Germany: Tax exemption for ‘non standard’ working hours is restricted

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The tax exemption available for additional amounts paid to an employee for working at night-time, Sundays and during public holidays will not apply if the hourly remuneration of the employee is the same, regardless of the day or hour

Background

In general, supplementary pay for work at night-time, on Sundays or on public holidays is exempt from German income tax if certain conditions are met. A decision of the Tax Court Baden-Württemberg makes it clear that the exemption from tax is only available if the payment will only be paid as an additional amount for the work over and beyond the normal working day.   The case concerned a contractual clause under which the employee received an average fixed hourly wage rate, calculated by taking into account his work during regular day time hours, as well as at night-time, on Sundays and on public holidays.  Although the calculation of the fixed hourly working rate took into account the fact that the work was provided at different times, the Court was of the opinion that the calculated average working rate did not meet the necessary conditions for tax exemption.

In order for non standard working hours to benefit from exemption from income tax, it was necessary to separate out the different rates of pay for the different hours of work. It was not possible to combine these to produce an average as had been done in this instance.

Commentary

Many employment contracts in Germany contain such a clause and therefore the decision is of great interest for employees and employers alike.  Details of the applicable rates of pay for different hours of work, where these are applicable, should be included either in the employment contract itself, or in an annexe thereto, to ensure that the benefit of the exemption from income tax is obtained for non standard hours of work which are paid at a premium.

The Tax Court will also authorise a revision which will bring a final decision of the German Federal Tax Court such that this decision will become binding.

Resources

§ 3b German income tax act – Einkommensteuergesetz – "EStG"

Finance Tax Court Baden-Württemberg: Decision dated 21.9.2009 (260/09)

For further information or to discuss any of the issues raised, please contact Joachim Menz (joachim.menz@keller-menz.de) on +49 89 24 22 30 0.

This article was produced by, and re-produced with kind permission of, our correspondent firm in Germany, Keller Menz Rechtsanwälte.  www.keller-menz.de