Anyone who currently intends to treat the tax-free portion of overtime from all-in agreements separately should exercise restraint. The development of the GPLB indicates that a stricter interpretation is to be expected in the future. Problematic from a practical point of view: The previous statements of the Federal Ministry of Finance were quite generous – measured by the law and case law – which could now apparently change. In this context, the case law of the Administrative Court is rather cautious and strengthens the position of the practice only to a limited extent.
A tax-free “peeling” of overtime bonuses from all-in agreements is practically no longer possible according to current legal and administrative practice. Employers must proactively take this development into account when drafting contracts in order to avoid tax disadvantages.
Flexitime and all-in – no tax exemption for overtime bonuses
The combination of flexitime models with all-in agreements is particularly problematic from a tax point of view. This is because the prerequisite for tax exemption under Section 68 (2) EStG is the clear separation between overtime and flexitime. In practice, however, real all-in contracts usually lack a clear agreement on the number of overtime hours compensated. Abusive distribution or lump-sum offsetting over the year will not be recognised.
Especially in models with flexitime periods of several months, there is no “average overtime” for tax purposes, as it is only time credits. The one-time consideration of tax-exempt overtime at the end of the flexitime period is therefore also excluded.
Flexitime without all-in – tax exemption possible
The situation is different with pure flexitime without all-in agreements.
Tax-free overtime bonuses are possible here, provided that:
- work is performed outside the flexitime frame – regardless of whether voluntary or ordered
- Work is carried out within the flexitime framework and the employer orders the working hours, which means that the statutory normal working hours (8 hours a day or 40 hours a week) are exceeded
- At the end of the flexitime period, there are time credits that cannot be consumed or transferred
- and a separate, traceable record of these hours is made.
All-in without flexitime – tax exemption possible
Even without flexitime, there are only limited possibilities for all-in agreements to claim tax-free overtime bonuses. The Income Tax Directive margin no. 1162a clarifies:
“The prerequisite for claiming the tax exemption of overtime bonuses pursuant to § 68.2 of the Income Tax Act 1988 in the case of lump sums for overtime allowances and total salary agreements is that overtime is actually worked to the necessary extent on an annual average (surcharge maximum 86 euros) and that there is no abusive distribution of the overtime worked (e.g. overtime is regularly only worked in 6 months and the payment is paid evenly for tax reasons over throughout the year).”
To the extent required means that on average so many overtime hours must be worked that either the maximum number of hours according to § 68 para. 2 (until the end of 2025: 18) or the exemption amount (for 2025: € 200.00) is reached by the surcharges.
In the case of real all-in agreements without exact hourly compensation, the divider 203 (basis: 173 normal hours + 18 overtime hours + 10 overtime bonuses) must be expected – a practice that leaves hardly any room for tax-exempt shares. In the case of false all-in agreements with fixed overtime compensation, a different divisor can be used (e.g. in the case of 10 overtime hours of divisors 188: 173 normal hours + 10 overtime hours + 5 overtime bonuses), but here too, a tax-free share is excluded without actual performance of the hours on an annual average.
In most cases, “all-in agreements” to remove overtime pay are de facto no longer practicable. In particular, the combination with flexitime is almost impossible. Without flexitime, the only way to use “all-in agreements” for tax purposes is to achieve either the maximum amount of relevant hours or the exemption amount pursuant to § 68.2 of the Income Tax Act 1988 on an annual average.
It is probably not necessary that even in the case of “false all-in agreements” the maximum values must be reached in order to obtain tax advantages. In comparison, overtime lump sums are likely to have a much greater consistency than “all-in agreements” with regard to the assertion of tax-exempt overtime bonuses.
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