Please note that the legal situation with regard to the Corona pandemic is subject to constant change. Therefore the following information only reflects the above-mentioned status. Thus it is urgently advisable to check the information for any changes in the legal situation.
Contents
- What does “short-time working” mean?
- How can short-time working be introduced?
- How long can short-time working be implemented for?
- What are the legal consequences of short-time working?
- What are the requirements for receiving short-time allowance?
- What constitutes a significant loss of work with loss of earnings?
- When is the loss rate that indicates a significant loss of work reached?
- Who is eligible for short-time working and who is not?
- What is the procedure with regard to the Employment Agency?
- How does the employer calculate short-time allowance?
- What costs remain with the company (= residual overhead costs)?
- How can the company cushion the reduction in employees' salaries, if it wants to?
- Are there other ways for the employee to compensate for loss of salary?
- How flexible can the company be during short-time working?
- What if short-time working coincides with leave?
- What should be considered in the case of temporary workers?
1. What does “short-time working” mean?
Short-time working refers to a temporary reduction in normal working hours in an establishment under a government-subsidised scheme. If the reduced working hours result in a temporary complete suspension of work, this is referred to as “short-time working zero”. The introduction of short-time working can be limited to parts of the business and does not necessarily need to extend to the entire company.
The purpose of the short-time working scheme is therefore
- to keep trained employees in the company and
- to preserve the employees' jobs in an economic crisis as well as
- to compensate employees for part of their loss of remuneration caused by short-time working.
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2. How can short-time working be introduced?
If there is a works council, short-time working must be introduced by means of a works agreement. The works council has an enforceable codetermination right in this respect.
In establishments without a works council, the consent of the individual employees is required. Short-time working can be introduced either for a specific reason or as a precautionary measure, e.g. when an employment contract is concluded. If employment contracts are currently being offered, it will in many cases be advisable to include contractual short-time working clauses. The stipulation in the employment contract is subject to review for compliance with sections 305 to 310 of the German Civil Code (BGB) and may be invalid pursuant to section 307 of the German Civil Code, for example, if it does not provide for a notice period or is too vague in content, for instance with regard to the scope and extent of short-time working, the definition of the group of affected persons, etc.
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3. How long can short-time working be implemented for?
It is possible to apply for short-time working for a maximum of 12 months, which means that the forecast must basically be that the economic situation will improve over the next 12 months. Short-time working for more than 12 months will not be considered a “temporary” reduction of normal working hours.
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4. What are the legal consequences of short-time working?
Short-time working leads to partial suspension of the main obligations arising from the employment relationship. Employees are released to a certain extent from the obligation to perform work, but at the same time – and to the same extent – lose their entitlement to remuneration. However, this is largely compensated for by payment of a “short-time allowance” (Kurzarbeitergeld) by the Federal Employment Agency. Payroll accounting and actual delivery of the short-time allowance is carried out by the employer.
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5. What are the requirements for receiving short-time allowance?
The requirements for receiving short-time allowance are set out in sections 95 ff. of the German Social Security Code III (SGB III). According to these provisions, an employee is entitled to short-time allowance if
- there is a significant but temporary loss of work with loss of earnings (see 6. and 7. below),
- operational requirements are met (section 97 sentence 1, German Social Security Code III (SGB III): employment of at least one employee); “establishment” in this context also means “operational department” (section 97 sentence 2, German Social Security Code III (SGB III),
- the personal requirements are fulfilled (see 8.) and
- the loss of work has been reported to the Employment Agency (with regard to the procedure, see 9. below).
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6. What constitutes a significant loss of work with loss of earnings?
According to section 96 (1) of the German Social Security Code III (SGB III), a loss of work is significant if
- it is due to economic reasons or an unavoidable event,
- it is temporary,
- it cannot be prevented and
- the loss rate (Ausfallquote) has been reached (see 7. below).
A typical unavoidable event is when the loss of work is due to unusual weather conditions. An unavoidable event also exists if a loss of work is caused by official or officially recognised measures for which the employer is not responsible (section 96 (3), German Social Security Code III (SGB III)).
TO DO for companies:
How can the significant loss of work be demonstrated, what figures have to be compiled for this and how?
Stringent requirements must be satisfied with regard to whether the loss of work can be avoided, in order to prevent abuses and deadweight effects. The employer must have taken all reasonable precautions in the affected establishment or operational department to prevent a loss of work. Accordingly, under the current legal regime, the Employment Agency can demand a reduction of time credits in working time accounts before granting compensation for reduced working hours:
However, due to the economic impact of the Russian war of aggression on Ukraine and the impact of the COVID-19 pandemic in the coming winter, the build-up of negative working time balances (minus hours) will be temporarily waived.
TO DO for companies:
Reduce overtime and outstanding leave entitlements, where available and possible.
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7. When is the loss rate that indicates a significant loss of work reached?
Pursuant to section 96 (1), no. 4 of the German Social Security Code III (SGB III), the loss of working hours must reach a certain minimum level (loss rate) in order for it to count as a “significant loss of work with loss of earnings”. The relevant loss rate is reached when
- in the respective calendar month (entitlement period)
- at least (until 31 December 2022) 10% of the employees (excluding trainees) working at the establishment at the time in question
- are affected by a loss of earnings of more than 10% of their monthly gross pay in each case.
It is therefore sufficient if at least 10% of the employees in an operational department are affected by short-time working with an individual loss of more than 10% for the company to be able to submit an application for short-time working. The loss rate is calculated on the basis of all employees working in the department (except trainees).
TO DO for companies:
Clarify operational structures: which organisational units exist and how many of them need to be affected by the loss of work to fulfil the requirements for short-time working?
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8. Who is eligible for short-time working and who is not?
Fundamentally, all employees who pay social security contributions are eligible for short-time working and can receive short-time allowance where the loss of earnings is due to the reduction in working hours. The following groups of people, for example, are not eligible for short-time working:
- Employees whose employment ends due to notice of termination or a settlement agreement during the period of short-time working (section 98 (1) no. 2, German Social Security Code III (SGB III))
- Staff on vocational training courses receiving unemployment benefit (section 98 (3), German Social Security Code III (SGB III))
- Staff on long-term sick leave receiving sickness benefit from their health insurance company (section 98 (3), German Social Security Code III (SGB III))
- “Minijobbers” (because they are not subject to social security contributions).
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9. What is the procedure with regard to the Employment Agency?
The Employment Agency procedure is a two-stage process whereby the employer must calculate the short-time allowance itself and pay it to employees (the Employment Agency merely reimburses the benefit):
A. Reporting loss of work
First, the temporary loss of work must be reported in writing to the Employment Agency office of the district in which the company is located. In the case of companies operating nationwide, a “key customer adviser” can be provided by the Employment Agency to coordinate matters around short-time working between the Employment Agency offices and sites involved. The reporting form can be found here.
The conditions for receiving short-time allowance must be set out in detail and substantiated/verified (e.g. by submitting the announcement made to the employees and short-time working agreements). This applies in particular to the following:
- reasons for loss of work; comparative data showing that capacities cannot be fully utilised;
- information on products/services; main customers or main contractors;
- information on the temporary nature of the loss of work.
Here again, official practice is generous, quick and pragmatic in crisis situations and not aimed at preventing applications.
The Employment Agency issues a notice of recognition after checking the requirements (at present, the response may be delayed due to the high number of applications). Short-time allowance is granted at the earliest from the calendar month in which the report of the loss of work is received by the responsible Employment Agency office (section 99 (2), German Social Security Code III (SGB III)).
TO DO for companies:
Is all the necessary data available at short notice to report short-time working? Can the form be filled in at short notice?
B. Application for short-time allowance
After the notice of recognition has been issued (in practice, often even before then because there is no time to lose), the employer must calculate the short-time allowance free of charge and also pay it directly to employees. A monthly application for short-time allowance is submitted to the Employment Agency via the Employment Agency's application form and a settlement list. An application covering several months is not possible. The application must be submitted at the latest within a deadline of three months, otherwise no short-time allowance will be granted. The period begins at the end of the month for which short-time allowance is being requested.
The application for short-time allowance, the calculation list and associated instructions can be found here (in German):
It is also possible to apply online.
TO DO for companies:
Who will calculate the short-time allowance? Are all necessary programs available, do employees need training to do this?
Is all the necessary data available at short notice to apply for short-time allowance? Can the forms be filled in at short notice?
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10. How does the employer calculate short-time allowance?
Short-time allowance is calculated on a lump-sum basis in accordance with the table published by the Federal Employment Agency and essentially corresponds to unemployment benefit (60% or 67% of standard net remuneration). However, only the net salary up to the income threshold for social security contributions is eligible for calculating the short-time allowance (2022: up to EUR 7,100.00 gross per month). If actual remuneration during short-time working (i.e. the remuneration for the reduced working hours during short-time working) is higher than the income threshold, no short-time allowance will be paid.
As of January 2022, this table applies for calculating the short-time allowance.
It must first be determined whether the employee is to be assigned to benefit rate 1 (requirement: at least 0.5 child tax allowance on the wage tax card and special cases = short-time allowance is 67% of standard net remuneration) or benefit rate 2 (all other employees = short-time allowance is 60% of the difference between the employee’s standard and reduced remuneration). The standard net remuneration for the current gross salary and the reduced gross salary after introduction of short-time working are then taken from the table and the difference is calculated. The difference represents the short-time allowance.
Example:
Short-time working is introduced with a 50% reduction in working hours;
employees, wage tax class III;
child tax allowance 1.0 = wage tax class III, benefit rate 1.
| Normal earnings in calendar month | = EUR 2,500,00 | Notional benefit rate | = EUR 1.295,11 |
| Actual earnings in calendar month | = EUR 1,250,00 | Notional benefit rate | = EUR 675,36 |
| Short-time allowance | | | = EUR 619,75 |
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11. What costs remain with the company (= residual overhead costs)?
Even during short-time working, certain remuneration components must be calculated and paid by the employer as if normal working hours were in force, e.g. holiday pay and any summer bonus during holidays.
The total social security payment (= employee and employer contribution) for the part of the remuneration lost, which normally represents part of the residual costs – a significant cost item for the employer during short-time working – was reimbursed by the Federal Employment Agency only until 31 December 2021. If employees train towards qualifications during short-time working, 50% of social security contributions can be reimbursed until 31 July 2023. In addition, the incentive to use periods of absence from work for continuing vocational training is further increased by removing the requirement for reimbursement of half of social security contributions in such cases that training should take up at least 50% of the period of absence from work.
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12. How can the company cushion the reduction in employees' salaries, if it wants to?
In addition to the remuneration for part-time work and the short-time allowance, the company can pay a top-up amount/supplement to the short-time allowance to employees to compensate for the reduction in salary. In practice, it is usual to top up to 80% of the last net salary, or during the current economic crisis also to 90% or 95%.
TO DO for companies:
Calculate scenarios with a top-up to 80%, for example.
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13. Are there other ways for the employee to compensate for loss of salary?
If permitted by the employment contract or other provisions applicable to the employment relationship, the employee may take a second job during short-time working. A distinction must be made here as to whether the part-time job was taken up before or after the start of short-time working. In the former case, income is usually not offset against short-time working allowance, in the latter case it normally is.
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14. How flexible can the company be during short-time working?
Working hours do not have to be reduced by the same amount for all employees.
- The requirements for short-time working (see no. 6 and no. 7 above) must be met for the establishment or the department. In particular, the requirements concerning the loss of work (10% of employees affected by short-time working with a reduction in remuneration of more than 10%) must be met. The loss must remain the same for the entire month across the entire division or establishment (i.e. it is not possible to switch between establishment and department within a month). The reference period is always the respective full calendar month, whereby an average must be calculated if there are increases and decreases during a month.
- If these basic conditions are met, the employees can work different hours. It is important that the employer only ever applies for short-time allowance for the working hours actually lost.
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15. What if short-time working coincides with leave?
Short-time working and leave are mutually exclusive. If the short-time working falls within a period of recreational leave that has already been granted to an employee, the company is required to grant the leave again at a later date (German Federal Labor Court (BAG), 16 December 2008 – 9 AZR 164/08).
This only does not apply if short-time working is contractually suspended during the leave and the employee therefore receives their “normal” remuneration while on leave.
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16. What should be considered in the case of temporary workers?
Temporary workers have not had access to short-time working allowance to date. Now, however, there has been some movement on this issue. Section 11a German Act on Temporary Agency Work (AÜG) was recently extended until 30 June 2023. This provision authorizes the Federal Government to issue a statutory instrument allowing temporary workers to receive short-time working allowance. On 28 September 2022, the Federal Cabinet approved a statutory instrument from the Federal Ministry of Labor and Social Affairs (BMAS) that will now also give temporary workers access to the short-time working allowance. The provisions will come into force on 1 October 2022 and apply (initially) for a limited period until 31 December 2022.
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More FAQs about the effects of Coronavirus on German employment law
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