Government support for business and workers in Germany

The German short-time work scheme is called Kurzarbeit.

Short-time work is a temporary reduction in normal working hours, which does not have to extend to the entire company, but can affect only an office, establishment or department.

If there is a works council, short-time work must be introduced through a works agreement. The works council has an enforceable right of co-determination in this respect.

Currently, short-time work can be applied for up to a maximum of 12 months (i.e. the forecast must basically be such that the economic situation will improve within 12 months). Short-time work for more than 12 months is no longer considered a "temporary" reduction in normal working hours.

A prolongation to 24 months has been discussed, but is not part of the measures enacted by the government so far.

Short-time work leads to a partial suspension of the main duties arising from the employment relationship. The employee is released from the obligation to perform work to a certain extent, and at the same time loses – to the same extent – their claim to remuneration.

However, short-time work compensation is paid by the employer who in turn is reimbursed by the state. The employer carries out payroll accounting and the calculation of short-time work compensation, which is calculated at a flat rate according to the Federal Employment Agency table. Usually, childless employees receive 60% and employees with children receive 67% of the net pay difference. After frequent discussions regarding the amount of compensation, the "Social Protection Package II" of 20 May 2020 introduced a temporary raise in compensation. For the first three months of short-time work, the compensation remains as specified above. From the forth month of its application for employees whose net remuneration is reduced by at least 50%, however, short-time work compensation is increased to 70% (77% for employees with children) and from the seventh month to 80% (87% for employees with children). This regulation initially applies from 1 March 2020 until 31 December 2020, which means that the first raises are possible from 1 June 2020 on in case of compensation for short-time-work being granted from 1 March 2020 onwards.

With retroactive effect from 1 May 2020 (also limited to the end of the year), it is now possible to compensate for a loss of income up to the full amount of the previous monthly income through the payment of additional income.

For calculation of short-time work compensation, only the net salary up to the contribution assessment ceiling is taken into account (e.g. for 2020, up to EUR 6,900 gross per month). The salary reduction for employees with higher salaries is therefore considerably greater. In order to determine the exact amount, additional factors must be taken into account (e.g. tax class, whether the employee has children, vacations during short-time work and sick leave during short-time work).

The employer is responsible for social security contributions for the total amount paid to the employee. However, between 1 March 2020 and 31 December 2020, social security contributions are reimbursed by the Employment Agency.

In principle, any employee subject to social security contributions can go on short-time work and receive short-time compensation if the loss of remuneration is due to the reduction in working hours caused by short-time work.

The following groups of people are not eligible for short-time work:

• apprentices;
• employees whose employment relationship ends during short-time work due to termination or a separation agreement;
• employees in a vocational continuing training who receive unemployment benefits;
• employees with long-term illnesses who receive benefits from the health insurance fund.

If someone is already ill before the start of short-time work and the remuneration for their work is paid to them as a continued remuneration, they can only claim short-time work benefits after they have recovered. On the other hand, if they become ill while receiving short-time work compensation, the entitlement to short-time work compensation remains intact.

The employer must notify the Employment Agency of the loss of working hours by the end of the first month short-time work was implemented. The requirements for receiving short-time work compensation must be explained in detail and substantiated or proven. This applies in particular to the causes of the loss of working hours, information on products or services, main customers or main contractors and information on the temporary nature of the loss of working hours.

In our experience, the practice is generous, quick and pragmatic in crisis situations and not aimed at preventing applications.

The employer must then calculate the short-time work compensation, pay it to the employee and apply to the Employment Agency for short-time work compensation on a monthly basis. The application must be submitted within a cut-off period of three months at the latest. Otherwise, the short-time allowance will not be disbursed. The period begins at the end of the month the short-time allowance was applied for.

The prerequisites for receiving short-time working compensation are regulated in Sections 95 ff. of the German Social Code III (SGB III). In particular, there must be a significant, but temporary loss of work that results in a loss of salary.

A loss of working hours can be defined as considerable if:

1.    it is based on economic reasons or an unavoidable event –

• economic reasons include the loss of orders or lack of materials because suppliers have stopped work;
• an unavoidable event could include a loss of working hours caused by measures implemented by the authorities or government agencies for which the employer is not responsible.

2.    it is temporary.

3.    it is unavoidable –

• considerable effort must be made to avoid the loss of working hours: the employer must take all reasonable precautions in the affected office, establishment or department to prevent the occurrence of the loss of working hours (e.g. employee transfers to other departments). In particular, according to the current legal situation, the Employment Agency can demand the following before granting short-time work compensation: 
  • Reduction of overtime accounts by granting time off, as far as available and possible. 
  • Granting annual leave (in particular, if it has been carried over from the previous year), as far as legally possible and if a significant number of employees are affected.
• Generally, at least one-third of the employees in an office, establishment or company department must be affected by short-time work in a calendar month (i.e. there is individual loss of earnings of more than 10% of their monthly salary for each of the one-third of employees). This threshold is calculated on the basis of all employees (except trainees) employed in the office, establishment or company department.
• Until 31 December 2020, this threshold of at least one-third of the employees has been lowered to 10% of employees. If there is a works council, short-time work must be introduced by means of a works agreement. The works council has an enforceable right of co-determination in this respect. If attempts to reach an agreement between the employer and the works council fail, each party may appeal to a conciliation board, which is a type of arbitration tribunal.

In companies without a works council, the consent of the employees is required. If short-time work is introduced by employer instruction and the employees perform short-time work in accordance with this instruction, short-time work is being performed by implied agreement. Short-time work can be introduced either for a specific reason or as a precautionary measure (e.g. when the employment contract is concluded). If employment contracts are currently being offered, it will be advisable in many cases to include contractual short-time work clauses. The employment contract agreement is subject to the control of general terms and conditions and is potentially invalid if it does not specify a period of notice or if its content is too vague (e.g. regarding the scope and extent of short-time work, determination of the group of persons affected, etc.)

Even while short-time work is taking place, an employer can terminate employees for operational reasons. However, as mentioned above, short-time work can only be implemented on the basis of an agreement with employees or employee representatives. In this context, works councils often demand bans on dismissals for the short-time period. Also, in case of a dismissal protection lawsuit, the employer will have to explain why the initial prognosis (temporary loss of work as a prerequisite for a short-time application) was replaced with a new decision that led to a permanent loss of jobs.

For anyone who has already lost their job and whose entitlement to unemployment benefits fall between 1 May 2010 and 31 December 2020, the "Social Protection Package II" extends the entitlement to employment benefits by three months.