25.03.2020 | Employment Law
While readers outside of Germany may not have heard of “short-time work” (Kurzarbeit), within Germany the use of this tried-and-tested tool is on the rise again. With the rapid spread of coronavirus now virtually paralyzing Germany, tens of thousands of employers are currently announcing they would switch employees to shorter work hours due to coronavirus outbreak in order to manage HR-costs and preserve jobs during the crisis. A large part of the employees’ lost income will be replaced by short-time work compensation (Kurzarbeitergeld) granted by the Federal Employment Agency if the workload is temporarily reduced due to the COVID-19 pandemic. This month the Bundestag rushed through legislation to expand the scheme and ease access to short-time work compensation taking effect retroactively as of 1 March 2020.
What is short-time work?
Short-time work is a temporary reduction in the regular working hours due to a considerable but temporary shortage of work. The working hours can be reduced partially or completely (so-called “zero short-time work”). Thus, the employees are temporarily partially or completely released from their obligation to perform their duties under the employment agreement and their remuneration is reduced accordingly.
What is short-time work compensation?
Short-time work compensation is granted by the Federal Employment Agency and is intended to mitigate the disadvantages suffered by employees as a result of the reduction in remuneration. The short-time work compensation amounts to 60% of the net pay difference for employees without a child and for employees with at least one child to 67% of the net pay difference. As of 1 March 2020, the Federal Employment Agency will fully refund employers’ social security contributions.
How to introduce short-time work?
The employer cannot unilaterally order short-time work unless this has been agreed in advance. Short-time work may be introduced on the basis of a collective bargaining agreement, a works agreement or an agreement with the employee. If the employment contract does not provide for the employer’s right to unilaterally order short-time work, the employer must first agree the envisaged short-time work with the employees concerned individually.
What are the prerequisites and the procedure for short-time work compensation?
Taking into account the legislative measures of March 13, 2020, short-time work compensation in connection with a temporary reduction of workload due to the COVID-19 pandemic will be granted if the following prerequisites are met:
- Notification of short-time work to the local employment agency (first step). Employers should ensure to submit complete documents to prove that the prerequisites for short-time work are met.
- At least 10% (previously 30%, as of 1 March 2020 only 10%) of the employees of the company are affected by a loss of working hours of at least 10%.
- Positive working time accounts – if any - must be reduced to zero. As of 1 March 2020, employees are no longer required to build-up a negative balance in their working accounts.
- Eligible employees: Only employee whose employment relationship is not terminated and who are subject to payment of social security contributions. As of 1 March 2020, temporary agency workers are also entitled to short-time work compensation.
If the employment agency confirms that these prerequisites are met, the employer must - in a second step - apply for short-time work compensation within three months.