Retention periods, documentation obligations, written form requirements: HR departments in Germany have to comply with a whole host of bureaucratic rules, which on some days can feel like they take up all of your working time. But things are set to improve – the German Bureaucracy Reduction Act came into force on 1 January 2025.
The German Federal Statistical Office (Destatis) maintains the so-called ‘Bureaucracy Cost Index’ (BKI). It sounds cumbersome, but the explanation is very simple: the lower the index, the lower the bureaucratic burden for companies. A look at the development of the BKI shows the state of bureaucracy in German companies and their HR departments – there is a battle to be fought. Since 2012, the BKI has fallen from an initial value of 100 to just 97 points in September 2024. But: improvement is in sight – thanks to the Bureaucracy Reduction Act.
The most important takeaways for HR departments
- The Bureaucracy Relief Act IV has been relieving the burden on companies’ HR departments since 1 January 2025
- The written form requirement will be replaced by the text form requirement for many documents, making digital employment contracts and references possible, for example
- Certificates of employment and employment contracts can now be issued and sent in digital form with a legally valid electronic signature
- Retention periods for certain personnel documents are now only eight and no longer ten years
Explanation: What is the Bureaucracy Reduction Act IV?
The Bureaucracy Reduction Act IV (BEG IV) is an initiative of the German government under Olaf Scholz, which aims to reduce bureaucracy for companies in Germany. The consecutive labelling already gives it away: it is the fourth reform of this kind, which includes various measures to digitalise, simplify and shorten bureaucratic processes – especially for HR departments, but also for other areas of the company.
The aim is to reduce the costs arising from bureaucracy. According to the ifo Institute, these costs amount to EUR 146 billion per year for German companies.
When does the Bureaucracy Reduction Act apply?
The Bureaucracy Reduction Act IV came into force on 1 January 2025. Since then, all measures have applied to all companies in Germany – from sole traders and freelancers to large corporations.
Measures and content in BEG IV that reduce bureaucracy in HR departments
The Bureaucracy Reduction Act IV brings with it fundamental relief. Specifically, HR departments in particular will benefit from many simplifications. The most important measures include:
- Text form instead of written form: Many documents no longer require a handwritten signature.
- Shorter retention periods: Certain documents only need to be kept for eight years instead of ten.
- Electronic employment references and contracts: Both types of documents may be created and sent digitally.
Text form instead of written form: analogue signatures no longer required
Until now, many HR documents were subject to the so-called written form requirement – an employment contract, for example, was only valid if it was physically signed. BEG IV makes this much easier: instead of a handwritten signature, text form is sufficient in many cases. E-mails or digital documents with a simple electronic signature are sufficient for employment contracts, amendment agreements and notices of termination, for example, unless there is a legal exception.
Many HR software programmes, such as the rexx Suite, offer the required digital signature. This allows you to process all signatures in a legally compliant manner – saving you a lot of paper and time in the future. After all, managing employment contracts via a central digital platform is much easier than analogue processes, especially in view of the increasing number of home office and remote workplaces.
Shorter retention periods for documents
Another important point of the Bureaucracy Reduction Act IV: the shortening of retention periods. In the HR department, you previously had to archive most documents for ten years. Whether digital or analogue: This regulation used to consume a lot of space and effort.
Since 1 January 2025, the deadline for certain personnel documents has been just eight years. HR departments can therefore destroy older documents earlier or archive them digitally, which saves both storage space and costs. This is a noticeable relief, especially for larger companies with extensive personnel files.
The small downer: the regulation does not apply to all documents. For example, payroll documents that are relevant for tax audits are still affected by longer retention periods. Our tip: Before deleting large amounts of data or clearing out paper documents, check what you are actually allowed to dispose of. The IHK Regensburg, for example, provides a good overview.
Electronic instead of analogue employment references and employment contracts
We have already touched on this point, but are deliberately emphasising it again separately: in future, references and employment contracts will no longer need to be in writing – text form will suffice. For you in HR work, this means that you can issue and send contracts and references in digital form – for example as a PDF with an electronic signature.
One important point: employees still have the right to request their reference in paper form. You must therefore also provide an analogue version on request. In the rexx Suite, references can be created at the touch of a button – and then digitally signed and delivered in compliance with the law.
Even more relief for companies
In addition to these noticeable simplifications for HR departments, the Bureaucracy Reduction Act IV brings even more, albeit more general improvements for companies. These include, among other things:
- Simplified reporting obligations: Certain reporting obligations to authorities have been reduced or digitised.
- Simplifications in tax law: Small-value invoices of up to 250 euros may be issued without detailed information – previously the limit was 150 euros.
- Digital communication with authorities: Fewer letters, more digital correspondence – many applications and notifications can increasingly be sent electronically.
- Simplification of VAT: The deadlines and requirements for advance VAT returns have been relaxed, which reduces the administrative burden for companies.
Does the Bureaucracy Reduction Act really help?
The German government under Chancellor Olaf Scholz has launched the law. It talks about ‘creating more entrepreneurial freedom’ and promises the economy an annual reduction of almost one billion euros as a result of the law. Reducing bureaucracy sounds good, as do the measures – but are there also disadvantages and, more importantly, are the benefits and the reduction in bureaucracy as good as they sound?
From an HR perspective, after a few weeks in the new year and with the Bureaucracy Relief Act, we can already draw a cautious, initial interim conclusion: Yes, the BEG IV does what it is supposed to do. For larger companies in particular, which previously had to process many documents as part of the written form requirement, the possible digital approach simplifies many things. At the same time, the shortened retention period also helps – even if many had hoped for an even shorter period and not just two years less from ten to eight.
Many business representatives would have liked a little more. Klaus-Heiner Röhl from the German Economic Institute (IW), for example, misses the online establishment of companies in the law and believes that ‘the big liberation blow against paralysing bureaucracy’ is still pending – but at the same time praises the relief for HR departments with regard to digital employment contracts and references, for example.
Conclusion: Bureaucracy reduction is making progress
One thing is certain: the Bureaucracy Reduction Act IV is a step in the right direction. HR managers and employees in HR departments are pleased about the loosening of the bureaucratic corset, which is gradually becoming more relaxed on the corporate body. And who knows – after BEG III came into force five years ago and digitalisation has made quantum leaps since then, it may not be long before BEG V brings further relief.
