If overtime is required at work, employees automatically work longer than agreed. For this period, employees usually receive additional money.
But the additional payments do not leave the tax untouched.

When is overtime charged?

If you regularly work more than agreed, you can usually ask for more money.

After all, most employees are entitled to be paid for overtime.

From a cost point of view, this decision is therefore not always the best choice.

Overtime equal to regular wages?

If overtime is paid, the amounts are generally remunerated in the same way as normal overtime. Accordingly, the additional amounts are treated like regular wages. As a result, labor income increases.
In this case, it cannot be ruled out that employers will be assigned to a different income tax rate and therefore have to pay higher taxes.

Details in the employment or collective agreement

The German tax system works on the principle that low earners only have to pay tax on a small percentage of their income. On the other hand, if employees earn a lot of money, a higher tax rate applies.

If higher surcharges for overtime are taken into account in the employment or collective agreement, these are added on top.

In most cases, however, the surcharges are not tax-free. If the annual income increases as a result, the tax burden is even higher.

Which bonuses for overtime are tax-free?

Other regulations apply to surcharges for overtime incurred for weekend, holiday or night work. For these cases, so-called tax allowances apply according to § 3 EStG. However, there is no legal entitlement to this type of surcharge.
Employees can only insist on these surcharges if corresponding regulations are taken into account in company agreements, the employment contract or collective agreement.

When to pay overtime?

There is no general answer to this question. Ultimately, working people have to decide for themselves whether they want to take more free time to compensate or whether they want to collect cash instead.

The amount of financial compensation for overtime depends on the individual hourly wage.

Basically: The higher the hourly rate, the more generous the payment for overtime.

Calculation of overtime compensation

When receiving a fixed salary, professionals should initially determine their hourly wage. This automatically gives an answer to the question of how much money is incurred per overtime. In this context, however, employees should also consider that the entitlement to payment of overtime usually expires after three years. This is the case, for example, if the employment contract does not provide for a cut-off period or provides for a cut-off period that is too short. The exclusion period must be at least three months.

Alternatively, the three-year statutory period begins at the end of the year in which the employee worked the overtime.

Common rules on termination

In the event of termination, employees are well advised not to sign the so-called compensation receipt.
Anyone who signs this agreement would automatically waive all entitlements resulting from the employment relationship, including payment of overtime.

Alternatives to payment at a glance

An alternative to paying overtime is time in lieu. According to Section 3 of the Working Hours Act, daily working hours are contractually limited to eight hours.

Compensatory time off is necessary if one’s own working hours drop from ten to eight hours over a period of six months.

A working time account is suitable for keeping track of your own overtime. Comparable to how a checking account works, a time credit is created on the working time account. In return, minus hours are noted on the account if employees work fewer hours than agreed.

Do not build up unnecessary overtime credit

Employers are obliged to pay overtime if employees can no longer compensate for the overtime with time off after their termination.
Nevertheless, employees should always try not to increase their overtime credit unnecessarily. In that case, the extra overtime would be like a kind of loan for employers. If the company were to file for bankruptcy, the time credit would also be lost. In this case, insolvency money paid out by the Federal Employment Agency would only cover wage and salary claims that arose three months before the insolvency.