Labour Market Reinforcement Act - What is really behind „More work pays off“

With the Act to Strengthen the Labour Market, the legislator is pursuing a clear goal: to create more incentives to work, increase employment and make work more financially attractive. Under the guiding political principle „More work pays off“ tax, social security and labour market policy instruments are to be readjusted. But what does this mean in concrete terms for employers - and what are the opportunities, risks and implementation issues?

What is at stake politically and legally?

The Act to Strengthen the Labour Market combines several measures to promote employment and work incentives. Essentially, the aim is to ensure that additional work - especially for low and medium earners - pays off more financially. In practice, parts of this plan, in particular the so-called „active pension“, have now been transferred into a separate law and will come into force on 1 January 2026.

Centre Ideas of the law:

Improved supplementary income opportunities for certain groups of employees
Tax concessions or „tax-free“ supplements within defined limits
Adjustments to transfer benefits to make taking up work more attractive
Strengthening part-time top-ups and overtime
Reducing bureaucracy in labour market policy support instruments

For employers, this means that remuneration models, fringe benefit structures and employment incentives may become more important.

What does „tax-free“ mean in practice?

The term „tax-free“ often causes misunderstandings. In practice, it rarely means complete tax exemption. Tax exemption usually applies only up to certain Maximum limits. In addition Social security contributions nevertheless arise. Some of these are earmarked tax concessions. The Documentation and verification obligations remain in force and incorrect application can lead to additional payments and liability risks.

It is crucial for companies to integrate tax-free components properly into payroll, contracts and accounting systems.

Which employee groups are affected?

The measures are primarily aimed at groups of employees who have previously had fewer incentives to work, for example:

Employees in the lower income bracket
Part-time employees with the potential to increase their hours
Employees in transition from transfer payments to employment
Older employees with reduced working hours
Partly also skilled labour for overtime or additional shifts

Depending on the structure of the workforce, the impact on the company can vary greatly.

Opportunities, risks and stumbling blocks for employers

Opportunities

More attractive remuneration models without a full gross cost increase
Greater motivation to work overtime or increase hours
Support for skilled labour retention and work incentives
Positive effect on employer attractiveness

Risks & stumbling blocks

Complex delimitation under tax and social security law
Susceptibility to errors in payroll accounting and contract design
Unequal treatment within the workforce possible
Employee expectations can rise
Observe the co-determination rights of the works council

Legally compliant and transparent implementation is therefore crucial.

Practical implementation in the company

A structured introduction and clear communication are essential for operational practice.

Important steps:

Analysing which employee groups can benefit
Review of existing remuneration and surcharge models
Coordination with payroll, tax consultants and HR
Adjustment of employment contracts and works agreements if necessary
Transparent communication with employees
HR and management training

Companies that structure early on avoid later corrections and uncertainties.

What employers should prepare now - quick checklist

☐ Check legal details and scope of application
Identify relevant employee groups
☐ Clarify tax and social security treatment with experts
☐ Prepare payroll and accounting systems
☐ Involve co-determination / works council
☐ Check contract and remuneration models
☐ Define communication strategy
☐ Briefing managers
☐ Assess risks and liability issues

Conclusion

The Act to Strengthen the Labour Market can offer companies real opportunities - provided that implementation and design are strategic, legally compliant and practical. Those who are prepared early on can strengthen employment incentives and avoid risks at the same time.

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Labour Market Reinforcement Act: What „More work pays off“ means for employers