Overtime payment means that employers financially compensate hours worked beyond the contractually agreed working time – usually at the regular hourly rate, potentially with a premium. The entitlement to compensation arises from § 612 of the German Civil Code (BGB) if no other arrangement, such as time off in lieu, has been agreed. The calculation uses the formula: gross salary ÷ 4.33 ÷ weekly hours = hourly rate.
Definition: What Does Overtime Payment Mean?
Overtime payment refers to the financial compensation for hours worked beyond the contractually agreed working time. Instead of compensating the extra work with time off, employees receive a corresponding monetary amount in addition to their regular salary.
In Germany, this topic is highly relevant: According to the Institute for Employment Research (IAB), approximately 1.2 billion overtime hours were worked in 2024. Of these, 53.6 percent remained unpaid – equivalent to 637.5 million hours without compensation. For HR professionals, the correct handling of overtime payments is therefore crucial both legally and for employee satisfaction.
Legal Framework
§ 612 BGB – The Compensation Entitlement
The central legal basis for overtime compensation is found in the German Civil Code. § 612 BGB states:
"Compensation is deemed to have been tacitly agreed if, under the circumstances, the service can only be expected in return for compensation."
This means: Even if the employment contract contains no explicit provision for overtime compensation, employees generally have a right to payment – provided the overtime was ordered or at least tolerated. Senior executives often form an exception, as different arrangements frequently apply to them.
Overtime vs. Additional Work – The Difference
These two terms are often confused but have different meanings:
Overtime refers to hours worked beyond the working time agreed in the employment contract. Example: With a 35-hour week, overtime begins from the 36th hour.
Additional work (Mehrarbeit) refers to work that exceeds the statutory maximum working time. The German Working Time Act (ArbZG) sets this at a basic 8 hours per working day, extendable to 10 hours if compensated within 6 months.
When Must Overtime Be Paid?
Employers must compensate overtime when:
- The overtime was expressly ordered
- The extra work was tacitly tolerated
- No valid agreement for time off in lieu exists
- Overtime compensation is customary in the industry
Important: The works council has a co-determination right under the Works Constitution Act (BetrVG) regarding the ordering of overtime.
How to Calculate Overtime Payment
The Calculation Formula
For employees with a fixed monthly salary, the following formula applies to determine the hourly rate:
Gross salary ÷ 4.33 ÷ weekly hours = gross hourly rate
The factor 4.33 results from the average number of weeks per month (52 weeks ÷ 12 months). Alternatively, this formula can be used:
(Gross salary × 3) ÷ 13 ÷ weekly hours = gross hourly rate
Both formulas lead to the same result.
Calculation Example
An employee earns €3,500 gross with a 40-hour week. Last month, she worked 15 overtime hours. The employment contract provides for a 25 percent overtime premium.
Step 1 – Calculate hourly rate:€3,500 ÷ 4.33 ÷ 40 = €20.21 per hour
Step 2 – Overtime compensation without premium:15 hours × €20.21 = €303.15
Step 3 – With 25 percent premium:€303.15 × 1.25 = €378.94 gross
Overtime Premiums
There is no statutory entitlement to overtime premiums. However, premiums may be agreed through:
- Employment contract
- Collective agreement
- Works agreement
Typical premium rates range from 15 to 40 percent depending on the industry. A recent Federal Labour Court ruling from December 5, 2024 (Case No. 8 AZR 370/20) strengthens the rights of part-time employees: They are entitled to overtime premiums as soon as they exceed their contractually agreed working time – not only from the full-time threshold.
Taxes on Overtime Payment
Taxation of Overtime
Overtime constitutes regular wages and is fully subject to income tax and social security contributions. There is no tax exemption for regular overtime compensation.
Since the payment increases annual income, this can lead to a higher tax rate – the so-called progression effect. Depending on the tax bracket, often only 50 to 65 percent of the gross compensation remains as the net amount.
Tax-Free Premiums
An exception applies to premiums for:
- Night work (8 PM to 6 AM): up to 25 percent tax-free
- Sunday work: up to 50 percent tax-free
- Public holiday work: up to 125 percent tax-free (depending on the holiday)
However, this tax exemption only applies to the premiums themselves, not to the basic overtime compensation.
Payment vs. Time Off in Lieu – What's More Beneficial?
From a tax perspective, time off in lieu is often more advantageous as no additional tax burden arises. With payment, however, taxable income increases.
A blanket recommendation is not possible – the decision depends on individual circumstances: Those who urgently need rest benefit from time off in lieu. Those who need additional income choose payment.
Important Regulations and Deadlines
When Does Overtime Expire?
The statutory limitation period for overtime claims is three years according to § 195 BGB. The period begins at the end of the year in which the claim arose.
Employment contracts or collective agreements may, however, provide for shorter exclusion periods. According to Federal Labour Court case law, reductions to a minimum of three months are permissible. Shorter periods are invalid.
Overtime Upon Termination
In the case of ordinary termination, the contractual provision applies: Overtime can either be paid out or reduced through time off in lieu during the notice period.
In the case of summary dismissal, payment is usually the only option as there is no time for time off in lieu. In both cases, employees must be able to prove their overtime – complete documentation is therefore essential.
Invalid Overtime Clauses
The phrase "All overtime is deemed covered by the salary" is legally invalid. Employees must know what work performance is expected of them.
However, specific provisions such as "10 overtime hours per month are covered by the salary" are valid. The Hamm Regional Labour Court confirmed that with a 40-hour week, up to 10 overtime hours monthly can be covered by a flat rate.
Practical Tips for HR
Checklist: Paying Overtime in Compliance with the Law
- Review the overtime clause in the employment contract for validity
- Document the ordering or tolerance of overtime
- Set up a time recording system (mandatory since the 2022 Federal Labour Court ruling)
- Calculate the hourly rate correctly using the formula
- Check premiums according to collective or employment agreement
- Observe exclusion periods (minimum 3 months)
- For part-time employees: Grant premiums from contractual working time
- Clarify payment or time off in lieu with the employee
- Prepare payroll correctly
- Retain documentation for possible audits
Frequently Asked Questions About Overtime Payment
Does the employer have to pay overtime?
Generally yes, if no other arrangement such as time off in lieu has been agreed. The entitlement arises from § 612 BGB, according to which compensation is deemed tacitly agreed. The prerequisite is that the overtime was ordered or at least tolerated. Senior executives often have different arrangements.
How do I calculate the hourly rate for overtime?
The formula is: Gross salary ÷ 4.33 ÷ weekly hours = hourly rate. With a salary of €3,000 and 40 weekly hours, this gives: €3,000 ÷ 4.33 ÷ 40 = €17.32 per hour. For employees paid by the hour, this rate is used directly.
Is overtime tax-free?
No, overtime is regular wages and fully taxable. The higher income can even result in a higher tax rate. Exception: Premiums for night, Sunday, and public holiday work are partially tax-free. Time off in lieu is often more tax-efficient.
When does overtime expire?
The statutory limitation is 3 years according to § 195 BGB. The period begins at the end of the year in which the claim arose. Contractual exclusion periods may be shorter but must be at least 3 months. Collective agreements may contain different provisions.
What happens to overtime upon termination?
With ordinary termination, the contractual provision applies – payment or time off in lieu during the notice period are possible. With summary dismissal, usually only payment remains an option. Employees must be able to prove their overtime.
Is the clause "Overtime is covered by the salary" valid?
A blanket coverage clause without limitation is invalid. However, a specific provision such as "10 overtime hours per month are covered by the salary" is valid. The Federal Labour Court has confirmed that with a 40-hour week, up to 10 hours monthly can be covered by a flat rate.
Is there a statutory overtime premium?
No, there is no statutory entitlement to overtime premiums. However, premiums may be agreed in the employment or collective agreement. Typical rates are 15 to 40 percent depending on the industry. Night, Sunday, and public holiday premiums are partially tax-free.
Are part-time employees entitled to overtime premiums?
Yes. The Federal Labour Court ruled on December 5, 2024 (Case No. 8 AZR 370/20) that part-time employees are entitled to overtime premiums as soon as they exceed their contractually agreed working time – not only from the full-time threshold. A contrary provision may constitute indirect gender discrimination.
Conclusion
Overtime payment is a legally complex topic for HR professionals that requires careful attention. The compensation entitlement arises from § 612 BGB, and calculation is based on the determined hourly rate. Clear contractual provisions, complete time recording, and observance of exclusion periods are essential.
With proper documentation and transparent processes, disputes can be avoided and fair working conditions created – an important building block for employee satisfaction and the job interview with potential talent.
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Sources
- German Civil Code (BGB) § 612. Federal Republic of Germany, 2025. https://www.gesetze-im-internet.de/bgb/__612.html
- German Working Time Act (ArbZG). Federal Republic of Germany, 2025. https://www.gesetze-im-internet.de/arbzg/
- IAB Working Time Survey 2024. Institute for Employment Research (IAB), 2025. https://iab.de/daten/iab-arbeitszeitrechnung/
- Press release: 4.4 million employees worked overtime in 2024. Federal Statistical Office (Destatis), July 2025. https://www.destatis.de/DE/Presse/Pressemitteilungen/2025/07/PD25_N038_13.html
- Federal Labour Court ruling on part-time overtime premiums (Case No. 8 AZR 370/20). Federal Labour Court, December 5, 2024.
- DGB Index Good Work – Overtime: Less is More. German Trade Union Federation (DGB), 2025. https://index-gute-arbeit.dgb.de/
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