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EXPLAINED: How the minimum wage will increase in Germany in 2022

The current German federal minimum wage is €9.60 per hour, but could increase to as high as €12 in 2022. Here’s what you need to know.

A waiter sets a table at a bar/restaurant in Berlin
What are Germany's minimum wage rules and how will they change in 2022? Photo: John MACDOUGALL / AFP

A centrepiece of the new German government’s promise to support workers was an increase in the country’s minimum wage. 

New Chancellor Olaf Scholz promised to raise the minimum wage to €12, up from the current level of €9.60. 

Scholz claims the move will benefit around 10 million people who rely on statutory minimums. 

This will however be introduced in stages. 

On January 1st, the minimum will go up to €9.82.

Wages, rent and pensions: What will the new German government mean for your wallet?

It will then be increased on July 1st to €10.45. 

When will it be increased to €12?

The ultimate plan is for the minimum standard to then be increased to €12 by the end of 2022 – a promise labour minister Hubertus Heil reiterated on the final day of 2021. 

Whether it will be further increased in 2022 – or at all – is somewhat in jeopardy however, due to a legal challenge. 

Speaking to DPA on Thursday, Rainer Dulger, president of the Confederation of German Employers’ Associations (BDA), said the issue wasn’t with raising the minimum wage, but rather with the route chosen to get there. 

“The way it is being proposed by the federal government at the moment, it is a gross violation of collective bargaining autonomy,” he said.

READ MORE: German employers weigh up legal challenge to €12 minimum wage

Furthermore, the earnings limit for mini-jobs will rise from €450 to €520, and for midi-jobs to €1,600 (from the current €1,300).

A mini-job is a position in Germany where the employee earns no more than a certain amount each month, allowing people to work fewer hours free of tax. A mini-jobber, which also belongs to the category of low-income earners, receives a reduced tax burden.

Wages for people in neither of these two categories could also be set to increase in 2022. 

Economics experts believe the country’s aging population and ongoing skills gap could mean that workers in Germany are in for a pay rise. 

Speaking to German daily Bild, Gabriel Felbermayr, the head of the Institute for the World Economy (IfW) in Kiel said that “the situation for workers in Germany is the best it’s been in 30 years.” 

According to Felbermayr, Germany’s ageing population and shortages of labour mean wages could rise by around five percent on average over the next year.

READ MORE: Could wages in Germany be set to soar this year?

How does Germany’s minimum wage work? 

For many people – in particular those from English-speaking countries other than the United States – it may be surprising to learn that Germany only introduced a minimum wage for the first time in 2015. 

The minimum, then €8.50, was introduced in 2015 by former Chancellor Angela Merkel in response to pressure from the centre-left Social Democrats, her coalition partner. 

The minimum wage rules have been structured so as to allow the standard to increase over time. 

Since the minimum wage was first introduced in Germany in 2015, representatives of business owners and employees have been tasked with setting increases as part of the Minimum Wage Commission.

After being first implemented in New Zealand and Australia in the 1890s, minimum wage laws have spread across the world. They are now in place in most European countries. 

That does not however mean that your employer is free to pay you as much – or as little – as he or she wants in Germany. 

Instead, the minimum amount you can be paid will be determined through negotiations with your employer which will may feature a trade union representative. 

In many cases, minimum standards are not set by law, but by collective or individual bargaining with your employer. 

Generally, collective agreements will be negotiated by trade union representatives and will apply to an entire industry or in an entire state, meaning that you yourself do not need to negotiate. 

There are however some jobs or industries – usually for jobs with higher incomes or which are less common – where negotiations will take place on an individual basis. 

These agreements will not just cover a minimum payment amount, but they will also set benefits, holiday pay and working conditions. 

Vocabulary

to consider – erwägen 

Minimum wage increase – (die) Mindestlohn-Erhöhung 

Employer – (der) Arbeitgeber 

to reinstate – wieder einsetzen

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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MONEY

EXPLAINED: How to find the best high-yield savings accounts in Germany

A savings account can be a wise choice if you want to earn some interest on your deposits and keep them secure. The Local takes a look at the high-yield savings account options available in Germany.

EXPLAINED: How to find the best high-yield savings accounts in Germany

Money left in a standard checking account, or a low interest savings account, loses value over time as inflation gradually reduces its purchasing power. 

Alternatively, deposits kept in savings accounts will increase in value over time, provided that the interest rate outpaces inflation.

With interest rates expected to remain high through 2024, now may be a good time to consider depositing some savings in an account with a high-yield interest rate.

Flexible savings accounts versus fixed-term deposits

If you want to open a high-yield savings account in Germany, there are basically two types of accounts to choose from: a flexible savings account (Tagesgeldkonto) or a fixed-term deposit (Festgeldkonto).

A flexible savings account, also called an ‘instant savings account’ or a ‘money market account’ in English, offers an easy way to earn some interest on your money while being able to access it at any time. This makes the flexible savings account ideal for holding money that you might need to use in the near future.

Interest rates on flexible savings accounts vary from bank to bank, and they can change depending on external factors such as the key interest rate of the European Central Bank, or the current market conditions. 

The central bank’s interest rates remain high so far in 2024, so it is possible to find German flexible savings accounts offering interest rates of up to 4 percent.

On the other hand, a fixed-term deposit, or term-deposit account, requires you to deposit your money for a specific amount of time, running from some months to several years. Fixed-term deposit holders aren’t able to access this money during the term in which it is being held.

Banks tend to offer higher-yield interest rates in return for their customers’ commitment. So a fixed-term deposit is a good choice for people looking to grow their money securely, but won’t work for anyone who may need to access their deposit in the short term.

Interest rates on fixed-term deposits are based on the deposit amount and the duration of the deposit. Once a fixed term deposit is locked-in its interest rate won’t change, which shields against decreasing interest rates but also prevents you from benefitting if interest rates happen to rise.

READ ALSO: ‘Move into this century’: How Germany could improve its banking system

Which German savings account type is best for me?

Banks constantly adjust the interest rates they offer customers based on factors like the interest rate set by the European Central Bank, but also based on their own internal calculations, or as a means to compete with other banks.

Also bear in mind, that many accounts will offer a higher rate in the short term, followed by a lower rate after that. For example, many banks will guarantee an interest rate up to 4.5 percent for the first three to six months for new customers, but after those months pass that rate typically drops closer to one percent.

If your goal is to securely grow a deposit in the short term, you’ll want to look for the highest short-term rate. Whereas if you plan to store your money safely in an account for a longer time, you’ll be better off looking for a higher long-term rate or considering a fixed-term deposit.

Which banks are offering the highest yields now?

Keep in mind that it’s always worth looking at some different options before choosing a bank, because the interest rates they offer are changing.

But a good resource to start with is the German economics newspaper, Handelsblatt, which recently published an article comparing some of Germany’s best performing flexible savings accounts.

According to their analysis, Trade Republic, TF Bank, Renault Bank direkt, ING, Comdirect, Consorsbank, Openbank, Commerzbank, Opel Bank, Bigbank and bunq are all offering competitive interest rates of 3 percent or more for customers in Germany at the moment.

Of these bunq, TF Bank, and Commerzbank are known to offer services in English.

Additionally, Handelsblatt looked at fixed-deposit accounts, and compared a number of the top options in Germany side-by-side. In addition to some of the banks mentioned above, they compared fixed term deposit options offered by Postbank, Klarna, Bank 11, DKB, SWK and Suresse Direct Bank among others.

READ ALSO: TELL US – What are the best banking and money saving options for foreigners in Germany?

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