The Act on the Modernisation and Digitalisation of the Fight against Illegal Employment significantly expands the powers of the Financial Control Authority for Illegal Employment

The Act on the Modernisation and Digitalisation of the Fight against Illegal Employment (SchwarzArbMoDiG for short) came into force on 1 January 2026. Although the title initially sounds like a purely technical reform, the Act contains far-reaching changes.

A central component of the reform is the significant expansion of the investigative and monitoring powers of the Financial Control Authority for Illegal Employment (Finanzkontrolle Schwarzarbeit, FKS in the following). The authority is now permitted to carry out measures to establish identity, such as taking photographs or fingerprints. Furthermore, the FKS will in future be permitted to verify this information automatically. To this end, it will be granted standardised access to police databases. Whilst data exchange between the FKS and the police has hitherto tended to occur on a case-by-case basis, this is set to become the norm in future.

Furthermore, the right to inspect documents has been significantly expanded. The previous list of documents relevant to inspections has been abolished, meaning that the FKS is now generally permitted to examine all relevant data. This now explicitly includes electronic information such as cloud storage, time-recording systems or digital accounting data.

Companies are obliged to keep such data available and to allow the FKS direct on-site access free of charge. Alternatively, they must ensure access via the data systems used by the authority. Furthermore, technical interfaces must be provided so that the data can be analysed automatically. Upon request, companies must also submit the data in a format specified by the authority for subsequent audit. The aim of these regulations is to speed up digital audits and increase the effectiveness of controls.

Extended investigative powers meet with expanded obligations to cooperate

In addition to the powers of inspection, the FKS’s criminal investigation powers have also been significantly expanded. In cases of suspected withholding wages and salaries (Section 266a of the German Criminal Code) or social security fraud, the FKS will in future be able to conduct criminal investigations independently. In doing so, it will have largely the same powers as the public prosecutor’s office. It may apply for search warrants or the issuance of penalty orders. However, the public prosecutor’s office may take over the proceedings at any time, and the FKS may hand over the case.

In parallel, the obligations of companies to cooperate have been extended. In future, companies must also cooperate fully with the investigating authorities in the context of criminal or administrative fine proceedings and hand over any requested information and documents. This applies even if this information could later be used against them. Against the backdrop of the principle against self-incrimination, this is highly problematic.

The Act to Combat Illegal Employment now also covers platform-based delivery services

The sectoral list under the Act to Combat Illegal Employment (Schwarzarbeitsbekämpfungsgesetz, SchwarzArbG in the following) has also been revised. The hairdressing and beauty sector, as well as platform-based delivery services, have been newly included. From 2026, stricter monitoring and documentation obligations will apply to these sectors. The inclusion of delivery platforms – in particular app-based providers in the food and courier sectors – is a response to the public debate on illegal employment and problematic working conditions in this sector.

The classification also has implications for the the Act on Notification of Conditions Governing an Employment Relationship (Nachweisgesetz, NachwG in the following). This Act obliges companies, under threat of fines, to disclose key employment conditions. The formal simplifications newly introduced in the NachwG expressly do not apply to sectors covered by SchwarzArbG. Consequently, the requirement for handwritten signatures on essential contractual documents (‘wet-ink’) remains in place. In practice, this could mean that companies will once again have to rely more heavily on physical employment contracts.

Extended sanctions: New criminal offence under Section 9 of the SchwarzArbG

The reform is also accompanied by an expanded catalogue of fines. Companies that submit digital company data late, incompletely or incorrectly face fines. However, at a maximum of €1,000, the fines are comparatively moderate.

Furthermore, Section 9 of the SchwarzArbG introduces a new criminal offence. Anyone who commits an administrative offence under Section 8(4) of the SchwarzArbG (such as issuing or circulating a false document and thereby facilitating illegal employment) and acts in a commercial capacity or as a member of a criminal gang shall be punished with imprisonment for up to five years or a fine. Where there is suspicion of this offence, telephone surveillance may now also be ordered.

Conclusion

The new Act on the Modernisation and Digitalisation of the Fight against Illegal Employment significantly strengthens the powers of the FKS and, in particular, expands the scope for digital audits. Companies are obliged not only to grant the FKS access to physical documents, but also to transmit electronic data and allow access to IT systems. Furthermore, the responsibilities and powers of the customs authorities are being extended to cover additional sectors.

Platform-based delivery services in particular are likely to come under increased scrutiny from the authorities in future. Regardless of potential inspections, their inclusion in the sectoral catalogue will probably necessitate adjustments to existing HR and administrative processes.

Companies would be well advised to adapt their documentation and HR compliance systems promptly in order to avoid fines, criminal consequences, additional claims from social security providers or tax authorities, as well as potential liability and reputational risks.