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