Germany Scraps Phone-In Sick Leave and Extends Fixed-Term Contracts in Sweeping Reform Package
Published on 07/05/2026 at 14:05 | Redaktion boerse-global.de
Employees in Germany will need a doctor’s note from the very first day they phone in sick, ending the pandemic-era rule that allowed telephone-based certification. The change is one of 34 measures approved Wednesday by the Union and SPD in a bid to revive the country’s economy. The package also loosens dismissal rules for top earners, stretches fixed-term contracts to up to four years, and raises taxes on the wealthiest while promising billions in relief for middle-income families.
The ability to sign off sick by phone, introduced during Covid-19 to keep surgeries from overcrowding, will be abolished. Workers must now present a medical certificate on day one of illness, and the government plans stiffer penalties for doctors who issue fraudulent notes. Business groups welcomed the tougher line, but unions condemned it as an erosion of trust.
Labour market flexibility until 2030
Employers will gain more room to hire on temporary deals. Fixed-term contracts without a specific reason can now run for a maximum of 48 months, with up to six renewals allowed during that period. The rule applies through the end of 2030. From January 2027, the requirement for a written agreement on contract duration will also be dropped.
High-income employees face easier dismissal. Anyone earning more than €177,000 in gross annual salary can be let go more quickly, with a severance payment smoothing the exit. To encourage job mobility, the coalition plans tax breaks for workers who switch roles swiftly.
Tax relief – partly clawed back
The total tax relief amounts to roughly €10 billion per year, phased in from January 2027. The basic tax allowance and child benefit will rise, reaching €272 per child by 2028. A family with two children and €60,000 in taxable income could save over €600 annually from that year onward.
Yet the relief is funded by higher taxes at the top. A 45% rate kicks in at €250,000 in taxable income, rising to 47% above €280,000. Critics warn that rising social security contributions could offset much of the gain. The German Economic Institute (IW) notes that the tax reform only cushions the increase in pension contributions, without delivering a clear net income boost.
Red tape slashed for small firms
Small and medium-sized businesses will be freed from numerous reporting obligations. Under a new “approval fiction”, a permit application will be considered approved if the authority does not decide within four months. In housing, the government plans to create a state-run building company but explicitly rules out the expropriation of private property.
Chancellor Friedrich Merz described Saturday’s decisions as the foundation for a positive economic trajectory, aiming for over 1% growth in 2027. Chief of Staff Thorsten Frei argued the combined measures would put Germany back on a stable growth path. The 2027 draft budget, with net new borrowing of around €118.7 billion, is due to be approved by the cabinet on Monday.
Reactions were predictably split. Employers’ associations praised the flexibility improvements; unions attacked the extended fixed-term periods and the stricter sick-note regime. The latest ARD-Deutschlandtrend puts the Union at 22% and the far-right AfD at 27%.
Disclaimer regarding our articles: No investment advice, no buy or sell recommendation. Information on prices, companies, and markets is provided without guarantee; changes are possible at any time. Stock market transactions can lead to substantial losses. Our articles are created and reviewed in whole or in part automatically with the support of AI.
