Germany: Employment Law Aspects of the Coalition Agreement at a glance

• Inclusion of New Self-Employed Contractors in the Statutory Retirement System: As already envisaged in the joint paper following the exploratory talks, the upcoming coalition plans to require all new self-employed individuals, not part of a specific professional retirement scheme (e.g., physicians, lawyers, architects, dentists), to contribute to the statutory retirement scheme. This will reduce certain financial risks related to false self-employment. However, this change is expected to increase costs for businesses working with (solo) self-employed contractors, as these costs will likely be passed on to their business partners.
• Lowering Risks of Working together with Contractors - Revision of the so-called Status Determination Procedure: The coalition plans to improve the administrative procedure to determine the legal status of self-employed contractors by making it “faster”, “more legally secure”, and “more transparent”. This approach is particularly significant in light of the latest Federal Social Court‘s rulings that increased legal uncertainty and imposed financial and legal risks. The implementation of a swift and legally secure status determination procedure, along with the announced acceleration through a presumption of approval, would be a highly welcomed step.
• Weekly vs. Daily Maximum Working Hours: The coalition agreement proposes a regime shift from a daily to a weekly maximum working hours limit. This change aims to provide more flexibility in working time regulations. The European Working Time Directive allows for a weekly maximum working time of 48 hours, with exceptions for certain roles such as senior executives. The coalition agreement does not specify whether the use of a flexible maximum working time will be limited to CBAs, leaving room for potential broader application.
• Electronic Time Recording: The coalition plans to introduce a mandatory electronic time recording system, to be implemented in an “unbureaucratic” manner. As the final version of the coalition agreement does not include the CDU/CSU’s demand for a free choice of the system for recording or the possibility to delegate the duties for recording working hours to third parties, a conclusive agreement was probably simply postponed to a later date.
• Tax Privileges and Removal of Restrictions for Continued Work Post-Retirement Age: In line with the joint paper following the exploratory talks, the upcoming coalition aims to introduce tax incentives for individuals who choose to continue working after reaching the statutory retirement age. This will allow for earnings up to EUR 2,000 per month to be tax-free, addressing the skilled labor shortage as the baby boomer generation retires. Furthermore, the upcoming coalition seeks to simplify the employees’ return to their previous employer after reaching the statutory retirement age by lifting the ban on previous employment (Vorbeschäftigungsverbot), thus enabling employees to continue working for their previous employer for a fixed term. Together with the envisaged simplification of certain formal requirements, this could considerably reduce the administrative burden arising from the continued employment of pensioners.
• Tax-Free Overtime for CBA-bound Employers: The coalition plans to provide tax exemptions for overtime work. For CBA-bound employers, full-time work is defined as a minimum of 34 hours per week, while for non-CBA-bound employers, it is 40 hours per week. This measure aims to incentivize adherence to CBAs and encourage employers to offer more flexible working arrangements. The tax-free status of overtime pay is expected to make overtime work more attractive to employees and help address labour shortages in certain sectors.
• Minimum Wage Adjustments: Contrary to the SPD's campaign promise to raise the minimum wage to EUR 15 immediately, the coalition agreement does not include an immediate increase. Instead, future adjustments seems to be left to the Minimum Wage Commission consisting of the social partners. According to the coalition treaty, the Minimum Wage Commission “should” consider both the tariff development and 60 percent of the gross median wage of full-time employees in its deliberations.
• Strengthening and Expansion of Company Pension Schemes: In addition, the upcoming coalition intends to strengthen Germany’s company pension landscape and further promote the spread of such pension schemes, particularly in small and medium-sized companies and among low earners (the latter by means of tax incentives). There are also plans to digitize, simplify and make company pension schemes more transparent and less bureaucratic. In particular, the portability of pension entitlements for employees in case they change their employer is to be increased. This essentially revives aspects of the draft legislation that was already being pursued by the former “traffic light coalition”. It remains to be seen to what extent detailed amendments will be proposed, as the statements made to date still appear to be high-level and rather unambitious.
• Reduction of Bureaucracy: As an overarching objective, the coalition agreement emphasizes the goal of reducing bureaucracy. This includes the abolition of certain reporting, documentation, and statistical obligations. The coalition plans to significantly reduce the number of mandatory specialists (Betriebsbeauftragte). It seems that the specific roles to be reconsidered as unnecessary have not yet been detailed, but this measure aims to streamline regulatory requirements especially for SME businesses.
• Bureaucracy Relief and Digitalization: The coalition agreement aims to further reduce – at least certain – formal requirements in employment law. This includes allowing fixed-term employment contracts to be concluded in text form (e.g., via email) rather than requiring wet-ink signatures.
• Board Co-Determination and Employee Participation: The coalition agreement does not include significant changes to board co-determination. Neither a reform of the attribution rules of the One-Third Participation Act (DrittelbG) nor any consideration of an expansion of board co-determination regulations with regard to the legal form of an SE or an EU framework directive for co-determination in corporate bodies. However, the coalition agreement states that the government will work to “ensure an EU that guarantees (...) ‘co-determination’”, without specifying whether this refers to corporate or operational co-determination. This should leave some room for initiatives by the SPD-led labor ministry in the EU Councils.

Conclusion: The coalition agreement between CDU/CSU and SPD does not include any major breakthroughs or groundbreaking reforms but initiates several “small-step” changes. However, more drastic measures, as proposed by the SPD (such as, for example, the abolition of fixed-term employment without objective reasons) are not included in the final coalition agreement either.

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