FAQs on short-time working (Kurzarbeit)

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

• to keep trained employees in the company,
• to preserve the employees’ jobs in an economic crisis as well as
• to compensate employees for part of their loss of remuneration due to short-time working by paying a state-subsidised allowance.

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, an individual agreement with the employees concerned is required. If an agreement of this type cannot be reached by mutual consent, the only solution is to terminate the employment contract with the option of signing a modified contract. In addition to being introduced for a specific reason, short-time working can also be agreed as a precautionary measure, e.g. when an employment contract is concluded. 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. It is thus necessary to take special care in this regard, including when making individual agreements.

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.

However, the Federal Government was authorised by the “Arbeit-von-morgen-Gesetz” (“Work of Tomorrow Act”, Gesetz zur Förderung der beruflichen Weiterbildung im Strukturwandel und zur Weiterentwicklung der Ausbildungsförderung) to extend payment of short-time allowance to up to 24 months for a limited period by statutory order, i.e. without requiring the consent of the Bundesrat (section 109 (1a) of the German Social Security Code III (SGB III)). The German cabinet recently made use of this again in light of the economic problems facing the manufacturing industry. The new statutory order and the extension of the reference period will apply until 31 December 2025.

Short-time working leads to partial suspension of the main performance 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 economic disadvantage is largely compensated for by payment of a “short-time allowance” (Kurzarbeitergeld) by the Federal Employment Agency. While the cost of the short-time allowance is borne by the Employment Agency, payroll accounting and actual delivery of the short-time allowance is carried out by the employer.

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),
• the requirements relating to the business establishment 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 (for details of the procedure, see 9. below).

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 economic reason is when the loss of work is caused by a change in operational structures that is due to general changes in the economy (section 96 (2) of the German Social Security Code III (SGB III)). An important aspect is that the cause of the lack of work must be external to the establishment such that the employer has no influence over its occurrence, as opposed to business-specific reasons that fall within the company’s sphere of risk.

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)).

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. For example, the loss must not be due to reasons that are normal in the industry, usual in the business, or seasonal. It is also necessary to check whether short-time working can be avoided by granting leave. The Employment Agency may also require working time accounts to be run down before granting short-time allowance. In addition, minus hours must be used to avoid short-time working insofar as this is permissible under the working hours agreements in place.

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 a third of the employees (excluding trainees) working at the establishment
• are affected by a loss of earnings of more than 10% of their monthly gross pay in each case.

An application for short-time working thus requires that at least a third of the employees in the establishment or operational department are affected by short-time working, with an individual loss of earnings greater than 10%. The loss rate is calculated on the basis of all employees working in the department (except trainees).

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).

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 to the employer):

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.

Detailed information must be provided to demonstrate that the conditions for receiving short-time allowance have been met (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.

The Employment Agency issues a notice of recognition after checking the requirements. 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)).

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 and 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 forms for an application for short-time allowance, the settlement list and associated instructions can be found here.

It is also possible to apply online via the Employment Agency website.

Short-time allowance is calculated on a flat-rate basis in accordance with the table published by the Federal Employment Agency and essentially corresponds to unemployment benefit (i.e. 60% or 67% of standard net remuneration). However, only the net salary up to the income threshold for social security contributions to the statutory pension insurance scheme is eligible for calculating the short-time allowance (2024: up to EUR 7,550.00 gross per month; new federal states 2024: up to EUR 7,450.00 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 this income threshold, no short-time allowance will be paid.

Since January 2024, the following table for calculating the short-time allowance is applicable.

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 of 67% of net remuneration lost during short-time working) or benefit rate 2 (all other employees = short-time allowance of 60% of net remuneration lost during short-time working). 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;
employee, wage tax class III; 
child tax allowance 1.0 = wage tax class III, benefit rate 1

Sample calculation:

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 is borne by the employer alone. During the Covid pandemic it was possible to obtain reimbursement of these payments as well, but these provisions have since expired and were not extended. The provision aimed at promoting continuing vocational training during short-time working, which provided for a 50% reimbursement of social security contributions, also expired on 31 July 2024.

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, while during the Covid pandemic up to 90% was paid.

If permitted by the employment contract or other provisions applicable to the employment relationship, the employee may work a second job during short-time working. A distinction must be made here as to whether the second 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.

Working hours do not have to be reduced by the same amount for all employees.

• The requirements for short-time working (see 6. and 7. above) must be met for the establishment or the department. In particular, the requirements concerning the loss of work (a third of employees with a reduction in remuneration of more than 10%) must be met. The loss must apply to either the department or the establishment throughout the month (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 in the workforce or other changes during the month.
• If these basic conditions are met, employees can work a different number of hours. It is important that the employer only ever applies for short-time allowance for the working hours actually lost.

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 cancelled during the leave and the employee therefore receives their “normal” remuneration while on leave.

If short-time working only results in the number of hours per day being reduced, the employee’s entitlement to holiday leave is not affected. If there is a change in the number of the employee’s working days during short-time working, entitlement to holiday leave for this period is calculated on a pro rata basis (German Federal Labor Court (BAG), 30 November 2021 – 9 AZR 225/21).

If short-time working zero is introduced, there is no entitlement to holiday leave for the duration of short-time working zero (German Federal Labor Court (BAG), 30 November 2021 – 9 AZR 225/21; German Federal Labor Court (BAG), 30 November 2021 – 9 AZR 234/21) and the entitlement to holiday leave can be cut on a pro rata basis. Find out more here.