A salary adjustment refers to the modification of contractually agreed compensation – either upward or downward. In Germany, there is no legal entitlement to regular salary increases unless stipulated in the employment contract, collective agreements, or established through customary practice. With the EU Pay Transparency Directive (implementation deadline June 2026), fair and transparent compensation is becoming increasingly important for companies.

Definition: What is a Salary Adjustment?

A salary adjustment is the formal modification of the remuneration specified in an employment contract. It can involve an increase (more common) or, in rare cases, a reduction in salary. Any salary adjustment generally requires a contract amendment or supplementary agreement, as salary is an essential component of the employment contract.

The term is often used synonymously with "salary increase" but has a broader scope: While a salary increase always implies a raise, a salary adjustment can also describe inflation compensation, alignment with market rates, or correction of pay disparities.

Salary Adjustment vs. Salary Increase

The difference lies in the focus: A salary increase emphasizes income growth, often as recognition for performance or promotions. A salary adjustment, on the other hand, refers to the more neutral process of compensation modification – for example, to maintain purchasing power (inflation adjustment), comply with salary bands, or reflect market changes.

Legal Framework

Freedom of Contract and Employment Agreement

German employment law is based on the principle of freedom of contract (§ 611a BGB – German Civil Code). This means employers and employees freely negotiate salary. There is no statutory right to regular salary increases. Exceptions include collective bargaining agreements, individual employment contract clauses, or works agreements.

A unilateral salary reduction by the employer is not permissible. Salary is contractually fixed and can only be adjusted with the consent of both parties or through a change dismissal (Änderungskündigung).

Customary Practice (Betriebliche Übung)

Customary practice is an important legal principle in connection with salary adjustments. If an employer grants salary increases regularly and without reservation over several years (typically at least three years), this can create a legal entitlement for employees. Workers may then expect this practice to continue.

To avoid establishing customary practice, employers should explicitly designate salary increases as voluntary benefits or include a voluntariness reservation clause.

Equal Treatment Principle

The employment law principle of equal treatment obligates employers not to arbitrarily treat employees differently regarding salary adjustments. If a company grants salary increases based on general criteria, all employees who meet these criteria must be treated equally.

Impermissible grounds for excluding employees from salary adjustments include illness, parental leave, or a notice of termination. The Regional Labour Court of Hamm confirmed in a 2025 ruling that different working conditions alone do not justify unequal treatment in salary increases.

Pay Transparency Act and EU Directive 2026

The German Pay Transparency Act (Entgelttransparenzgesetz) of 2017 grants employees in companies with more than 200 workers the right to information about comparative salaries. This law will be significantly strengthened by the EU Pay Transparency Directive (2023/970).

The EU Directive must be transposed into national law by June 2026 and brings far-reaching changes:

• Employers must disclose salary ranges in job advertisements
• Applicants may not be asked about their salary history
• Employees receive the right to information about average salaries by gender
• Companies with more than 100 employees must report regularly on the gender pay gap
• A pay gap exceeding 5 percent without objective justification requires a joint assessment with employee representatives
• The burden of proof in cases of suspected pay discrimination is reversed

Occasions for Salary Adjustments

Promotion and Expanded Responsibility

A promotion or taking on additional tasks and responsibility is the classic occasion for a salary adjustment. When the scope of duties significantly expands or a hierarchical level is reached, a salary increase is market-standard and appropriate.

Inflation and Purchasing Power Adjustment

Salary adjustments for inflation compensation serve to maintain employees' purchasing power. Following the expiration of the tax-free inflation compensation bonus at the end of 2024, many companies face the question of how to secure their employees' purchasing power. According to the Federal Ministry of Finance, salary increases in 2025 do not affect previously paid inflation compensation bonuses, provided they are based on a separate agreement.

Performance-Based Adjustment

Performance-based salary adjustments are oriented toward individual goal achievement, project completions, or evaluations within performance reviews. They are an instrument to recognize good performance and motivate employees.

Collective Bargaining Adjustments

In companies bound by collective agreements, salary adjustments follow the terms of collective bargaining agreements. These bindingly regulate when and by how much salaries increase. The statutory minimum wage in Germany has been €12.82 gross per hour since January 2025.

How Much Salary Increase is Realistic?

The amount of a realistic salary adjustment depends on various factors:

With unchanged responsibilities: 3 to 5 percent is market-standard. This adjustment typically compensates for inflation and acknowledges growing experience.

With new tasks or expanded responsibility: 5 to 8 percent is appropriate. The expanded scope of duties justifies a more significant adjustment.

With promotion: Up to 15 percent is possible. A hierarchical advancement with significantly more responsibility justifies a corresponding salary adjustment.

Inflation compensation: The adjustment is oriented toward the consumer price index. With inflation of 2 to 3 percent, at least this increase should occur to maintain purchasing power.

Best Practices for HR

For fair and legally compliant salary adjustments, HR professionals should consider the following points:

Define transparent criteria: Establish objective and comprehensible criteria for salary adjustments. These can include performance metrics, length of service, qualifications, or market comparisons.

Implement salary bands: Salary bands (also called pay ranges) are defined compensation ranges per job family or career level. They create structure and facilitate preparation for the EU Pay Transparency Directive.

Conduct regular reviews: Establish fixed times for salary discussions, such as during annual reviews or after the probationary period.

Ensure documentation: Record all salary adjustments in writing, ideally with justification. This protects against legal risks and creates transparency.

Use market comparisons: Regularly compare salaries with industry benchmarks to remain competitive and prevent turnover.

Frequently Asked Questions About Salary Adjustments

Do I have a legal right to a salary increase?

In principle, there is no statutory right to salary increases in Germany. However, entitlements can arise from the employment contract, collective agreements, works agreements, or customary practice. The equal treatment principle also protects against arbitrary unequal treatment in salary adjustments.

How often should salaries be adjusted?

An annual salary review is market-standard. Many companies link salary discussions to annual reviews or performance reviews. Unscheduled adjustments may occur with significant changes such as promotions or substantial expansion of duties.

What is customary practice regarding salary matters?

Customary practice arises when employers grant benefits regularly and without reservation over several years (usually three) – such as annual salary increases. Employees can derive a legal entitlement to continuation of this practice.

Can the employer unilaterally reduce salary?

No. Salary is contractually agreed and cannot be unilaterally reduced by the employer. A salary reduction requires either the employee's consent or a change dismissal. Variable salary components such as bonuses may, however, fluctuate.

What changes with the EU Pay Transparency Directive?

The directive must be implemented by June 2026 and brings extensive transparency obligations: salary ranges in job advertisements, expanded information rights for employees, reporting obligations on the gender pay gap, and a reversal of the burden of proof in discrimination cases. Companies should already be analyzing their compensation structures.

How do I convincingly justify a salary increase?

A successful argument is based on demonstrable achievements, assumed responsibility, and market comparisons. Document concrete successes, completed projects, and acquired qualifications. Inform yourself about industry-standard salaries and choose a favorable time – such as after a successful project completion.

Conclusion

Salary adjustments are a central instrument of HR work and have a direct impact on employee satisfaction and retention. Although there is no statutory right to salary increases in Germany, HR professionals should establish transparent and fair compensation structures. The EU Pay Transparency Directive will make this mandatory from 2026 anyway – those who act early gain a competitive advantage.

Objective criteria, regular market comparisons, and documented processes are the foundation for legally compliant and employee-oriented compensation policies.

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Legal Notice: This article is for general information purposes and does not constitute individual legal advice. For specific questions about compensation, please consult a specialist lawyer for employment law.

Sources

• German Civil Code (BGB) §§ 611a, 612. Federal Republic of Germany, 2025. https://www.gesetze-im-internet.de/bgb/
• Pay Transparency Act (Entgelttransparenzgesetz). Federal Ministry for Family Affairs, Senior Citizens, Women and Youth, 2017. https://www.gesetze-im-internet.de/entgtranspg/
• Directive (EU) 2023/970 to strengthen the application of the principle of equal pay for equal work between men and women. European Union, 2023. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023L0970
• General Equal Treatment Act (AGG). Federal Republic of Germany, 2006. https://www.gesetze-im-internet.de/agg/
• Legal Changes in Employment Law 2025. KPMG Law, 2025. https://kpmg-law.de/gesetzliche-neuerungen-im-arbeitsrecht-2025/
• Expiration of Inflation Compensation Bonus Does Not Preclude Salary Increase. DATEV Magazine, 2025.