Shift Allowances in Germany – Definition, Tax Exemption & Calculation

Shift allowances are additional payments made by employers for work performed at unsociable hours – such as at night, on Sundays or on public holidays. Certain allowances are exempt from income tax and social security contributions up to defined maximum rates under § 3b of the German Income Tax Act (EStG). A statutory obligation to pay shift allowances only exists where a collective agreement or employment contract explicitly requires it.

What Are Shift Allowances?

Shift allowances (German: Schichtzulagen or Schichtzuschläge) are supplementary pay components received by employees who work outside regular daytime hours. They serve as financial compensation for the health-related and social burdens associated with night work, Sunday work or work on public holidays.

Shift allowances are most common in industries that operate shift systems – such as healthcare, manufacturing, logistics, retail and hospitality. They are distinct from overtime supplements: while overtime supplements are paid for hours worked beyond the agreed working time, shift allowances are tied to the timing of the work. Both can apply simultaneously – for example, when night work also constitutes overtime.

Types of Shift Allowances at a Glance

The most common forms are:

• Night allowance: For work performed at night (typically 8 p.m. to 6 a.m.)
• Sunday allowance: For work performed on Sundays
• Public holiday allowance: For work performed on statutory public holidays
• Late shift allowance: For work performed in the evening hours (governed by individual employer policy; no statutory standard)

Tax Exemption for Shift Allowances: What Does § 3b EStG Allow?

Not every shift allowance is automatically tax-free. Section 3b of the German Income Tax Act (EStG) sets out precisely under which conditions and up to what amount allowances remain exempt from income tax and social security contributions.

Maximum Tax-Free Rates (Overview)

The tax exemption always refers to a percentage of the basic wage. The basic wage is the regular hourly wage excluding any allowances, capped at a maximum of €50 per hour.

Source: § 3b Income Tax Act (EStG), German Federal Ministry of Justice

The Basic Wage as the Calculation Basis

The basic wage is the foundation for calculating the maximum tax-free allowance amount. It comprises the contractually agreed hourly wage, subject to a cap of €50 per hour. If the actual hourly wage exceeds this ceiling, the excess is not taken into account for calculation purposes.

What Happens When the Limit Is Exceeded?

If the allowance actually paid exceeds the tax-free maximum, only the portion above the threshold is subject to wage tax and social security contributions. The portion below the threshold remains tax-free.

Important: For the tax exemption to apply, the shift allowance must be paid in addition to the regular basic wage. The tax authorities generally do not recognise a retrospective conversion of existing wage components into allowances.

Are Shift Allowances Mandatory?

There is no general statutory obligation in Germany to pay shift allowances. Whether and at what level you as an employer must pay allowances depends on three factors:

Collective Agreement Obligation

If you are bound by a collective bargaining agreement – such as the TVöD (collective agreement for the public sector), the TV-L (collective agreement for the federal states) or a sector-specific agreement – that agreement will specify binding minimum allowance rates. This obligation applies regardless of whether you or your employees consider the allowance appropriate.

Employment Contract Provision

Even without a collective agreement, an obligation can arise: if shift allowances are agreed in the employment contract, or if an entitlement has been established through established practice (regular payment over an extended period), these are binding.

Special Case: Statutory Entitlement under § 6(5) ArbZG

Night work is an exception: pursuant to § 6(5) of the Working Hours Act (ArbZG), employees who regularly perform night work are entitled to appropriate compensation. This can take the form of paid time off or a night work supplement. Where compensation through time off is not possible or agreed, a statutory entitlement to a monetary allowance arises.

Calculating Shift Allowances: Step by Step

Calculating the tax-free shift allowance involves three steps:

Step 1: Determine the basic wage per hour (max. €50/hour)

Step 2: Identify the applicable tax-free percentage based on the type of allowance (see table above)

Step 3: Calculate the tax-free amount: basic wage × percentage = tax-free allowance per hour

Calculation example:

A nurse works with a basic wage of €18 per hour and performs regular night work (8 p.m.–6 a.m.).

• Tax-free night allowance: €18 × 25% = €4.50 per hour tax-free
• If the employer pays a night allowance of €6 per hour, €4.50 is tax-free and €1.50 is subject to wage tax.

For night work between midnight and 4 a.m., the higher rate of 40% applies:

• €18 × 40% = €7.20 per hour tax-free

Processing Shift Allowances Correctly: Tips for Employers

Errors in processing shift allowances can result in back payments of wage tax and social security contributions. The following points will help you avoid common mistakes:

Documentation Requirements

For each employee, record:

• The days and hours on which shift work was performed
• The type of allowance applicable (night, Sunday, public holiday)
• The basic wage used as the basis for calculation
• The amount processed as tax-free and the amount processed as taxable

This documentation must be available for inspection in the event of a payroll tax audit.

Common Payroll Errors

• Incorrect basic wage: Special remuneration such as bonuses or holiday pay does not form part of the basic wage for the purposes of § 3b EStG.
• Exceeding the basic wage cap: The basic wage is capped at €50/hour for calculation purposes – higher wages do not reduce the tax-free portion, but the cap is frequently overlooked.
• Missing time records: Without complete records of night and public holiday hours, the tax exemption does not apply.
• Failure to distinguish night-time periods: Work between midnight and 4 a.m. attracts a different rate (40%) compared to other night work (25%).

Special Cases: Marginal Employment, Sick Leave, Short-Time Work

Marginal employment (Minijob): The tax exemption under § 3b EStG applies in principle to marginally employed workers as well. However, since mini-jobs may be subject to flat-rate taxation, specific considerations can arise – consulting a tax adviser is recommended.

Sick leave: Regular shift allowances are considered part of the employee's remuneration. Under the Continued Remuneration Act (§ 4 EFZG), employees on sick leave are therefore entitled to continued payment of regularly paid allowances. The governing principle is the so-called "default principle": pay continues as if the person were fit to work.

Short-time work: During short-time work, reduced working hours also affect the basis for shift allowances. An individual assessment is advisable, particularly where collective agreement provisions apply.

Frequently Asked Questions About Shift Allowances

What are shift allowances?

Shift allowances are additional payments for work at unsociable hours – at night, on Sundays or on public holidays. They compensate for health-related and social burdens and can be tax-free under § 3b EStG subject to certain conditions. The health implications of shift work are worth examining separately.

Are shift allowances mandatory in Germany?

No, there is no general statutory obligation. The obligation arises from an applicable collective agreement (e.g. TVöD, TV-L) or an individual contractual provision. An exception applies to regular night work: § 6(5) ArbZG requires appropriate compensation in all cases – either through time off or a monetary allowance.

How much of a shift allowance is tax-free?

This depends on the type of allowance. Night allowances (8 p.m.–6 a.m.) are tax-free up to 25% of the basic wage, Sunday allowances up to 50%, and public holiday allowances up to 125% (up to 150% on especially protected holidays). The basic wage is capped at €50 per hour (§ 3b EStG).

How do I calculate a shift allowance?

Basic wage (max. €50/hour) × percentage for the type of allowance = tax-free amount per hour. If the allowance paid exceeds this amount, the difference is taxable. The calculation example in the article above illustrates the process in concrete terms.

Does the tax exemption also apply to marginally employed workers?

In principle, yes – § 3b EStG does not distinguish by employment volume. However, since mini-jobs are subject to special flat-rate tax rules, specific considerations may arise. Individual advice from a tax adviser is recommended.

Must shift allowances continue to be paid during sick leave?

Yes, where the allowance is paid on a regular basis. Under the Continued Remuneration Act (§ 4 EFZG), the employee on sick leave is entitled to the remuneration they would have received had they been fit to work – this includes regular allowances.

What is the difference between a shift allowance and an overtime supplement?

Shift allowances are linked to the timing of the work (night, Sunday or public holiday); overtime supplements are linked to the duration of work in excess of the agreed working hours. Both can apply at the same time.

Are shift allowances relevant in flexible working arrangements?

Yes. The rules of § 3b EStG apply even in hybrid working models or flexible shift schedules. What counts is always the actual time of work, not the location.

Conclusion

Shift allowances are an important remuneration instrument for businesses operating shift or night work. Their tax treatment is clearly regulated: § 3b EStG defines the maximum rates up to which allowances remain exempt from income tax and social security contributions. A statutory obligation to pay them exists only where a collective agreement applies, where individual contracts require it, or in the case of regular night work under § 6(5) ArbZG.

For employers, thorough documentation is essential: only those who can demonstrate working hours, allowance types and basic wages without gaps will be able to claim the tax exemption in a payroll tax audit. In cases of uncertainty – such as in special situations involving marginal employment or short-time work – advice from a tax adviser or employment law specialist is strongly recommended.

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Sources

• § 3b Income Tax Act (EStG) – Tax exemption for Sunday, public holiday and night work supplements. German Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/estg/__3b.html
• § 6(5) Working Hours Act (ArbZG) – Night work and compensation obligation. German Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/arbzg/__6.html
• § 4 Continued Remuneration Act (EFZG) – Amount of continued remuneration. German Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/efzg/__4.html
• Payroll Tax Guidelines R 3b – Supplements for Sunday, public holiday and night work. German Federal Ministry of Finance, 2023. https://www.bundesfinanzministerium.de
• Collective Agreement for the Public Sector (TVöD) – Provisions on shift allowances. Association of Municipal Employers (VKA), 2024. https://www.vka.de/tarifrecht/tvoed/