New Federal Government Established: What Employers in Germany Can Expect

Germany's new government—led by former Mayer Brown Partner Friedrich Merz, who serves as Federal Chancellor—has laid out an ambitious agenda for the next four years. Many of the topics addressed on the 144-page-long coalition agreement, signed by the Christian Democratic Union/Christian Social Union and the Social Democratic Party, directly impact labour and employment law rules in Germany. Some concepts, such as digitalization and reducing bureaucracy, are already on the books, and will be applied to new areas, or in more relevant and practical ways. Other topics are still somewhat vaguely described, and it is not yet clear what the legislature is planning in detail. The most relevant topics for employers in Germany include:

• Working Time & Time Recording: The current maximum daily working time shall be replaced by a weekly maximum of 48 hours (as permitted by the EU Working Time Directive), giving employers and employees more flexibility around the distribution of working hours. Details shall be developed through discussion with social partners (i.e., employer’s association and trade unions). Minimum rest and break times will likely remain unaffected. There will be a general requirement to record working time electronically (with adequate transition periods for small and mid-size companies). The intention is to widely exempt trust-based working time from time recording requirements as much as possible under EU law.
• Minimum Wage & Tax Exemptions of Surcharges: The existing minimum wage commission (formed primarily by social partners and by soliciting advice from experts) shall generally remain in place. Going forward, the law will not focus only on the level of wage increases as determined in collective bargaining agreements, but is also expected to use 60% of the median wage of full-time employees as a benchmark when proposing new minimum wages. It is anticipated that a minimum hourly wage of EUR 15 may be achieved in 2026. Currently, certain types of overtime surcharges are (partially) tax exempt. In order to make overtime work more attractive for employees, all overtime surcharges going forward shall be tax exempt. The full details of this proposal are not yet known.
• Pay Transparency: The EU Pay Transparency Directive shall be transposed into national law on time. In preparation for the implementation, a commission shall be formed by the end of 2025, which is expected to make proposals as to how the new EU law can be implemented without creating too much new bureaucracy. On a substantive level, there will be a few changes compared to the existing pay transparency law in Germany. Employers will be obliged to disclose the starting salary or salary range and relevant collective bargaining provisions during the application process; questions about 'current' salary remain inadmissible. Employees can request written information on individual remuneration levels and average salaries, broken down by gender. Employers must provide information on this right annually, and are obliged to disclose the objective, gender-neutral criteria used to determine remuneration. It becomes easier for employees to assert compensation claims in cases of gender-specific wage discrimination. Companies with more than 100 employees must regularly report any gender-specific wage gaps; both the frequency of the reporting and the date by when the first report is due depend on the headcount of the company. In case of adjusted pay gaps of more than 5% that are not remedied within six months, a joint pay assessment with the works council must take place.
• Collective Bargaining & Trade Unions: A Federal Collective Bargaining Compliance Act (Bundestariftreuegesetz) is planned, allowing access to federal contracts with a value of >EUR 50,000 only to those companies that are bound by collective bargaining agreements. For startups with innovative offerings the threshold is >EUR 100,000. The intention is to increase the number of companies in Germany that apply collective bargaining agreements. In order to give trade unions easier access to the employees, unions shall be given "digital" access rights to businesses.
• Employment of Pensioners: The laws on fixed-term employment shall be modified to allow pensioners to return to their former employer, without the need for the employer to justify the fixed-term nature of the employment. In the past, employers have often refused voluntary reinstatement because of the risk of entering into an indefinite-term contract. In addition, going forward, income generated from employment while already receiving a government pension shall be tax-exempt, up to an amount of EUR 2,000 per month.
• Digitalization & Reducing of Bureaucracy: Going forward, it will be much easier for works councils to perform their office and hold meetings virtually. Physical presence for meetings and decision-making shall become less relevant. In addition, works assemblies may be held virtually. The legislature also intends to further reduce bureaucracy and form requirements (the details of which are yet to be determined).
• Other topics: There are also plans to make employment of foreign experts easier and speed up work permit approval processes. Changes are expected with regard to certain aspects of the social insurance, the general equal treatment law, and diversity and inclusion.