The allegations were made by a former butler and a former head waiter, who have taken a case against the German state for wrongful dismissal and undeclared work.
The men claimed they were fired for criticising the system of cash payments for overtime work.
Their lawyer Antoine Gillot told AFP the system was put in place in 2007 "by means of an embassy note, with the green light of the German foreign ministry".
Citing internal embassy documents the newspaper estimated that staff had received "hundreds of thousands of euros" in cash payments since 2007.
Gillot said the matter came to a head in 2015, during a dispute between the butler and other staff members over how the money should be distributed.
The butler, who had worked at the embassy for 11 years, was dismissed shortly afterwards for "harassment", along with the head waiter who had taken his side, he said.
"Germany's foreign missions must not only respect German law but also local labour and social security laws," he said.
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