Germany’s Coalition Overhauls Sick Leave Rules as Part of Sweeping Labor Package

Doctors and health insurers are pushing back against a key element of Germany’s newly approved labor reform package: a requirement for employees to present a doctor’s note from the very first day of illness. The measure, part of the “Program for Recovery and Employment” adopted by the coalition committee on July 2, also eliminates the option of getting a sick note by phone.

The government argues the change will curb absenteeism. But the National Association of Statutory Health Insurance Physicians estimates it will trigger at least 30 million extra visits to medical practices each year. Experts warn that mandating certification from day one often leads to longer sick leaves, not shorter ones. Germany’s current sickness absence rate stands at 6.8 percent, placing it seventh among OECD nations.

Fixed-Term Contracts Double in Length, Hurdles Lowered

Employers gain far more flexibility for new hires. Starting now and running through December 31, 2030, fixed-term contracts without a specific reason can last up to 48 months – double the previous 24-month limit. Up to six renewals are permitted within that period. Chancellor Friedrich Merz described it as a “doubling of the previous possibilities.”

The so-called prior-employment ban is also being relaxed, making it easier to rehire former staff members on fixed terms. And from January 1, 2027, the requirement to put such agreements in writing will be scrapped altogether.

High Earners Face Easier Dismissal – For a Price

A new provision targets the top end of the pay scale. Anyone earning more than €177,500 gross per year can, from January 2027, be let go without the employer stating a reason, provided a severance payment is made. The rule mirrors existing regulations for risk-takers in the banking sector. Severance payments are also set to receive tax breaks – provided the dismissed worker quickly moves into a new job.

Minijobs Cost More, Minimum Wage Rises

The cost of employing mini-jobbers goes up: the flat-rate tax on these low-income positions climbs from 2 to 5 percent. With the mini-job earnings threshold at €603 per month, that means an extra burden of roughly €18 per month per position. Trade representatives from hospitality and cleaning industries warn the change will make the employment form less attractive.

In parallel, the statutory minimum wage will increase to €13.90 in 2026 and to €14.60 in 2027.

Income Tax Reform Brings Relief – and a Higher Top Rate

An income tax overhaul scheduled for January 1, 2027 includes higher basic and child allowances, more child benefit, and a larger employee lump-sum deduction. The second progressive tax zone will be flattened, and the top marginal rate will kick in only at higher incomes. But for very high earners – those above €280,000 annually – the so-called wealth tax rate rises to 47 percent.

Co-Determination and Red Tape

On workplace representation, the government plans to ease rules for artificial intelligence systems and software. Social partners in the automotive, chemical, and mechanical engineering sectors have until mid-October to submit proposals. At the same time, the use of shelf European companies to bypass co-determination rules is to be blocked.

To lighten the administrative load on businesses, a reporting relief law aims to cut about 25 percent of existing documentation obligations. Small and medium-sized enterprises, as well as associations, will also gain exemptions from certain GDPR requirements for low-risk data processing.

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