Short-time work in times of crisis

In times of crisis, most recently: COVID-19, companies from particularly affected industries quickly find themselves confronted with the question of how to deal with constant personnel costs in the event of lost revenue. A well proven instrument for coping with this challenge is the instrument of short-time work and the application for short-time work allowance. The following article is intended to provide an overview of this topic from the perspective of labour and social security law.

Short-time work: What is it?

Short-time work is a temporary reduction of the regular working hours due to loss of work. This can be either a proportional reduction (e.g. 50% working hours and 50% salary) or a complete reduction ("zero short-time work", i.e. 0 working hours and 0 salary). Short-time work is regularly accompanied by a short-time work allowance paid by the German Federal Employment Agency (Agentur für Arbeit).

What legal requirements must be observed in order to effectively introduce short-time work?

A legal basis is required for the introduction of short-time work, since ordering short-time work is not covered by the employers general right to issue instructions. Collective Labour Agreements (Tarifverträge), company agreements (Betriebsvereinbarungen - if there is a works council in the company) or individual agreements with individual employees (i.e. supplements to the employment contract) are possible means in this respect. Although a dismissal for alteration of employment (Änderungskündigung) would be conceivable in principle, this is subject to the restrictions of the German Act Against Unfair Dismissal (KSchG) and the individual notice period would also have to be observed. Therefore, short-time work couldn’t be introduced at short notice in this way.

Important: If short-time work is actually implemented by the employer, but there is no effective legal basis, the employer is in default of acceptance and employees are generally entitled to their full salary.

Short-time work allowance: What are the conditions?

Under certain conditions, the Federal Employment Agency grants a so-called short-time work allowance. However, this is subject to certain requirements, which include in particular, but are not limited to:

• Short-time work must be implemented on a valid legal basis (see above)
• At least 1/3 of the employees of a company must be affected by a loss of earnings of at least 10% (since March 15, 2020, the Federal Government has been allowed to lower the threshold from 1/3 to 10% of employees by decree - the Federal Minister of Labour has already announced the corresponding decree with retroactive effect from March 1, 2020, but it is currently – status of March 19, 2020 – still pending)
• Loss of working hours must be temporary (i.e. probability of returning to full-time work in the foreseeable future) and unavoidable (especially if it is not usual in the industry or season or if it is solely due to organisational reasons)
• Employees who have already been given notice of termination or who have concluded a termination agreement are not entitled to short-time work allowance
• Employer must take necessary measures to avoid short-time work, e.g. grant open leave entitlements and reduce working time accounts

What is the procedure for informing the Employment Agency and submitting applications?

The employer must notify the Employment Agency of the loss of working hours in writing (§ 99, Subsection 1, Social Code No 3 - SGB III), thereby giving credible evidence that there is a substantial loss of need for work and that the operational requirements for the short-time work allowance are met. Short-time work allowance is paid by the Employment Agency at the earliest from the calendar month in which the notification was submitted to the Employment Agency.

In addition, the employer must submit the applications for payment of individual short-time work allowance payments. These must be submitted within 3 months of the month for which the short-time work allowance is requested.

Is there a maximum period for the payment of short-time work allowance?

In principle, it should be noted that short-time work allowance is paid for a maximum period of 12 months. Although the government is currently discussing to increase the duration to 24 months, this extension is not part of the ad-hoc package that was put together with respect to COVID-19.

How is the short-time work allowance calculated?

The amount of the short-time work allowance is 67% (employees with at least one child entitled to child benefit) or 60% (other employees) of the net difference between the net average of the regular pay (gross pay without short-time work) and the net average of the actual pay during short-time work. To reduce the gap between regular and actual pay plus short-time work allowance, employers sometimes pay additional bonuses to support the employee in this situation.

Example: If the working time is reduced to 50%, an employee without children would receive a gross salary of 50% from the employer and short-time work allowance from the employment agency of 60% of the remaining net difference.

Important: Short-time work allowance is only calculated up to the social security income cap, which currently amounts to 82,800 EUR per year / 6,900 EUR per month (West Germany) or 77,400 EUR / 6,450 EUR per month (East Germany). In concrete terms, this means: An employee in West Germany without a child entitled to child benefit who earns 100,000 EUR, but whose working time is reduced to 75% (reduced salary = 75,000 EUR) only receives short-time work allowance in the amount of 60% of the net difference between 75,000 EUR and 82,800 EUR.

What must be taken into account when paying out the short-time work allowance?

In principle, the employer has to pay social security contributions for the short-time work allowance, but since March 15, 2020, the federal government has been allowed to stipulate that the social security contributions are to be paid in full or in part by the Employment Agency until the end of 2021 - but the corresponding regulation is still pending (as of March 19, 2020). Social security contributions are calculated based on 80% of the difference between regular and actual pay.

The short-time work allowance itself must be paid by the employer to the employee together with the remaining salary, with the employer being reimbursed for the short-time work allowance either subsequently or in advance by the Employment Agency.

If the Employment Agency does not grant short-time work allowance, the employer is liable for the amount of short-time work allowance, i.e. employees are entitled to receive salary plus short-time work allowance from the employer.

What about temporary employees?

Since March 15, 2020, the government has been authorised to extend the possibility of short-time work allowance to temporary workers - but the corresponding regulation is still pending (as of March 19, 2020).

Please note that the above-mentioned issues are only a brief overview and are therefore not exhaustive, but should only serve as a first source of information. In principle, each case must be examined and evaluated individually.