The legislation was proposed after police launched nationwide raids on subcontracting delivery firms in February and uncovered numerous cases of social security fraud and drivers working off the books.
"Sub-sub-sub contractors are working in many areas. Wages are being pushed down and social insurance contributions are not being made and we won't put up with this any longer," Labour Minister Hubertus Heil told journalists.
"Often black sheep in this sector are exploiting people from central and eastern Europe. That distorts competition."
Labour lawyers say the new rules are likely to push up costs for those logistics and ecommerce companies which have turned a blind eye to the way subcontractors treated workers in the past.
Most logistics companies in Germany use subcontractors, including Amazon, which is now also expanding its own delivery network.
Bernd Gschaider, Germany director for Amazon Logistics, told Reuters on Tuesday the proposed legislation would not have any impact on Amazon's business because it already demanded its subcontractors complied with German labour law.
Amazon's move into logistics poses a threat to players like former state monopoly Deutsche Post DHL, which uses relatively well paid employees to do its deliveries rather than subcontractors.
While booming ecommerce has driven a surge in parcel volumes in recent years, fierce competition among logistics companies has meant that prices have not kept pace with costs, prompting Deutsche Post to issue a profit warning last year.
"We want fair competition. We don't want decent companies to be the dumb ones," Heil said.
The minister made his comments during a visit to a Deutsche Post distribution centre on the outskirts of Berlin, where employees were loading vans with parcels.
"This company shows that you can do it in a decent way. Workers here are permanently employed, with proper social insurance, decent working conditions and fair wages," Heil said.
The proposed legislation seeks to extend to the parcel sector rules that already cover the construction and meat processing sectors: these make companies liable if their subcontractors fail to pay social security contributions for their workers.
Heil said he hoped parliament, where the coalition government has a clear majority, would approve the law before Christmas, the busiest season for the parcel sector.
The German parliament also passed a law in June to fight illicit employment more broadly and the government has pledged to increase the number of customs police who are responsible for enforcing labour laws.
(This story makes clear illicit work law already passed, final paragraph)
(Reporting by Emma Thomasson; editing by Philippa Fletcher)
By Emma Thomasson