Germany: Employment – 2025 Highlights and 2026 Outlook

In 2025, the federal election set the tone for political changes and led employment legislation in new directions. Administrative requirements opened the door to digital work processes and paper-light HR administration. Looking to 2026, EU measures on pay transparency and platform work will move from drafting to implementation. This article highlights the key developments in 2025 and provides a brief outlook for 2026.

2025: Highlights

1. Bureaucracy Relief Act IV

On 1 January 2025, the Bureaucracy Relief Act IV (Bürokratieentlastungsgesetz – BEG IV) entered into force, reducing administrative requirements across employment relationships.

Employers may now provide essential contractual terms and subsequent changes in text form (be it digital or on paper) rather than in writing (i.e., with wet signature), enabling fully digital onboarding and contract management for permanent employment relationships. For the essential terms of the employment agreement, an employer must ensure that employees can access, save, and print documentation, and must request confirmation of receipt.

Job references, the agreement between the temporary employment agency and the hiring company in terms of agency workers, and applications for parental leave may also be provided in text form (i.e., without wet signature) from now on. Key exceptions remain: fixed-term contracts and termination notices still require written form (which may be replaced by qualified electronic signature), and certain high-risk sectors in which illegal employment is rather common are excluded from the administrative requirement relief.

2. Active Pension

On 15 October 2025, the German Federal Government decided to implement the so-called “Active Pension” (Aktivrente) beginning on 1 January 2026.

The Active Pension is designed to incentivize elderly people to continue working beyond pensionable age. The incentive will be achieved by granting tax exemption on earnings of up to EUR 2,000 per month.

This legislation provides an appropriate and necessary solution for addressing the challenges and consequences of demographic change.

3. Increase of Minimum Wage

On 1 January 2025, the German minimum wage increased to EUR 12.82. Next year, an increase to EUR 13.90 is planned. As of 1 January 2027, the minimum wage is expected to rise to EUR 14.60.

4. Modification to the One-Fifth Rule

According to the German Income Tax Act (Einkommensteuergesetz – EStG), severance payments may be subject to the so-called One-Fifth Rule (Fünftelregelung), a tax relief method for extraordinary income such as severance under which the tax is calculated by adding one-fifth of the severance to the annual taxable income, computing the incremental tax, and then multiplying that increment by five—thereby mitigating the progressive effect compared with taxing the entire severance in a single year.

The assessment regarding the requirements for applying the One-Fifth Rule is complex and error-prone. Since 1 January 2025, employers are no longer required to assess and apply the One-Fifth Rule as part of the wage tax withholding when making severance payments. Employee can still claim the tax benefits arising from the One-Fifth Rule on their personal income tax return.

5. AI Act

The AI Act came into force on 1 August 2024. As the AI Act is an EU regulation, it does not need to be transposed into national law. The rights and obligations under the AI Act apply according to a progressive schedule. The first obligations entered into force on 2 February and 2 August 2025. Further obligations will be implemented by 2 August 2026 and 2 August 2027.

The AI Act applies a risk-based approach and increases the requirements for using AI systems. With respect to employment law, providers and operators of AI systems (i.e., employers) must ensure in good faith that their own employees and other persons involved in the operation and use of AI systems on their behalf have sufficient knowledge of AI systems. When used in a human resources context, AI systems typically are to be classified as high-risk systems pursuant to the AI Act, as they pose significant risks to the health, safety, or fundamental rights of employees. The employer’s obligations regarding these high-risk systems are particularly extensive.

In the event of violations of AI Act obligations, employers face significant (financial) sanctions, which may, in some cases, even be calculated as a percentage of a company's annual turnover.

2026: Outlook

1. Pay Transparency Act

Germany is on track to transpose the EU Pay Transparency Directive into law by mid‑2026. In July 2025, a German federal commission was established to prepare the legislative proposal for a revised German Pay Transparency Act. The next procedural steps are expected shortly in the federal parliament, including the publication of a legislative proposal and committee consultations.

The amendments to the current Pay Transparency Act will extend both the scope of application to smaller companies and the obligation for employers for transparent information and reporting. Information on the salary or salary range already must be provided in the job advertisement.

Employers are encouraged to align job evaluations and measures of comparison and prepare systems to conduct a periodic review of wage inequalities. Early engagement with employee representatives, documentation, and the setting of gender‑neutral pay criteria will mitigate implementation and litigation risk.

2. Platform Work Directive

The Platform Work Directive must be transposed into national law by EU Member States by 2 December 2026. The aim of the Platform Work Directive is to ensure better protection in terms of working conditions and data protection with respect to the approximately 28 million people working via digital platforms in the European Union.

Digital work platforms are characterized primarily by the fact that the services are provided at least partially remotely using digital tools. They are provided at the request of a recipient, provide a platform for work performed by individuals for remuneration, and involve the use of automated monitoring or control systems. Based on the Directive, it is assumed that an employment relationship with specific measures regarding the protection of working conditions and data protection will be established between the digital work platform and the platform worker.

Under German employment law, the assessment of whether someone is considered an employee is largely based on whether they are economically dependent, subject to directions from a third party, and integrated into a third party’s working organization. The German Federal Labor Court applied the same criteria when classifying a platform worker as employee. It is to be assumed that future German legislation concerning the Platform Work Directive will be based on the understanding of an employee as subject to the aforementioned criteria.

3. Works Council Election 2026

According to the Works Constitution Act (Betriebsverfassungsgesetz – BetrVG), works council elections are carried out every four years from 1 March to 31 May. The next regular election period for works councils is scheduled for 2026.

The employer is obliged to fulfil certain obligations with regard to the election, such as covering costs or providing support by supplying information. Furthermore, the employer underlies a responsibility to maintain neutrality to ensure the election process will not be biased.

Works council elections involve a considerable amount of organizational effort, which will require companies to make appropriate arrangements and preparations in advance.

In summary, 2025 marks a pivotal year for employment law and HR practices in Germany, with significant reforms streamlining administrative processes, enhancing digitalization, and the process of introducing new incentives for the workforce. Looking ahead, the implementation of EU directives on pay transparency and platform work, as well as the upcoming works council elections, will further shape the legal landscape and require proactive adaptation by employers. Staying informed and prepared for these changes will be essential for organizations to ensure compliance, foster fair working conditions, and remain competitive in an evolving regulatory environment.