So who decides what is acceptable as a religion and what is not acceptable (and relegated to the status of "sect")? Some bureaucrat?
Honestly I've never heard of another industrialised western nation doing such a thing in modern times.
How did you hear about this?
As per law, a prospective employer (including government bodies) cannot ask you about your religious affiliation. The only exception is if the employer himself is part of one of the state churches (catholic or lutheran), they only employ a member of one of the two state churches.
The employer´s HR department will ask upon setting up your account whether you are a member of one of the state churches, for the purpose of paying church tax where applicable. The employee just has to say 'no' and does not have to reveal whether they are an atheist, jewish, muslim or adheres to any other sort of faith.
A servant of the state can be a member of any religion but is not allowed to actively mission, especially not in his capacity as a servant of the state, as people might feel pressured to join.
We do have separation of church and state (which I feel is a bit muddled because of the state collecting tax for the catholic and the lutheran church) but there is really no way to check on somebody´s religion anyhow, it´s not like it´s documented anywhere if you don´t actively pursue this.
There is advanced security clearance for a lot of government jobs, as there are in most countries, but that relates more to criminal records and possible affiliation to organised crime, terrorist groups, etc.