Payroll Germany: News on the German Growth Opportunities Act 2025, pension values and more
Navigating the complexities of German payroll accounting just got more challenging. The 2025 Growth Opportunities Act, coupled with the Pension Transition Act, brings a wave of new regulations. In this article, we’ll guide you through these changes, highlighting their potential impact on your business and how to ensure your payroll processes remain compliant and efficient.
I German Growth Opportunities Act 2025
The German Act to Strengthen Growth Opportunities, Investment and Innovation, or simply the Growth Opportunities Act, which was passed on March 26, 2024, aims to provide tax relief for companies and reduce bureaucratic hurdles for employers. Further regulations came into force in 2025.
Legal Basis Growth Opportunities Act 2025
- Act to Strengthen Growth Opportunities, Investment and Innovation as well as Tax Simplification and Fairness (Growth Opportunities Act) of 26.03.2024 published in Federal Law Gazette I 2024 No. 108 of 26.03.2024
- § Section 19a (4) sentence 2 EStG
- § Section 39b (3) sentences 9 and 10 EStG (will be repealed)
- § Section 19 (2) sentence 3 EStG
Impacts
Reduction of the old-age relief amount
The age relief amount, a tax concession for older employees, applies to taxpayers over the age of 64. It is based on the calendar year in which the age of 64 is reached. The Growth Opportunities Act 2025 will slow down the increase in the tax rate. It will no longer fall by 0.8 percentage points per year, but only by 0.4 percentage points.
Abolition of the one-fifth rule in the wage tax deduction procedure
The so-called fifth rule can be applied to extraordinary income in accordance with Section 34 (1) EStG (e.g. severance payments or remuneration for work over several years). This reduces the tax burden as the tax progression is reduced. As a result of the Growth Opportunities Act 2025, the one-fifth rule will no longer be applied in the wage tax deduction procedure from 01.01.2025. This means that in future, special payments will no longer be deducted in the monthly wage tax deduction, but only in the income tax return.
IMPORTANT FOR EMPLOYEES: Employees can continue to apply for this tax reduction in their income tax return.
II Pension Transition Act
The Pensions Transition Act passed in 2017 stipulates that a uniform pension law will apply in Germany from 2025. This represents an important step in the harmonization of pension provision, particularly between the old and new federal states.
Legal Basis
- Act on the conclusion of the pension transition
- BGBl Part I No. 49 of 24.07.2017
- SGB VI
Impacts
A uniform pension value was introduced on 01.07.2024. The current pension value is the amount that corresponds to a monthly pension if a person earns an average pension for one year and has earned one pension point for this. The standardization of the pension system in Germany will bring some changes from 2025. For example, the previous revaluation of Eastern salaries in the calculation of pension points will no longer apply. In order to compensate for the lower wage level in the east, the salary earned in the new federal states (reported with the legal district code for the east) was increased by a certain factor before pension points were calculated until December 31, 2024. This factor was gradually reduced. From 2025, earnings in East and West will now be assessed uniformly. This means that the future monthly pension amount will be calculated the same everywhere in future – regardless of where the employee lives.
In addition, the contribution assessment thresholds for pension and unemployment insurance will be standardized. Previously, different upper limits for calculating contributions applied in the east and west. From 2025, a uniform limit of €8,050 per month will apply nationwide. This is particularly important for employees, as it makes it easier to plan their retirement provision.
III Social insurance 2025
A large number of existing social insurance procedures are to be made more effective in 2025 and improved in terms of digitalization and reducing bureaucracy.
Legal Basis
- Eighth Act amending the Fourth Book of the Social Code and other laws (8th SGB IV Amendment Act) of 28.12.2022 (Federal Law Gazette Part I No. 56, page 2759)
- § Section 28a (3a) SGB IV
- Specifications for IT-supported remuneration
Impacts
The biggest impact for employers in 2025 will be a mandatory insurance number query. Until now, German employees have had to provide their social security number themselves by submitting proof of their insurance number, typically their social security card, when they were newly hired by a company. From the turn of 2025, German employers will now have to request the social security number electronically from the National Association of Statutory Health Insurance Funds. This is intended to avoid registration errors and reduce the administrative burden.
IV Tax adjustments 2025
In addition to the effects of the Growth Opportunities Act 2025, the Pension Transition Act and adjustments to social insurance, employers will also have to take into account changes to the basic tax-free allowance, child allowance and child benefit in their German payroll accounting from 2025. These tax-free amounts and allowances will be regularly adjusted in order to strengthen the purchasing power of employees.
Legal Basis
- Act on the Further Development of Tax Law and the Adjustment of the Income Tax Rate (Tax Further Development Act – SteFeG)
Increase in the basic tax-free allowance
The basic tax-free allowance will be increased by €300 to €12,084, which means a noticeable tax reduction for many employees. In 2026, the basic tax-free allowance will be increased by a further €252 to €12,336.
Income tax rate for assessment periods 2025 and 2026
In addition to the adjustment of the other benchmark values of the income tax rate for the assessment periods 2025 and from 2026 (with the exception of the benchmark value of the so-called “wealth tax”), the exemption limits for the solidarity surcharge will also be adjusted for the assessment periods 2025 and from 2026.
Child benefit and immediate child supplement
Child benefit will be increased from €250 to €255 per month from January 2025 and by a further €4 to €259 per child per month from January 2026. The immediate child allowance will be increased from €20 to €25 per month from January 2025.
V Minimum wage
Increases in the statutory minimum wage also require adjustments to German payroll accounting. It is important to keep up to date here in order to avoid violating the applicable regulations. From January 1, 2025, the minimum wage will be raised to €12.82 gross per hour. This not only affects employees, but also the minimum wage for trainees, which will be adjusted accordingly.
Legal Basis
- Minimum Wage Act (MiLoG)
- Posted Workers Act (AEntG)
- Collective agreements declared generally binding
- Minimum wage increase act
- Act on the Modernization and Strengthening of Vocational Education and Training (BBiG) of 12.12.2019
- Announcement on the updating of the minimum remuneration for vocational training under the Vocational Training Act (2025), published in BGBl. 2024 I No. 305 of 14.10.2024
Consequences for trainees
Apprentices starting their training in 2025 will now receive a monthly salary of at least €682 from the first year of training, at least €805 in the second year, at least €921 in the third year and at least €955 in the fourth year.
VI Electronic procedure for certificates of incapacity for work (eAU)
There are also changes to the electronic procedure for certificates of incapacity for work (eAU) that German employers will have to observe in 2025. This year, periods of inpatient stays in rehabilitation or preventive care facilities will be included in the eAU procedure for the first time. Previously, only outpatient treatment was part of the electronic exchange between German doctors and German health insurance companies.
Legal Basis
- § Section 301 (1), (4) or (4a) SGB V
Impacts
For employers, this means that their German employees’ sick leave and the duration of their incapacity to work will be documented even more transparently in future. This will make German payroll accounting more accurate and seamless, but will initially involve more effort.
Our Conclusion
All these changes require companies to keep a close eye on the changes to the German law and implement them carefully in German payroll accounting. Mistakes can have expensive consequences — from fines to damage to a company’s image.
We therefore recommend that companies get in touch with an experienced service provider like us at an early stage. Our team of experts is always up-to-date with the latest legislation and will professionally adapt your payroll accounting for you. This allows you to concentrate fully on your core business and not have to worry about your payroll accounting. Contact Us!
