Overtime when you are dismissed: What are your rights?

Most employees receive their dismissal unexpectedly. This leaves them with little opportunity to take all of their accumulated overtime as time off before their employment ends. So what happens to overtime when termination occurs? Employers must compensate employees for their overtime – but when, how, and how much depends on several factors. Many employees lose out on overtime pay simply because they don’t know their rights or miss critical deadlines. Others sign away their claims without realizing it. In our article, we explain which rules apply to overtime upon termination and how you can calculate your payout. We also highlight common pitfalls like cut-off periods and compensation receipts that can cost you your rightful payment.

Overtime upon termination: time off in lieu or pay in lieu?

So-called “overtime” occurs only when an employee works more than agreed in his or her employment contract. However, employers only have to compensate employees for overtime if they have ordered them to actually work more than agreed (or at least knew about it).

Just secretly adding a few hours will not get you a higher payout. Employees who just “take a little longer” to complete their tasks and secretly record their hours in the hope of extra pay do so in vain. Most of the time. Just building a secret stash of well-documented hours will normally not get extra compensation (and yes, that is a thing!).

If your employer dismisses you with an overtime balance or you resign, the overtime does not expire. Rather, the employer must compensate for the overtime either with time off (time off in lieu) or with money. Payment is the normal case, while the employer may only grant time off in lieu if the contract regulates this. If the contract stipulates that the employer can provide compensation either by time off or by payment, the employer has a fundamental right of choice.

If the employment contract does not regulate overtime compensation, the employee can generally claim remuneration for overtime. Note that, according to the Federal Labour Court, clauses as “Your salary compensates already for Overtime” are usually invalid.¹ Such clauses are only legal if they specify how many hours or what proportion of overtime the salary covers. For example: “The remuneration covers up to two hours of overtime per week.”

When is overtime exceptionally not remunerated?

Even though the general rule is that overtime must be remunerated, there are some exceptional cases. For example, managers and professionals of a ‘higher nature’ cannot demand remuneration for overtime worked. These include chief physicians, tax advisors, accountants and lawyers.

In addition, employees must be able to prove that there really way “overtime”. The employee, therefore needs comprehensive documentation – especially if the employer, as is so often the case, has not set up a system for recording working hours. Particularly when working from home, many employees work beyond the contractually owed working hours and therefore have to create their own documentation.

Last, but not least, the employee must be able to prove that the employer actually gave orders to do overtime (or at least, that the employer was aware of it). So be sure to print out any relevant emails!

How much overtime pay after termination?

The amount of overtime pay after termination depends on the contractual agreements. If there are no agreements, the normal hourly wage applies. However, sometimes there are regulations that provide for a surcharge (e.g. a surcharge of 15-25%).

To calculate your overtime pay, you must first determine your gross hourly wage. To do this, you need to multiply your weekly hours by 52 weeks (to get to the year) and divide by 12 (to break it down to the month). After that, you need to divide your gross monthly salary by this result. This gives you your gross hourly wage, which you then only need to multiply by the overtime you have worked.

Example: An employee earns €5,000 gross per month. She works 40 hours per week. Last month, she worked ten hours of overtime. She works 40 hours per week x 52 / 12 = 173.2 hours per month. Her ‘fictitious hourly wage’ is therefore €5,000 (gross monthly salary) : 173.2 (hours per month) = €28.87 (gross hourly wage). Overtime payout is therefore €28.87 (gross hourly wage) x 10 (overtime hours) = €288.70 (overtime pay). Applicable overtime surcharge goes “on top”.

Of course, income tax and social security contributions are due on the overtime pay as usual. Under certain conditions, overtime bonuses may be tax-free in some cases, for example, if they are Sunday, holiday or night bonuses.

Termination with exemption taking into account overtime

If your employer dismisses you and no longer wants you to continue to work, they can release you from your duty and agree on garden leave. In that case, you usually no longer work during the notice period, but your employer must still pay your salary for this period. Whether you can still claim overtime pay (because you can no longer take time off in lieu during the release period) depends on whether the garden leave agreement explicitly takes your overtime into account. If the release does so, you lose your right to separate overtime pay.

Overtime in the event of termination without notice

If an immediate termination has taken place, the only option left for the employer is to compensate the overtime with money. This is because an immediate termination ends the employment relationship with immediate effect. So, no more time off in lieu can be granted because there is no notice period. In the event of instant dismissal, the emplpyer must always compensate overtime. This applies regardless of whether the instant dismissal was justified or not.

Overtime and termination agreements

Apart from termination, an employment contract can also end by a termination agreement. In this case, employees should pay attention to any clauses regarding overtime. Employers often try to gain an advantage by including clauses in the termination agreement that, among other things, ‘settle’ claims arising from overtime (possibly also in connection with the termination agreement and acknowledgement of compensation – more on this in a moment). You should never sign a termination agreement immediately. Don’t let your employer pressure you. Take your time to read the termination agreement carefully and make up your mind. Before you sign, you should seek advice from a specialist employment lawyer.

Attention: cut-off periods and compensation receipts!

Employment contracts may contain so-called ‘exclusion periods’. Claims that the employee has against the employer (e.g. the claim for overtime pay) can expire. Unless you file them within the exclusion period. Since these deadlines can be quite short, you should claim your overtime quickly after a termination. Otherwise, you could run the risk of missing the exclusion period and loose your claims. If you do not assert your claims within this period, they will expire. If there are no contractual cut-off periods, the statutory limitation period of three years applies.

You should also be careful if your employer hands you a “receipted cheque” to sign after the employment relationship. The effect is similar to that of the cut-off period. If you sign a receipted cheque, this means that all claims arising from the employment relationship are settled. Even then, you can no longer demand overtime pay.

What can you do if your employer does not pay you for overtime after you have handed in your notice?

If your employer does not pay you for overtime after you have handed in your notice, you should consult a specialist solicitor for employment law.

In most cases, it makes sense to ask your employer in writing for the overtime pay after you leave. If the employer continues to refuse, the specialist lawyer will draft a letter to that effect and, in the worst case, take legal action steps.

FAQs

1. BAG. 27.06.2012, 5 AZR 530/11 ↩︎