Overtime is ordinary employment income. It goes on top of your salary, and it is taxed at the rate that applies to the top of your income rather than the average across it. That is the whole explanation, and it accounts for almost every complaint about overtime being taxed at some punitive special rate.
The gap between expectation and payslip is real, though. Someone whose effective rate is 24% and whose marginal rate is 48% will find that half of every extra hour disappears, and no amount of correct arithmetic makes that feel proportionate.
What an extra 1,000 units of pay is worth
The table below shows what is left of an additional 1,000 in local currency, on top of a typical mid career salary, on 2026 rates.
A Dutch employee on 60,000 euros keeps 440 euros from an extra thousand. A Canadian on the equivalent keeps 795. Neither country taxes overtime differently from salary. The entire spread is the marginal rate, and the reasons behind it are set out in marginal rate versus effective rate.
Why the payslip can look even worse than that
Two mechanisms make a heavy overtime month look worse than the annual arithmetic implies.
The first is non-cumulative withholding. Where payroll treats each period in isolation, a month containing forty hours of overtime looks like a month at a much higher annual salary, and tax is deducted accordingly. Cumulative systems such as British and Irish PAYE correct this automatically in later months. Systems that reconcile annually correct it at year end.
The second is contribution ceilings working in reverse. A month with heavy overtime can push you above a monthly contribution ceiling, and in countries that assess ceilings monthly rather than annually the excess is not always refunded. It is a small effect but it is real.
The countries that genuinely treat overtime differently
Two systems on this site depart from the general rule, and both do it deliberately as labour market policy.
France
French overtime, heures supplémentaires, carries an income tax exemption up to an annual ceiling, along with a reduction in employee social contributions on the overtime element. The policy has been adjusted repeatedly since it was introduced, but the principle has survived: overtime in France is taxed more lightly than the equivalent amount of base salary. For an employee at the 30% band it turns a marginal rate near 49% into something considerably gentler.
Austria
Austria exempts part of the overtime premium, the Überstundenzuschlag, from income tax within monthly limits. The base hourly rate for the extra hours is taxed normally; it is the surcharge element that receives the treatment. Austria applies similar logic to the thirteenth and fourteenth salary payments, which are taxed at a flat 6%, described in the guide to Austrian bonus payments.
Italy has experimented with reduced taxation on productivity bonuses and, at times, on overtime and night work. The rules change frequently enough that anyone relying on them should check the current year rather than a summary.
When overtime is genuinely not worth taking
The marginal rate is only part of the calculation. Anything that withdraws as income rises adds to the real cost of the extra hours.
- Benefit tapers. A UK household between £60,000 and £80,000 with children loses child benefit on a sliding scale, on top of a 42% marginal rate. For three children the combined effect can exceed 65%.
- Allowance withdrawal. Between £100,000 and £125,140 the UK personal allowance disappears at £1 for every £2 earned, producing a 60% band. Overtime at that level keeps 40 pence in the pound.
- Means tested childcare. Withdrawn on household income in most of Europe, and often on a cliff rather than a taper, which means a single extra shift can cost more than it pays.
- Higher rate pension relief lost. Not a cost as such, but a missed opportunity: overtime taken as pay at a 48% marginal rate and overtime diverted to a pension are two very different propositions.
The practical answer
Before agreeing to a regular overtime pattern, work out the net value of an hour rather than the gross rate. Take your annual salary, add the overtime you expect across the year, and compare the two net figures. The difference divided by the hours is what you are actually being paid.
For anyone at a marginal rate above 45%, sacrificing overtime pay into a pension usually beats taking it as cash by a wide margin, for the reasons set out in the guide to salary sacrifice.
Enter your salary, then your salary plus expected overtime, in any country calculator. The gap between the two net figures is the real hourly rate.