On August 6, 2025, the German Federal Cabinet approved a comprehensive bill aimed at intensifying the fight against undeclared work and illegal employment. The reform significantly expands the enforcement powers of the Financial Control of Undeclared Work (FKS), introduces digital risk analysis tools, and tightens compliance expectations in high-risk sectors. These developments are particularly relevant for companies employing foreign nationals, as the legal consequences of non-compliance, for both employee and employer, are now more serious than ever.
The reform package aims to modernize enforcement and adapt to increasingly organized forms of illegal employment. The FKS will be granted new investigative powers, including telecommunications surveillance in serious cases involving suspected invoice fraud or the use of fictitious subcontractor chains. Such measures will be allowed only under strict conditions and typically require judicial authorization.
To improve risk-based inspections, authorities will deploy artificial intelligence and automated data analytics to identify suspicious patterns. Certain industries, including barbershops, nail salons, cosmetic services, and hairdressers, will face enhanced scrutiny. Employees in these sectors must now present valid identification during inspections.
Data retention rules will also be extended: banks and insurers will be obligated to store relevant records for up to ten years, helping enforcement agencies investigate wage payments and financial structures linked to undeclared employment.
Although certain small businesses will be temporarily exempt from some rules, the overall direction is clear: compliance enforcement is becoming more aggressive and data-driven.
While the bill has been approved by the Cabinet, it must still pass through the Bundestag and Bundesrat in the coming weeks. Final adoption is expected by the end of 2025, with certain provisions entering into force as early as January 2026. We will continue to monitor the legislative process and keep you informed of key developments and implementation timelines.
Employers who engage foreign nationals without the required work authorization also face significant consequences. These include:
These sanctions reflect the German government’s firm stance against illegal employment and the expectation that companies establish effective internal compliance structures to prevent violations.
For employers, particularly those who engage or sponsor foreign nationals, the new enforcement environment raises the stakes. Companies should act now to ensure that onboarding processes, employment documentation, subcontractor arrangements, and internal controls are fully aligned with legal requirements.
Increased enforcement also means that gaps in immigration compliance may be uncovered during broader labor audits, particularly if authorities investigate payroll inconsistencies or unlawful employment structures. A fragmented approach between HR, legal, payroll, and tax functions is now a risk factor—and one that may lead to legal and reputational consequences.
The reform is also a clear signal that digital readiness matters. As authorities increasingly rely on digital analysis to detect non-compliance, companies should consider whether their own systems, including time tracking, personnel data management, and document retention, are fit for purpose.
For businesses employing foreign nationals, compliance is no longer just good practice—it is essential risk management. We strongly encourage companies to take a proactive approach in reviewing their internal processes and ensuring that their immigration, labor, and payroll practices are fully aligned.
Vialto will continue to provide updates and guidance on corporate immigration strategy under the new government and new laws.
In addition, we are available as your point of contact to clarify open questions and develop tailored solutions. Feel free to contact us to learn more about how we can support you in navigating skilled immigration effectively.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Mostafa Massoud
Partner
Eva Witt
Manager
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