What counts as overtime?
Overtime is working time that goes beyond the individually agreed or legally permitted working hours.
- For full-time employees, this is usually 40 hours a week (or 8 hours per working day under the Working Hours Act, § 3 ArbZG).
- Anything beyond that which the employer ordered or tolerated counts as overtime.
Important: overtime must be provable, for example through a time recording system or written records.
When must overtime be paid?
The basic rule is: overtime must be paid unless the employment contract, collective agreement or a works agreement says otherwise.
Possible options:
- Paying for overtime (with a premium where applicable)
- Time off in lieu at a ratio of 1:1 or a different ratio
- Covered by the salary (only allowed with high pay and a transparent agreement)
Note: blanket clauses such as "all overtime is covered by the salary" are only valid with clearly above-average pay (see Federal Labour Court (BAG) ruling of 1 September 2010, ref. 5 AZR 517/09).
How do you process overtime correctly?
1. Keep a record of hours
Overtime must be documented, ideally digitally and in a traceable way:
- Start and end of daily working time
- Breaks
- Approval or acknowledgement by a manager
2. Check the pay rules
See the employment contract or collective agreement:
- Is there a premium? (e.g. 25% from the 11th hour)
- Is time off in lieu provided for?
- Does overtime need to be approved?
3. Calculate the payment
The basis for the calculation is the agreed hourly wage, plus any premium.
Example:
Monthly salary: €3,000 gross for 160 hours → hourly wage: €18.75
→ 5 hours of overtime = €93.75 gross extra
4. Consider social security contributions and taxes
Overtime pay is subject to tax and social security contributions. It must be fully recorded and reported in payroll.
Pay out overtime or give time off?
Employers and employees often have to decide how to compensate overtime: by paying it out or by giving time off in lieu. Each option has its own advantages.
Paying out overtime gives employers a clean close. No time credits are carried forward. This simplifies administration and makes planning easier. For employees, a payout means direct financial compensation and a tangible reward for the extra work.
Time off in lieu, on the other hand, saves employers wage costs, since no extra pay is due. For employees, this option offers the chance to recover flexibly and actively shape their own work-life balance. This is becoming more and more important in modern working models.
Common mistakes when processing overtime
In practice, mistakes in processing overtime happen again and again. They can have legal and financial consequences for both employers and employees.
A common mistake is missing or incomplete time recording. Without exact records of the hours worked, neither fair payroll nor legally sound traceability is possible.
Another problem is a blanket payment for overtime without a contractual basis. Such a rule is only legally valid if it is set out clearly and transparently in the employment contract. Blanket clauses without specific details can be invalid.
Another mistake concerns the wrong calculation basis for part-time employees. Here, overtime must not be equated with additional hours. You need to calculate exactly when overtime in the legal sense actually begins.
It also happens that overtime is paid out without taking the taxes and social security contributions due into account. This is a risk for the employer. It can also lead to tax disadvantages for employees.
Finally, time off in lieu must not be granted without the employee's consent. Time off in lieu ordered unilaterally is not legally permitted. It must be agreed by mutual consent.
To avoid these mistakes, careful time recording, clear employment contract terms and a basic understanding of the legal framework are essential.
Conclusion
In many industries, overtime cannot be avoided. That makes a clear, transparent and legally sound arrangement all the more important. Employers who document carefully, set fair and transparent rules and run payroll correctly protect themselves from conflicts. They also contribute to employee satisfaction.
Digital solutions such as cleverlohn help you record overtime automatically, calculate it correctly and integrate it seamlessly into payroll. That leaves more time for what matters: a team that works well together.
Sources
Federal Labour Court (BAG) ruling of 1 September 2010, ref. 5 AZR 517/09
