Overtime tax-free from 2025 - current status
As part of its growth initiative, the German government is currently planning to make overtime pay tax-free. The aim of this measure is to ease the financial burden on employees and increase the attractiveness of overtime. But what is the current situation?
Current regulation
Currently, overtime and bonuses are subject to regular taxation and social security contributions. There are exceptions for bonuses paid for work at night, on Sundays and public holidays. These can be tax-free in accordance with § 3b EStG. For example, bonuses for Sunday work are tax-free up to 50 % of the basic wage, for night work between 8 p.m. and 6 a.m. up to 25 % and for work on public holidays up to 125 %.
Planned changes - no draft law yet
From 2025, the new regulation will also exempt bonuses for overtime that exceeds the contractually agreed working hours. This applies in particular to overtime worked on Saturdays or in excess of the agreed weekly working hours. The aim is to better remunerate employees for additional work and at the same time increase motivation to work overtime.
The planned tax exemption for overtime pay is currently still in the planning phase and a draft bill has not yet been submitted.
Practical effects
For employees, this change means
- Higher net income: The elimination of tax and social security contributions on overtime pay means that more of the money earned is left over.
- Attractiveness of overtimeAdditional work becomes more financially rewarding, which could increase the willingness to work overtime.
The following aspects arise for employers:
- Motivated employeesThe prospect of higher net remuneration could increase employee motivation and satisfaction.
- Cost-benefit analysisCompanies must examine the extent to which the increased attractiveness of overtime leads to higher personnel costs and how this can be reconciled with operational requirements.
The planned tax exemption of overtime bonuses from 2025 represents a significant change in German tax and employment law. It offers opportunities for employees in the form of higher net income as well as for employers through potentially more motivated employees. It remains to be seen what effect this measure will have in practice and what specific regulations will be adopted in detail.
6 Comments
Alex
I'll believe it when the time comes. I currently work 20-40 hours of overtime, of which my employer pays out a maximum of 20 hours plus 25%. But according to the HR department, that won't last forever. But no matter, if that's how it's going to be then it'll stay at a 40-hour week. I don't need flexitime, I'm happy when I have my 30 vacation days behind me.
Chaga
I currently have 41 target hours, but I do just under 60 a week. There's not much left of my net income with 1 hour class. It would be really great if I could get my overtime paid out and wouldn't have to apply for child allowance and stuff like that:(
Tanja Möller
As described in the report, this is still in the planning stage, but simply reading the text correctly and in full helps.
Gennaro
Hello, I have a question about overtime. Has the law already been passed? I ask, since I have about 200 hours on my account and wanted to be paid out, is the set tax free already active ? or should I wait for the set? thank you very much for your answers
Frank Haas
Thank you for your comment. Unfortunately, we do not offer legal advice in the comments column. For an individual consultation with a lawyer, please contact our law firm.
Detlef Köpp
I also work 20-40 hours of overtime a month with a bonus of 25 or 50%. Of course, this regulation would mean more net income! But how many employees work overtime who don't get any bonuses? They all go away empty-handed. The government should think about it, for example, the €520 that you can earn as a mini-job on the side (taxed as a lump sum) should also be taxed as a lump sum in your company. It can't be that in our company (it will probably be the same with others) the employees don't work overtime, even though it's possible! Then they go home and take a mini-job in another company because there they are paid in full for the employee.
It would also be possible to make Christmas bonuses tax-free up to a certain amount, as was the case before the global economic crisis. This would benefit employees and increase consumption.