Overtime - payment, tax-free and legal background

Overtime - legal background

How much an employee has to work per week is determined by the employment contract or collective agreement - in most cases it is between 35 and 40 hours per week. Anything in excess of this is classed as overtime. Overtime does not normally have to be worked. Overtime cannot be accumulated indefinitely either. According to Section 3 of the Working Hours Act (ArbZG), employees may work a maximum of eight hours a day. As Saturday is also counted as a working day, this results in a maximum weekly working time of 48 hours. Employees may also work up to ten hours a day if the average over a six-month or 24-week period is still eight hours a day.

Overtime and overtime - what's the difference?

The terms overtime and extra hours are often used interchangeably. Legally, however, there is a difference. Anyone who works more than stipulated in the employment contract or collective agreement, but is still within the legal requirements, is working overtime. Anyone who exceeds the legal requirements of the Working Hours Act (ArbZG) of eight hours a day, on the other hand, is working overtime. If you work part-time and work more hours than stipulated in your employment contract, you are working overtime, not extra hours.

Can overtime be ordered?

In principle, employees are not obliged to work overtime. The right to issue instructions also does not authorize employers to instruct employees to work overtime. The right to direct refers to the employer's right to determine, organize and monitor the work performance of their employees - within the framework of the contractual agreements. If there is no written regulation on possible overtime, employees therefore do not have to work it. Overtime can therefore only be ordered if it has been clearly communicated in advance in the employment contract or collective agreement. The amount of overtime to be worked must also be defined in the contract: It must be transparent for employees what they can expect in maximum cases.

If there is a works council in the company, Section 87 of the Works Constitution Act (paragraph 1, no. 3) stipulates that it must be involved in the decision-making process regarding overtime. The works council has a right of co-determination and must therefore approve every overtime order. If this step is not taken or the works council is bypassed, employees are not obliged to work overtime. The works council can also exercise its right of participation through a works agreement - this way, the employer and works council do not have to communicate on every single hour of overtime.

Employers may only order overtime without prior contractual agreement in exceptional cases: if unforeseeable disasters and emergencies threaten the existence of the company. However, these situations are extremely rare - capacity bottlenecks or a sudden increase in workload are not among them.

Employers may not instruct the following groups to work overtime:

• Minors: According to Section 8 of the Youth Employment Protection Act (JArbSchG), young people under the age of 18 are not permitted to work overtime in order to protect their health and safety.
• Pregnant women and breastfeeding mothers: According to Section 4 of the Maternity Protection Act, pregnant women and breastfeeding mothers may not work overtime as this could endanger their health and the health of the child.
• Severely disabled people: According to Section 207 of Book IX of the German Social Code (SGB IX), employers are obliged to release severely disabled persons from overtime at their request.

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Pay out overtime

If employees have worked overtime, this must be compensated. However, they do not necessarily have to be paid. Time off in lieu is also an option. This should definitely be regulated in the employment contract, collective agreement or works agreement. If overtime is paid, employees receive the hourly wage to which they are entitled for each hour of overtime.

If employees fall ill while employers order overtime, only the basic salary must be paid. Overtime is only paid for work actually performed.

If employees voluntarily work overtime without being asked to do so by their employer, they must also be compensated - German law assumes that overtime is approved or tolerated. If employers do not wish to do so, they must actively send employees home as soon as they notice overtime.

Can overtime be compensated with wages?

Employers must be careful when compensating overtime with wages. Employment contracts that stipulate that overtime is compensated with the salary are not legally permissible. In these cases, it is not clear how much overtime is to be recorded - it must be clear to employees how much overtime they are expected to work at most and what or how much they will receive in return.

However, compensation clauses that specify the exact amount of overtime are valid: if the employment contract stipulates that up to four hours of overtime per week are compensated with the salary, this is legally permissible. Compensation clauses of up to ten percent are appropriate.

In the case of executive employees who receive an above-average salary, overtime can be compensated with the regular salary.

Is overtime tax-free?

Overtime is subject to tax. If employees work overtime in addition to the contractually agreed working hours and are financially compensated for this, this amount is subject to regular income tax. Some company agreements provide for bonuses for overtime worked. In contrast to night work bonuses, however, overtime bonuses are taxable.

Reduce overtime

Working time accountshelp to reduce overtime . Here, hours are accumulated during an increased workload, which can be reduced again during a less busy period. In connection with working time accounts, employment and collective agreements or company agreements can stipulate the extent to which overtime should be accumulated and how it should be reduced again.

If the employment contract does not contain a provision on the reduction of overtime, employers can exercise their right to issue instructions and determine when overtime is to be reduced.

Can overtime be forfeited?

Overtime recorded in a working time account does not generally expire. However, employment or collective agreements and company agreements may provide for the forfeiture of overtime.

If there is no working time account, a three-year limitation period applies by law. However, this can be deviated from by contractual agreements. It is not unusual for expiry periods of three months after the accrual of overtime to be stipulated.

Is overtime paid out after termination?

How overtime can be dealt with after a termination depends on the existing overtime regulations in the employment contract and the type of termination.

If the handling of overtime is clearly defined in the employment contract and there is an ordinary notice of termination, the employer can determine whether overtime should be paid out or converted into compensatory time off. In the event of termination without notice, the overtime must be paid out to the employee accordingly.

If there is no provision in the employment contract for dealing with overtime, the employer and employee must come to an agreement. However, employees should note that overtime is taxable and that the tax rate could also increase as a result of higher income.

Employers can issue a so-called compensation receipt upon termination of the employment relationship. With their signature, employees declare that they have no claims against the employer. In this case, overtime does not have to be paid out or converted into compensatory time off after termination. However, employees do not have to sign a compensation receipt - the passage stating that all claims arising from the employment relationship and its termination are waived can also be crossed out by employees.

Conclusion

A regulation on the scope and handling of overtime should definitely be included in the employment contract. This makes many things easier in day-to-day operations: overtime can be ordered when the workload is high, and it is clear to both employees and employers how much overtime will be paid out or converted into compensatory time off and whether or when it will expire. A working time account that allows fluctuations in weekly, monthly or even annual working hours also makes it much easier to deal with overtime.