Tax-Free Overtime Bonuses?

There may be a glimmer of hope for employees in recent political developments. The coalition agreement between CDU, CSU, and SPD from April 2025 states:

“Those who voluntarily choose to work more should take home more net income. We will immediately make overtime bonuses tax-free if they exceed collectively agreed or collectively oriented full-time work hours.”

This means: If the proposed regulation is implemented, overtime bonuses in Germany could become tax-free – provided they go beyond the standard hours defined by collective agreements. This would enable employers to offer tax-free bonuses as incentives for extra work – a potentially attractive model in times of labor shortages and increasing workloads.

Moreover, this tax relief could be an important step toward fairer compensation for unpaid overtime and a way to ease pressure on employees without increasing labor costs for German companies. This would also be relevant for French subsidiaries operating in Germany.

France as a Role Model?

France already has experience with tax-free overtime. Under President Nicolas Sarkozy, the principle of “Travailler plus pour gagner plus” (“Work more to earn more”) was introduced in 2007, granting tax benefits for overtime. Although this measure was abolished in 2012, it was later reinstated.

Currently, overtime in France is tax-free up to an amount of €7,500 per year. This rule applies to both full-time and part-time employees and includes additional hours worked beyond the contracted working time.

Example:

An employee earning €2,000 per month works 15 hours of overtime each month. At an hourly wage of €13.18, with a 25% bonus for the first 8 hours and a 50% bonus for the remaining 7 hours, the monthly overtime bonus amounts to €270.19 – or €3,242.28 annually. This falls below the €7,500 exemption threshold, so no income tax is due on these overtime payments for your French employees.

In addition, these overtime hours are also exempt from social security contributions in France, benefiting both employees and employers. Employers receive a flat-rate reduction in social security contributions:

• €1.50 per overtime hour for companies with fewer than 20 employees
• €0.50 per overtime hour for companies with 20 to 249 employees

These rules apply to overtime hours that exceed the statutory working time.

Important: The exemption must be clearly stated on the French employer’s payslip under the section “Réduction salariale sur heures supplémentaires” (“Wage reduction on overtime”).

Conclusion

The proposed tax exemption for overtime bonuses in Germany is modeled after successful policies like those in France. If implemented, both employees and employers could benefit financially. For workers, it means more net income. For companies, it offers the ability to reward overtime more attractively – without incurring additional labor costs.