Payment of Withholding Tax for Shift and Night Work: Program Law Amends Exemption Rules
July 2026 - For many companies, the exemption from withholding tax for shift and night work remains an important way to control labor costs. At the same time, a rapidly changing legal framework—including a limitation on the tax benefit—means that, as an employer, you need to thoroughly review your current approach. It’s time for an update.
Complex regulations require more substantiation
Many companies have been applying the exemption for shift and night work for years. Often, the arrangement was initially implemented through payroll administration and has remained largely unchanged since then.
The government is placing increasing emphasis on the specific organization of work. It’s not just the type of activity that matters, but also how shifts are structured and organized within your company. As a result, the assessment of the exemption is becoming increasingly dependent on the actual situation within the company.
Limited tax benefit starting in 2027
A significant change stems from the federal government’s recently approved program law. It introduces a so-called correction factor for various exemptions from withholding tax, including those for shift work and night work.
The exemption rate itself remains at 22.8%, but the final tax benefit is reduced by a correction factor.
The planned percentages are:
· 97% starting in 2027
· 93.35% starting in 2028
· 95.9% starting in 2029
The aim is to prevent the tax benefit from automatically increasing due to indexation and wage increases. For employers, however, this means that the effective benefit decreases and labor costs rise relatively.
It is noteworthy that the explanatory notes to the law refer to a temporary three-year measure, while the text of the law itself does not specify an end date for the adjustment factor starting in 2029. As a result, the restriction may take on a permanent character.
New Rules on Night Work Create Uncertainty
Changes are also on the horizon in the area of labor law. The rules governing night work are being relaxed, particularly in the distribution sector and related activities, including e-commerce.
Starting in June 2026, the mandatory night shift premium for new employees will apply only to work performed between 11 p.m. and 6 a.m. Currently, that time window is broader.
At first glance, this appears to be a cost savings, but it also creates a potential problem. For the time being, the tax framework continues to define night work as work performed between 8 p.m. and 6 a.m.
As a result, a company may find itself in a situation where it is acting in compliance with labor law but no longer meets all the tax requirements. There is then a risk that the exemption for night work will be contested in whole or in part.
Four Essential Questions for Every SME
· Is our use of shift work or night work still fully compliant with current regulations?
· Do we have sufficient documentation to justify our approach?
· What is the financial impact of a tax audit covering the past five years?
· Are we taking full advantage of all available opportunities, or are we missing out on unnecessary benefits?
Because tax audits are typically conducted retroactively, even minor discrepancies can accumulate over several years to significant amounts.
