Incentives for post-retirement work: Cabinet approves simplified continued employment of retired employees (update)

At a glance

• The federal government has approved legal changes to encourage older people to work beyond retirement age.
• This includes allowing fixed-term employment contracts without material reasons for those who have reached the standard retirement age, with limits on the duration and number of such contracts.
• The changes are expected to be implemented between January and July 2025.

Update: 18 December 2024

Germany’s governing coalition has collapsed and the date for the German federal election has been set for 23 February 2025. It is unlikely that the remaining coalition partners will achieve a majority in the parliament for this bill. Against this background, the future of this legislative proposal, initiated by the previous government, is uncertain.

The federal government wants to create incentives to make it more worthwhile for older people to work beyond the retirement age. To this end, it has approved corresponding legal changes in the form of a drafting assistance with implications for labour law and pension policy. The planned measures are part of the federal government's growth initiative.

The key amendments which have an impact on employers are: 

Exception to the ban on previous employment

The drafting assistance introduces an exception to the ban on rehiring employees once they reach the standard retirement age. This change allows employers to offer fixed-term contracts to retirees without needing a specific reason. The current Part-Time and Fixed-Term Employment Act prohibits fixed-term contracts without objective grounds if the employee has previously worked for the same employer. However, this restriction will not apply to employees who have reached the standard retirement age, as long as the total duration of these contracts does not exceed eight years or twelve fixed-term contracts with the same employer.

Employer contributions to employment promotion and pension insurance

The drafting assistance also includes a provision allowing employers to pay additional amounts on top of wages, instead of making the usual employer contributions to employment promotion and pension insurance, for employees who are exempt from insurance and have reached retirement age.

Outlook

It is not yet possible to predict the duration of the legislative process. According to the the draft, the restriction of the ban on previous employment is to come into force in April 2025 at the latest; with a possibility of it being implemented as early as 1 January 2025. The regulations allowing employers to pay out the specified contributions to employees are to come into force on 1 July 2025, so that employers have sufficient time to adjust their payroll software.