Insights
HR & PAYROLL
Holiday work pay and overtime allowances
To make overtime worthwhile again, new tax rules for overtime allowances and holiday work pay have applied since 1 January 2026.
Holiday work pay is (again) tax‑free up to EUR 400 per month. Overtime allowances remain tax‑free for the first 15 overtime hours in a month, up to a maximum of EUR 170 per employee per month.
Holiday work pay
If employees are employed despite a public holiday, they are entitled to so‑called holiday work pay. A decision of the Federal Fiscal Court (Bundesfinanzgericht) in 2024 had led to holiday work pay being uniformly subject to tax from 1 January 2025. Only genuine allowances that exceed the basic wage should be tax‑favoured. Previously, employers assumed that holiday work pay itself – as well as the allowances – was tax‑free. The decision resulted in a net‑wage loss for employees, which is now remedied by the legislative amendment. The tax‑exemption of holiday work pay is now expressly anchored in law retroactively from 1 January 2026.
Thus, dirt, hardship and danger allowances, premiums for Sunday, public‑holiday and night work and the overtime allowances associated with these duties, as well as holiday work pay overall, are tax‑free up to EUR 400 per month.
Tax advantage for overtime allowances
From 1 January 2024 to 31 December 2025, the tax advantages for overtime were expanded and the allowances for the first 18 overtime hours, amounting to 50 % of the basic wage and up to EUR 200 per month per employee, were made tax‑free. From 1 January 2026 the exemption had been intended to be EUR 120 for the first 10 overtime hours.
Now the legislator has again amended the maximum tax‑free allowance and for the calendar year 2026 it amounts for the first 15 overtime hours, at a rate of up to 50 % of the basic wage, to a total of maximum EUR 170 per month per employee. From 2027 the tax‑free allowance will then, as originally planned for 2026, be a maximum of EUR 120 for the first 10 overtime hours.
Implementation
For the months January 2026 until the statutory announcement or the adjustment of the payroll software, the regulation should be taken into account as part of a roll‑out carried out by the employer. The roll‑out must be carried out by the employer, taking into account technical and organisational possibilities, as soon as possible and in any case by the end of May 2026. This is to ensure that employees benefit from the new regulations promptly. We are happy to assist you with the necessary adaptations and to advise you on the implementation.
Holiday work pay
If employees are employed despite a public holiday, they are entitled to so‑called holiday work pay. A decision of the Federal Fiscal Court (Bundesfinanzgericht) in 2024 had led to holiday work pay being uniformly subject to tax from 1 January 2025. Only genuine allowances that exceed the basic wage should be tax‑favoured. Previously, employers assumed that holiday work pay itself – as well as the allowances – was tax‑free. The decision resulted in a net‑wage loss for employees, which is now remedied by the legislative amendment. The tax‑exemption of holiday work pay is now expressly anchored in law retroactively from 1 January 2026.
Thus, dirt, hardship and danger allowances, premiums for Sunday, public‑holiday and night work and the overtime allowances associated with these duties, as well as holiday work pay overall, are tax‑free up to EUR 400 per month.
Tax advantage for overtime allowances
From 1 January 2024 to 31 December 2025, the tax advantages for overtime were expanded and the allowances for the first 18 overtime hours, amounting to 50 % of the basic wage and up to EUR 200 per month per employee, were made tax‑free. From 1 January 2026 the exemption had been intended to be EUR 120 for the first 10 overtime hours.
Now the legislator has again amended the maximum tax‑free allowance and for the calendar year 2026 it amounts for the first 15 overtime hours, at a rate of up to 50 % of the basic wage, to a total of maximum EUR 170 per month per employee. From 2027 the tax‑free allowance will then, as originally planned for 2026, be a maximum of EUR 120 for the first 10 overtime hours.
Implementation
For the months January 2026 until the statutory announcement or the adjustment of the payroll software, the regulation should be taken into account as part of a roll‑out carried out by the employer. The roll‑out must be carried out by the employer, taking into account technical and organisational possibilities, as soon as possible and in any case by the end of May 2026. This is to ensure that employees benefit from the new regulations promptly. We are happy to assist you with the necessary adaptations and to advise you on the implementation.