Government plan to exempt overtime bonuses from taxes
The German government, led by Chancellor Friedrich Merz, intends to implement a new amendment aimed at relieving the tax burden on employees who work overtime. According to the coalition agreement, bonuses related to overtime hours will be tax-exempt, provided that these hours exceed the full working hours agreed upon in collective contracts or their equivalents.
However, the tax exemption will not include the basic wage for overtime hours, but only the bonuses or allowances granted as compensation for them. It is also required that the overtime hours exceed 34 hours per week in the case of collective agreements, or 40 hours for jobs not covered by such agreements.
What is meant here is the regular overtime hours, without considering whether these hours are performed in the evening, on weekends, or on public holidays. Vereinigte Lohnsteuerhilfe e.V. confirmed that the basic pay for those hours will remain taxable.
This step comes at a time when data from the Institute for Labor Market and Occupational Research indicates that each employee in Germany completed an average of 28.2 hours of overtime in 2024, with more than half of these hours unpaid. As a practical example, an employee earning a gross salary of 3000 euros per month and working 28.2 overtime hours could benefit from about 64 euros extra per month after the new exemption is applied.
However, this plan faces some criticism, especially since it excludes part-time workers, who make up about 30% of the workforce in Germany (as of 2024). Statistics show that about half of working women in Germany work part-time, compared to only 12% of men, which means that this measure may increase the existing gap in the labor market and reinforce existing discrimination. While the new law aims to encourage overtime work, it, in turn, leaves a wide segment of employees – especially women – outside the circle of benefit.