UPDATE: Short-time work & short-time work allowance – a short explanation of what emplyoers need to know

By now, the global spread of the Coronavirus COVID‑19 is bringing entire industries to their knees. Especially industries with a lot of customer contact or focus on tourism are affected by the decline of orders and are incurring losses. The foreseeable economic crash is threatening many jobs. The government is reacting swiftly to avoid dismissals with a proven means: short-time work.

Retrospectively lightened regulations on short-time work.

During the 2008 and 2009 Financial Crisis, short-time work has already proven to be an effective means to buffer an economic downturn and save jobs. Now, the government is resorting to it again.

After a legislative amendment by means of fast-track procedure, the German Federal Government has lowered the requirements for obtaining short-time work allowance. The following changes are effective as of 1 March 2020:

• Only 10 % of a company’s workforce must be affected by the loss of income to obtain short-time work allowance – as opposed to a third hitherto.
• Incurred social insurance contributions of short-time work allowance will be fully borne by the Federal Employment Agency.
• Short-time work allowance can also be paid to contract workers.
• The requirement to establish negative working hours balances for companies that have agreements on working time fluctuations is dispensed.

These changes will initially apply until 31 December 2021.

Background on the implementation of short-time work

In principle, employers are obliged to pay full salaries in the event of weak order situations. They bear the so-called general operational risk. Short-time work constitutes an exception by reducing an employee’s regular working hours, thus reducing the employer’s labour costs.

Employers may not interfere with the employment relationship in such a serious manner without legal basis. Short-time work cannot be implemented unilaterally by instruction right, but must be supported by collective bargaining agreements, works agreement or a written agreement with the employee. If a works council exists, it must be involved in the implementation.

Requirements for obtaining short-time allowance:

In addition to their reduced salary, employees affected by short-time work receive the so-called short-time work allowance, which amounts to a maximum of 67 % of the compounded net salary. The employer bears 80 % of the social insurance contributions (without contributions to the unemployment insurance). Short-time allowance is initially and periodically paid by the employer, who is afterwards reimbursed by the Federal Employment Agency.

Short-time allowance is principally only granted when all moderate means to avoid short‑time work (reduction of overtime, balancing of time accounts etc.) have been exhausted.

Requirements for entitlement to short-time work allowance pursuant to Section 95 German Social Code – Book Three (SGB III):

• a temporary and severe loss of working hours combined with a loss of income,
• at least one person employed by the company is liable to social insurance contributions,
• an employment relationship with the respective employer exists and is not terminated and
• the responsible Employment Agency was noticed of the loss of working hours.

At the earliest, short-time work allowance will be paid for the month in which the loss of working hours was reported. In practice, it is crucial whether the loss of working hours is severe.

As of March 1, retrospectively facilitated access to short-time work allowance:

The legislature has now created the basis for facilitated access to short-time work allowance. On Friday, 13 March 2020, the German Bundestag adopted a law on short-time work allowance, using an unprecedented fast-track procedure (BT-Drs. 19/17893). The law will initially apply until 31 December 2021. Its goal is the protection of employees and companies during the current Coronavirus pandemic. The law temporarily authorizes the Federal Government to introduce deviating special provisions on short-time work allowance by legislative decree. The Federal Government uses this authorization with effective date 1 March, thus offering a noticeable relief for short-time work allowance.

UPDATE:

The German Federal Government adopted this legislative decree on 23 March 2020, retrospectively enforcing its regulations from 1 March 2020.

The decree contains the following provisions facilitating access to short-time work allowance:

• Only 10 % of a company’s workforce must be affected by the loss of working hours to obtain short-time work allowance – as opposed to a third hitherto.
• Social insurance contributionsusually payable by the employer during short-time work will now be reimbursed upon request, either fully or partially at a fixed rate.
• No negative working hour balances need to be established before short-time work allowance can be received.
• Short-time work allowance can also be paid to contract workers .

The German Federal Government thereby utilized the full extent of its authority and provided noticeable reliefs on short-time work allowance.

We will gladly consult you on any questions on this subject.

IV. Conclusion

Each of these options has benefits and drawbacks for all parties, so there is no “one fits all solutions”. Instead, individual and creative solutions must be developed to meet the needs of all parties.