Overtime is a reality in many companies – especially SMEs, where staffing gaps quickly lead to extra hours. But what's legally permitted? What do employers need to consider when compensating overtime? And what's changing in 2026? Here's a concise overview.
What Exactly Counts as Overtime?
Overtime refers to hours worked beyond the regular working time agreed in the employment contract, collective agreement, or works agreement. This is distinct from excess working time (Mehrarbeit), which refers to work beyond the statutory maximum of eight hours per day or 48 hours per week.
Important: overtime must be ordered or at least tolerated by the employer – hours worked off one's own initiative generally give rise to no claim for additional pay.
Can Employers Order Overtime?
Only if there is a relevant provision in the employment contract, collective agreement, or works agreement. Without such a basis, overtime may only be required in genuine emergencies. Blanket clauses such as "overtime is covered by the salary" are generally considered invalid by German labour courts – they place an unreasonable burden on employees and lack the necessary transparency.
How Must Overtime Be Compensated?
There are two main options:
- Time off in lieu: The most common practice – overtime hours are offset by equivalent free time. If no other arrangement is agreed, this is the statutory default.
- Payment: Overtime can also be compensated financially. Whether a premium must be paid depends on the employment or collective agreement – there is no general statutory obligation to pay a premium for full-time employees. Note for part-time staff: Following a Federal Labour Court ruling in December 2024, overtime premiums are due for part-time employees from the very first hour worked beyond their contractually agreed hours.
New in 2026: Tax-Free Overtime Supplements
The planned Employment Market Strengthening Act (Arbeitsmarktstärkungsgesetz) provides that overtime supplements of up to 25% of the basic hourly wage will become tax-free – but only for full-time employees working more than 40 hours per week (or more than 34 hours where a collective agreement applies).
Key restrictions:
- The basic wage for overtime hours remains subject to tax and social contributions
- Social security contributions still apply – only income tax is waived
- A separate part-time enhancement premium is planned for part-time employees
- The law is still working its way through parliament – entry into force during 2026 is expected
What this means for HR: Accurate payroll processing for overtime will require reliable time tracking – especially in light of the upcoming statutory obligation for electronic working time recording. With Emplovia, employees record their working hours digitally, overtime is calculated automatically, and hours can be booked directly in the system either as time off in lieu or flagged for payout – audit-proof and GDPR-compliant.
The Most Common Overtime Mistakes
- No written provision in the employment contract: Without a clear basis, overtime can rarely be ordered or offset on a legally sound footing.
- Blanket compensation clauses: Phrases like "overtime is covered by the salary" are generally unenforceable.
- Missing documentation: Without complete records, overtime hours cannot be proven in a dispute – for or against the employee.
- Overlooking part-time rules: Since the 2024 Federal Labour Court ruling, stricter premium rules apply to part-time employees – many employers have yet to adapt.
- Ignoring forfeiture clauses: Many employment contracts contain exclusion periods after which overtime claims lapse. These must be formulated clearly and in a legally sound manner.
What Employers Should Do Now
With the upcoming obligation for electronic time tracking and the planned tax changes for overtime, 2026 is a good time to review your processes:
- Check employment contracts for effective overtime provisions
- Introduce or upgrade your time tracking system
- Align part-time arrangements with current case law
- Prepare HR and payroll for the new tax rules
An integrated solution saves time and prevents errors: Emplovia combines time tracking, overtime management and payroll preparation in one platform – ideal for SMEs looking to manage their HR processes efficiently and in full legal compliance. Start your free trial.