Managing HR-costs in Germany during the crisis – Short-time work

By Dr. Barbara Geck, Dr. Catharina Klumpp, Daniela Gudat

03-2020

In Germany, short-time work is a common labour market instrument during a crisis in order to reduce liquidity shortages and preserve jobs. Short-time work compensation is granted by the government regardless of the financial situation of a company if it is affected by a temporary reduction of workload due to an external inevitable event. As response to the COVID-19 pandemic the government has made the requirements for short-time work compensation temporarily more flexible as of 1 March 2020.

Overview

Short-time work is a temporary reduction of regular working hours in a company. The employees are temporarily wholly or partially released from their obligation to work and be eligible to a remuneration which is reduced accordingly. The government provides subsidies to the employer, which he pays out to employees affected by the reduction of working hours in order to compensate for the loss of remuneration. The short-time work compensation amounts to 60% (67% for employees with at least one child) of the employees’ reduced net remuneration. If the working time of the employee is reduced at least 50% the amount increases to 70% (77% for employees with at least one child) from the fourth month of short-time work and 80 % (87% for employees with at least one child) from the seventh month of short-time work. This increase is currently limited until 31 December 2020.

Introduction of part-time work

Short-time work cannot be introduced unilaterally by the employer unless the employment contract already provides for this. If it does not the employer has to explicitly agree with the employee to introduce short-time work.

Short-time work may be introduced to the whole company or parts thereof which are affected by the loss of work load on basis of a collective bargaining agreement, a shop agreement or an agreement with the employee. In case a works council is established in the company its consent is required.

Prerequisites for part-time work compensation

The competent employment agency will grant short-time work compensation if the following prerequisites are met:

  • A significant reduction of workload that is based on external economic reasons or force majeure such as COVID-19 that results in a loss of earnings. A reduction is significant if at least 10% (normally 30%, as of 1 March 2020 only 10%) of the employees of the company are affected by a loss of salary of at least 10% in the respective calendar month.

  • A notification of short-time work has been filed at the competed employment agency. (Form available https://www.arbeitsagentur.de/datei/anzeige-kug101_ba013134.pdf=, the application generally requires written form, but it is possible to register on the website of the Employment Agency to use online services that also allow for an online notification).

  • In case working time accounts exist positive balances must be reduced to zero.

  • Only employees subject to payment of social security contributions (sozialversicherungspflichtiges Beschäftigungsverhältnis) are eligible to short-time work compensation, provided the employment relationship is not terminated and the individual employee is not excluded from the eligibility for short time work payment (e.g. employees eligible to pension, participant in other forms of subsided work).
Procedure

The notification of the reduction of workload has to be filed at the competed employment agency (The employment agency in whose district the company is located). There is no deadline for the notification, but subsidies will only be paid from the beginning of a month after the employer’s notification. In case a works council is established its statement should be enclosed with the notification. After the notification the employees start working reduced working hours and the company is obligated to pay the reduced salaries (or no salary in case of working time “zero”) and the short-time work compensation.

Within three months of the payment the company may claim for reimbursement in relation to each individual’s short-time work compensation (Form available: https://www.arbeitsagentur.de/datei/antrag-kug107_ba015344.pdf). The employment agency reimburses the relevant amounts at short notice, but subject to later review.