"It's done," a government source told AFP following a cabinet meeting. The measure is one of the key cornerstone policies of the new coalition government under Chancellor Angela Merkel.
A fixed minimum wage was the carrot which Merkel dangled in front of centre-left Social Democrats (SPD) to woo them into a coalition that would win her a third term in power.
During her first two terms, Merkel's conservatives had always favoured separate pay deals by industrial sector and region, arguing that a national minimum wage would harm many small and medium-sized businesses and could force them to lay off workers.
But the SPD was clear: it would only enter into a power-sharing deal if the conservatives agreed to the introduction of a fixed minimum wage of €8.50 per hour.
The measure must now go before the lower house of parliament, or Bundestag, where the coalition has an overwhelming majority.
The labour ministry has yet to determine whether the measure would require approval from the upper house, or Bundesrat, as well.