Germany Tightens Sick Leave Rules, Eases Hiring for Companies in Major Labor Reform

A sweeping legislative package agreed by Germany’s ruling coalition on Wednesday introduces the toughest sick-leave rules in years, while giving employers far more flexibility on fixed-term contracts and top-executive redundancies. The 34-point reform, aimed at reviving a sluggish economy, has drawn sharp criticism from doctors, unions, and the opposition.

Sick note: no more phone calls, doctor visit required from day one

Starting immediately with the new law, the option to call in sick without a doctor’s note is abolished. Employees must now obtain a medical certificate from the first day of illness – previously the requirement only kicked in after four days. The German Association of General Practitioners called the change “fatal,” warning that surgeries would be overwhelmed. Health insurers also fear crowded waiting rooms.

SPD leader Lars Klingbeil and Bundestag President Bärbel Bas attempted to calm the backlash on Thursday, insisting that practical implementation must avoid forcing every sick worker to visit a doctor. Chancellor Friedrich Merz pointed out that collective bargaining agreements or individual arrangements could offer alternative paths, and he urged wider use of video consultations.

Longer fixed-term contracts without a reason, looser protection for top earners

Under the reform, companies can now hire new staff on fixed-term contracts for up to 48 months without needing a specific justification, and can renew the contract up to six times during that period. The rule applies to new hires until the end of 2030. The previous written-form requirement for such contracts has also been dropped.

At the same time, the government is relaxing dismissal protection for managers earning around €177,000 a year or more. They can now be let go with a severance payment and lose the usual legal protection against dismissal. The move reflects Germany’s exceptionally high restructuring costs: a study by Bocconi University found the country’s average severance equals 31 months’ salary, compared with seven in the United States and just two to three in Denmark or Switzerland. To encourage quicker re-employment, any severance received after finding a new job quickly will be taxed at a favorable rate.

Tax relief for families, higher rates for top incomes

From 2028, the package delivers tax cuts worth roughly €10 billion. A household with two children and a gross annual income of €60,000 will save more than €600 a year. The top marginal tax rate stays at 42 per cent, but the “wealth tax” surcharge becomes more progressive: 45 per cent on annual income above €250,000, and 47 per cent above €280,000.

Other fiscal measures include:
- Mini-jobs: the flat tax paid by employers rises from 2 per cent to 5 per cent.
- Handyman bonus: the subsidy for tradesmen’s services drops from 20 per cent to 15 per cent, capped at €900.
- Pensions: the government plans a transition to a capital-funded pillar; the official retirement age moves beyond 67, and the option to retire without deductions after 45 contribution years is scrapped.
- Bureaucracy: many reporting obligations are eliminated, and a reversal of the burden of proof is introduced for certain administrative procedures.

Divided reactions: employers cheer, unions rage

Business associations welcomed the increased flexibility but called for additional growth incentives. Industrial representatives questioned whether the package would spark a genuine recovery. The ver.di union condemned the new sick-leave rules as a “culture of mistrust.” Economists at the German Institute for Economic Research (DIW) dismissed the reforms as “symbolic politics” that fail to address structural problems. By contrast, start-up experts were more optimistic, arguing that looser dismissal protection is a necessary step for young, fast-growing companies.

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