Turn-of-the-year update

For many people, the turn of the year marks a time for reflection and looking ahead. From a legal perspective, it's also a good time for companies to reflect and look to the future. In this article, we summarise some relevant changes in employment law.

 

Digital employment contracts

Probably the most prominent change is the option of to use “digital” employment contracts. Since 1 January 2025, employers have been able to provide information on essential contractual terms of the employment relationship by email, fulfilling their obligations under “Nachweisgesetz.” Written proof is no longer required. But the document must be accessible to the employee, and it must be possible to save and print it. And the employer has to ask the employee to provide proof of receipt (§ 2 I 2 NachwG).

The relaxed formal requirements don’t apply to employees who work in a sector or branch of the economy that’s particularly vulnerable to undeclared work and illegal employment (§ 2a Abs. 1 SchwarzArbG). Here, the mandatory written proof in paper form remains in place. In addition, despite the general relaxation of formal requirements that now applies, the employer still has to provide information in written form about the essential contractual terms if the employee asks for it.

For more on the formal relaxations introduced with the implementation of the Bureaucracy Relief Act IV (BEG IV), read the summary on our blog “Update on the Bureaucracy Relief Act: Digital Employment Contract from 1 January 2025.”

 

Settlement of severance payments without the ‘fünftelregelung’

The so-called fifths rule has been modified with effect from 1 January 2025. Since 1 January 2025, employers no longer have to follow the fifths rule in the wage tax deduction procedure. This should be taken into consideration especially when concluding severance and settlement agreements and when concluding court settlements. The formulations sometimes used to clarify the application of the fifth rule when calculating a severance payment should no longer be included.

 

Contribution assessment thresholds

The contribution assessment thresholds in the statutory health and care insurance has increased to a uniform EUR66,150 gross per year since 1 January 2025. The contribution assessment threshold in the general pension and unemployment insurance has also increased to EUR96,600 gross per year since 1 January 2025. This means that the previous differentiation between east and west Germany for the contribution assessment threshold in pension and unemployment insurance has been eliminated for the first time. The amount of the contribution assessment threshold in pension and unemployment insurance can be relevant under employment law in individual cases, particularly regarding compensation for overtime.

 

Compensatory levy under the severely disabled law

The compensatory levy that employers have to pay if they don’t employ the number of people with a severe disability stipulated in § 154 I SGB IX was also adjusted with effect from 1 January 2025 as follows:

• At a fulfilment rate of 3% to under 5%, the compensatory levy is EUR155.
• At a fulfilment rate of 2% to under 3%, the compensatory levy is EUR275.
• At a fulfilment rate of more than 0% to under 2%, the compensatory levy is EUR405.
• If the quota of fulfilment is 0%, the compensatory levy is EUR815.

The small business regulations for employers with an annual average of fewer than 40 or 60 jobs to be considered have also been adjusted:

• For employers with an annual average of fewer than 40 jobs to be considered, the compensatory levy is EUR155 for an annual average employment of fewer than one severely disabled person and EUR235 for an annual average employment of zero severely disabled persons.
• For employers with an annual average of fewer than 60 jobs to be considered, the compensatory levy is EUR155 for an annual average employment of fewer than two severely disabled people, EUR275 for an annual average employment of fewer than one severely disabled person and EUR465 for an annual average employment of no severely disabled people.

The increased amounts are to be paid for the first time on 31 March 2026, when the equalisation levy for 2025 is due.

 

Some further changes

Further changes as of 1 January 2025, for example, relate to the minimum wage (increased to EUR12.82 per hour) and the mini-job limit, which now averages EUR556 per month.

The income limit for couples and single parents to receive parental allowance will be further reduced from EUR200,000 of taxable income (for births from 1 April 2024) to EUR175,000 of taxable income for births from 1 April 2025. The further reduction of the income limit may be particularly relevant for companies that grant their employees subsidies’ to parental allowance or compensation if there's no entitlement to parental allowance.

For other proposed employment law changes, such as tax exemptions for overtime bonuses or a weekly instead of a daily maximum working time, it remains to be seen how and when they will be implemented after the federal election.