Tax-Free Overtime Allowances in Germany for 2024

In Germany, certain allowances and bonuses for work performed during overtime, nights, Sundays, and holidays can be tax-free under specific conditions. The tax-free treatment of these bonuses is regulated by the Income Tax Act (Einkommensteuergesetz – EStG) and recent updates from 2024 have provided further clarifications and changes.

Tax-Free Overtime Allowances

1. Overtime Allowances:

  • General overtime allowances are typically taxable as part of the regular salary. However, under specific conditions, some overtime allowances can be partially tax-free. For example, the first ten overtime hours per month can be tax-free up to 50% of the base wage, capped at €120 per month (§ 68 Abs. 2 EStG).

2. Sundays, Holidays, and Night Work (SFN) Allowances:

  • Bonuses for work performed on Sundays, holidays, and during night hours are eligible for tax-free treatment up to certain percentages of the base wage:
  • Night Work: 25% tax-free between 8 PM and 6 AM.
  • Sundays: 50% tax-free.
  • Holidays: 125% tax-free for work performed on statutory holidays and specific times on December 24th, 25th, 26th, and May 1st.
  • Special Holidays: 150% tax-free for work on special holidays such as Christmas Day and New Year’s Day (§ 3b EStG).

Conditions for Tax-Free Treatment

To qualify for tax-free treatment, the following conditions must be met:

  • Separate Compensation: The bonuses must be paid separately from the regular salary.
  • Documentation: Accurate records of hours worked and the type of work performed must be maintained.
  • Compliance with Legal Definitions: Work hours must fit within the legally defined time frames for night work, Sundays, and holidays.

Changes Effective 2024

From January 1, 2024, several updates have been made to enhance the tax-free benefits:

  • The monthly tax-free allowance for SEG allowances (Schmutz-, Erschwernis- und Gefahrenzulagen) and SFN bonuses has been increased from €360 to €400. For primarily night work, this limit increases to €600.

Employer Responsibilities

Employers must ensure compliance with these regulations to benefit from tax-free allowances:

  • Accurate Payroll Processing: Properly calculate and document eligible allowances separately from regular wages.
  • Record Keeping: Maintain detailed records of hours worked, types of work, and corresponding bonuses.
  • Regular Updates: Stay informed about changes in tax regulations and ensure payroll systems are updated accordingly.

Additional Options

Employers can also consider other options to optimize tax benefits for employees:

  • Inflation Compensation Bonus: Until the end of 2024, employers can pay an inflation compensation bonus up to €3,000 tax-free, which can also cover overtime work.
  • Time Off in Lieu: Offering employees the option to take time off instead of receiving overtime pay, which can be a preferred option for work-life balance.

Legal Support and Services

WW+KN, a Baker Tilly Company, offers comprehensive payroll services to ensure compliance with all tax and employment laws. Our colleagues from Baker Tilly Legal provide expert advice and representation for any legal issues related to employment and taxation. We serve as a single point of contact, seamlessly integrating payroll and legal services to address all your employment-related concerns efficiently.

For further inquiries or personalized advice, contact WW+KN at info@payrollgermany.de. We are dedicated to supporting you with all your payroll and employment law needs.