies or e-signing will now be possible. It should be noted that there will continue to be exceptions where contracts still should be done in wet ink, in particular contracts with post-contractual restrictive covenants as well as fixed-term contracts.
  2. Unlike other fixed-term employment contracts, the age limitation—a very common contractual clause that stipulates the automatic end of the employment relationship upon reaching the regular statutory retirement age—may now also be in text form.
  3. Under the Federal Parental Allowance and Parental Leave Act, there will be simplifications for employees by allowing them to now request parental leave and part-time work during parental leave in text form (e.g., e-mail) rather than in wet ink.
  4. Further, an amendment to the Agency Workers Act means that the written form requirement for agency worker contracts between the lender and the borrower will no longer apply in the future; text form will now suffice. Pdf or e-signature will therefore now be sufficient, and no wet ink will be required.
  5. In addition, from 1 January 2025, reference letters can be issued in electronic form if the employee gives their consent to this. The formality of sending a wet ink document in an unbent form would then no longer apply. If and how this will be included in HR processes still needs to be seen but it may also be more practical for employees to receive a scan rather than a paper document as they will need to scan the document anyway for future applications. We assume that especially younger employees may be fine with no longer receiving a wet ink reference.

2. Increase in minimum wage and mini-job limit

The minimum wage is regularly adjusted to take account of the changing cost of living. On January 1, 2025, the statutory minimum wage will be raised to 12.82 euros. With a few exceptions, the statutory minimum wage applies to all employees aged 18 and over – regardless of their working hours or the scope of their employment. Mini jobbers therefore also benefit from this regulation. The increase in the minimum wage therefore also affects the earnings threshold for mini jobs, which will rise from 538 to 556 euros in 2025. If this earnings limit is exceeded, it will no longer be a mini job, and employees will be subject to social security contributions. Employers and employees should therefore keep a close eye on working hours and earnings.

 

3. Increase in equalization levy for severely disabled persons

Private and public employers with an annual average of at least 20 jobs are currently obliged to fill at least 5% of their jobs with severely disabled people. A compensatory levy must be paid for every compulsory job not filled by a severely disabled person, the amount of which is based on the number of compulsory jobs filled. The levy applicable for 2024 will have to be paid by companies until 31 March 2025. An adjustment has now been made for 2025. Companies must now pay the following monthly amounts for each unfilled mandatory job for the notification year 2025: 155 euros (instead of 140 euros) for an employment rate of 3 percent to less than 5 percent; 275 euros (instead of 245 euros) for an employment rate of 2 percent to less than 3 percent; 405 euros (instead of 360 euros) for an employment rate of 0 percent to less than 2 percent; 815 euros (instead of 720 euros) for an employment rate of 0 percent. For small companies (less than 40 or less than 60 jobs), separate, significantly lower equalization levies apply.

 

4. Change in the taxation of severance payments

Under certain conditions, severance payments and remuneration for several years of employment are taxed according to the so-called one-fifth rule. This regularly results in tax (progression) advantages for the employee. If the conditions for reduced taxation were met, the employer must apply the one-fifth rule in the wage tax deduction procedure until the end of 2024 and show the reduced taxed wages separately on the wage tax statement. From January 1, 2025, the application of the one-fifth rule in the payroll tax deduction procedure will no longer apply. The benefits will therefore be subject to regular wage tax deduction from 2025. However, employees will still be able to claim the rate reduction as part of their income tax assessment, meaning that employees will ultimately only suffer liquidity disadvantages. The abolition of the one-fifth rule as part of the wage tax deduction procedure is intended to reduce the burden on employers in particular, as they will no longer have to carry out the calculations and checks previously required to apply the rate reduction. In 2025, employers will still be obliged to record compensation or wages for several calendar years in the payroll account and show them separately in the wage tax statement. From 2025, however, the decision on whether to grant reduced taxation is the sole responsibility of the tax office as part of the income tax assessment. Accordingly, the wage tax, solidarity surcharge and church tax payable on severance or wages for several calendar years no longer have to be shown separately.

 

5. Outlook regarding the Pay Transparency Directive

The European Pay Transparency Directive came into force on June 6, 2023. Compared to the German Pay Transparency Act, it introduces a number of additional requirements, such as extended rights to information and reporting obligations as well as compensation claims in the event of gender-based pay discrimination. The directive applies to employers in the public and private sectors. The provisions of the directive must be transposed into national law by the member states by 7 June 2026. In Germany, this will most likely be done through a legislative revision of the German Transparency in Employment Act. The directive obliges member states to ensure equal pay not only for equal work, but also for work of equal value, considering criteria such as competence, responsibility and working conditions. Applicants must receive information on starting salaries and possible collective agreements before being hired, and the employer may not ask questions about previous pay trends. Employees have a right to know what they are paid and what their colleagues are paid for equivalent work, regardless of the size of the company. Employers with more than 100 employees must prepare regular reports on the pay gap, and if there is a difference of more than 5% without objective justification, they must carry out a joint pay assessment with the employee representatives. Employees can claim compensation for lost pay and non-material damages. A reversal of the burden of proof makes it easier to prove wage discrimination. In addition, member states must impose effective sanctions, including fines, for violations. Whilst it is currently not clear when and how the German legislator will transpose the directive to German law, all employers should start preparing for the very significant changes to their remuneration systems that will result from this. It is strongly recommended to assess the possible impact across EU states and start developing a plan, especially if works councils with co-determination rights on remuneration issues exist.

6. Short-time work

For 2025, the legislator has increased the possible duration of short-time work to 24 months. During the pandemic, there had also been an increased duration of short-time work and related benefits. This, however, gone back to the regular 12 months in the meantime. In light of economic developments in many industries, it has been decided to reduce the period again to enable employers to introduce short-time work for longer periods instead of implementing redundancies.

7. Income contribution ceilings for social security

As in most years, the income contribution ceilings for social security have changed. The ceiling for the statutory pension insurance has gone up very significantly from EUR 90,600/year to EUR 96,600/year. This change can have an impact if employment contracts contain a clause whereby overtime shall be compensated by the normal remuneration. These clauses are typically only assumed to be possible where the employee has earnings above the income ceiling, which, however, has now significantly increased compared to previous years.

Any questions

Ask our member firm Pusch Wahlig Workplace Law in Germany