The spread of COVID-19 coronavirus is leading to unprecedented measures worldwide. This not only affects the personal sphere for now more than a billion people in the form of curfews, quarantines and social distancing measures, but companies in particular are also very much affected by the coronavirus crisis. Considerable losses in turnover, the loss of production facilities and supply chains as well as the standstill of entire industries must be compensated economically. At this point in time, it is impossible for anyone to predict how long the current state of emergency will continue.

The German government has promised rapid assistance, and in particular has promised easier access to short-time working allowance. To this end, a change in the law came into force retroactively as of 01.03.2020.

Almost every day more and more reports are coming in that companies of all sizes are planning short-time working at their sites to cushion the economic impact of the corona virus. The German government expects 2.35 million short-time workers to be affected by COVID-19 coronavirus in the current year. In this article, we answer the most important and urgent questions about short-time work and the short-time allowance for affected companies, employers and employees.

If you have a particular issue or legal question concerning events related to the COVID-19 coronavirus, please contact our law office directly. Our lawyers can be reached by phone, email and also provide video conferencing options. For more legal information on the Corona crisis, please visit our Crisis Dashboard.

What is meant by the term “Short-Time Work”?

Short-time work means the temporary reduction of regular working hours due to a significant loss of working hours. As a result, employees work fewer hours than agreed in their employment contract. It can also mean that employees in short-time work temporarily do not work at all. In this case, the term “zero short-time work” is used.

Short-time work becomes necessary for the employer if, as is currently the case due to COVID-19 coronavirus, orders are lost, or entire industries are brought to a standstill.

What is Short-Time Working Allowance (KUG)?

It is a partial compensation payment by the Federal Employment Agency for the loss of earnings caused by a temporary loss of work. The benefit is paid from unemployment insurance. In the terminology used by the Employment Agency, short-time work compensation is also abbreviated to “KUG”. Through the KUG, dismissals can be avoided and, even in the event of a loss of orders, the employees’ continued employment can be ensured.

Who is entitled to Short-Time Working Allowance?

According to § 95 SGB III, this is the case if:

  • there is a considerable loss of work with loss of earnings
  • the operational requirements are fulfilled
  • the personal requirements are fulfilled
  • the absence from work has been reported to the employment agency

When is a loss of Working Hours Significant?

According to the statutory regulation, this is the case if the loss of working hours is due to economic reasons, or an unavoidable event, if it is temporary and unavoidable and if at least one-third of the employees employed in the company are affected by a loss of earnings of more than 10 per cent of their monthly gross salary each month.

What are the Operational Requirements for Entitlement to Short-Time Working Allowance?

The requirements within a company that need to be fulfilled are simple. For companies to be able to avail of short-time working allowance, they have to fulfil the above requirements and must have at least one employee employed. The allowance can apply to companies in every industry.

What Personal Requirements must be met to be Entitled to Short-Time Working Allowance?

According to the statutory regulation, the personal requirements are fulfilled in particular if the employee continues employment subject to compulsory insurance after the beginning of the period of absence from work, takes up employment for compelling reasons or takes up employment following the termination of a vocational training relationship.

Furthermore, the employment relationship may not be terminated or terminated by a termination agreement, and the employee may not be excluded from short-time work benefits.

Which Groups of Persons are Excluded from Receiving Short-Time Working Allowance?

Those excluded are employees who are not subject to compulsory unemployment insurance, as short-time work is a benefit from unemployment insurance. Thus, employees who receive sickness benefit or participate in subsidised vocational training measure are excluded.

Do Changed Conditions apply to Short-Time Working Allowance due to the Coronavirus crisis?

Yes, on 13.03.2020, the Bundestag unanimously adopted a draft law on the temporary improvement of the regulations for short-time working allowance in response to the crisis. As a result, the German government can issue ordinances until the end of 2021 that do not require the approval of the Bundesrat. The German government has now also made use of this option.

The following facilitations apply retroactively to 01.03.2020 and for a limited period until 31.12.2020:

  • Instead of the previous threshold of 30 per cent of employees, a company can now report short-time work if at least ten per cent of employees are affected by the loss of working hours.
  • The receipt of short-time working allowance is now also possible for temporary workers.
  • Employers’ social security contributions that would normally have to be paid by employers for their short-time workers are to be fully reimbursed by the Federal Employment Agency. This is intended as an incentive for companies to promote further training for employees during the period of short-time work.
  • In principle, up to now, it has been the case that in companies where agreements have been reached on the use of working time fluctuations, this had to be used to avoid short-time working. This should now no longer be the case in part or in full, and no more minus hours should have to be built up to avoid short-time work.

What is the Value of the Short-Time Working Allowance?

The amount of short-time working compensation is calculated according to the net loss of remuneration. In principle, employees receive 60% of the lost flat-rate net remuneration. If at least one child lives in the household, the reduced hours’ compensation is 67% of the lost flat-rate net remuneration.

Are Employees Entitled to an Increase in Short-Time Working Allowance from their Employer?

No, this is not the case, at least under the statutory regulations. However, such a claim may arise from the collective bargaining agreement if one exists. This is common practice in some industries, such as the wood and plastics processing industry or some German states’ metal and electrical industries.

In addition, politicians are discussing a nationwide increase to mitigate wage gaps for employees.

If the Employer wants to Top Up the Short-Time Working Allowance, is this Allowance subject to Social Security Contributions?

The subsidy for short-time work is non-contributory as long as the subsidy and the short-time work allowance paid do not exceed 80 per cent of the lost pay.

How is the Short-Time Working Allowance calculated if the Employee earns above the Income Threshold for the Assessment of Contributions?

In this case, the loss of earnings is covered similarly to unemployment benefit up to the amount to which contributions are paid. If the so-called actual remuneration earned during short-time work is above the income threshold, no short-time working allowance is paid.

Can the Employer Unilaterally order Short-Time Work?

No, this is not possible. It requires a labour law regulation between employer and employee. This follows from the fact that the employer has a fundamental obligation to employ their employees in an agreed manner and compensate them accordingly. It is possible that such regulation for short-time work has already been agreed in the employment contract or that there is a collective agreement or a works agreement.

If this is not the case, short-time work must be agreed upon with each individual employee. Otherwise, it is not possible for the employer to notify the employment agency of short-time work.

Is it Advisable to sign such an Individual Agreement due to the COVID-19 Coronavirus crisis?

This cannot be answered in general terms. For employees, short-time work compensation means a loss of earnings of up to 40%. At the same time, costs for rent, electricity and food still have to be borne. This can lead to considerable financial hardships.

On the other hand, ordering short-time work can prevent dismissals for operational reasons. Such a decision as to whether to sign the individual agreement with the employer can only be made in the light of individual circumstances. It is therefore advisable to seek legal advice if any questions remain unanswered.

What Role does the Works Council play in the Short-Time Working Allowance?

The works council is subject to co-determination for the introduction of short-time work in the company per § 87 Paragraph 1 No. 3 of the Works Constitution Act (BetrVG). If an agreement cannot be reached between the employer and the works council, the conciliation board can be called upon.

According to § 87, Subsection 2, BetrVG, the ruling of the conciliation body then replaces the agreement between the employer and the works council.

If Short-Time work is Ordered, does the Reduction in Working Hours apply Equally to all Employees?

No, only an effective agreement on the reduction of working hours is necessary. The amount of the reduced working time can vary depending on the employee.

How Long is the Short-Time Working Allowance paid?

The statutory period for which short-time working compensation is paid is 12 months. However, a statutory regulation issued by the Federal Ministry of Labour and Social Affairs allows the period for which short-time allowance is paid to be extended to up to 24 months due to exceptional conditions on the labour market.

If no short-time work compensation is paid for one month within the period in which short-time work compensation was drawn, the entitlement period is extended accordingly by one month.

Can an Employer also report Short-Time Work Only for Individual Departments?

It is not mandatory for the employer to order reduced working hours for the whole company. It is also possible that only individual departments are affected, and only for these can short-time work allowance be introduced.

What does the Employer have to do to Apply for Short-Time Work Allowance?

The employer has to go through a two-stage procedure.

First, the employer or the works council must notify the responsible employment agency of the loss of working hours in writing or electronically. The responsible employment agency depends on the location of the company headquarters. The notification must substantiate that there is a considerable loss of working hours and that the operational requirements for the short-time allowance are met.

For companies operating nationwide or nationwide, there is the possibility of having a so-called “key customer advisor” provided by the Federal Employment Agency, who will coordinate short-time work, the various employment agencies, and the companies’ respective operations. It is then up to the Employment Agency to decide whether the conditions for the payment of short-time work compensation are met.

The employees themselves receive the short-time allowance from the employer. The employer calculates it independently and then pays it out to the employees.

In the second step, the employer can then submit a written or electronic application to the Employment Agency for reimbursement of the short-time allowance paid by the employer, the so-called benefit application. The Agency for Employment in whose district the payroll accounting office responsible for the employer is located is responsible for the reduced hours’ compensation. This application must be submitted within a cut-off period of three months.

The period begins at the end of the calendar month in which the days for which short-time working allowance is claimed lie.

This means that, if necessary, different rules can be applied for the notification and the benefit claim.

What Happens if Short-Time Work has been Ineffectively Agreed between Employer and Employee?

In this case, the employer is obliged to pay the full wage to the employee. The prerequisite is that the employee actually offers his or her work to the employer. If the employer does not accept this offer, he is in default of acceptance and must pay the full amount of the so-called default of acceptance wage.

In the past, the Federal Labour Court has laid down the following principles for the effectiveness of works agreements: “A works agreement on the introduction of short-time work must regulate the rights and obligations resulting from it so clearly that employees can reliably identify them.

At a minimum, it is necessary to determine the beginning and duration of short-time work, to regulate the location and distribution of working hours and to select the employees affected”, BAG ruling dated November 18, 2015, 5 AZR 491/14.

Therefore, it is crucial when introducing short-time work to reach legally effective works agreements and individual agreements with the employees from the employer’s perspective.

Must Employees have taken their remaining Vacation before they start drawing Short-Time Working Allowance?

If employees still have residual vacation entitlements from the previous year, the employer must ensure that these are reduced. On the other hand, it is not possible for the employer to compulsorily order leave if the employees’ holiday wishes are opposed to this.

At the same time, the use of vacation days is an opportunity for affected employees to reduce their loss of remuneration. In this respect, it makes sense for the employer and employee to discuss existing holiday entitlements before applying for short-time work compensation.

Must Overtime accumulated by Employees be reduced?

Yes, because only then is the loss of work considered “unavoidable”.

What applies if an Employee falls ill or is Incapacitated for Work during the Period of Short-Time Work?

In this case, the employee continues to be entitled to short-time work benefits as long as he or she is entitled to continued payment of his or her salary in the event of illness or would be so without the loss of working hours.

Thus, as in the case outside the period of short-time work, employees receive the short-time allowance for as long as they are entitled to continued remuneration, which is usually six weeks. After this period, the employee is entitled to sickness benefits from his or her health insurance fund.

Is it Possible for Employees to be Dismissed during the Period of Short-Time Work?

In principle, a dismissal under the principle of proportionality is the last resort. Short-time work is intended precisely to avoid dismissals of employees. The particular advantage of short-time work for employers is that they can fall back on their trained and reliable employees if the economic situation improves again.

Ultimately, however, short-time work cannot rule out dismissals for operational reasons. Thus, due to permanently poor economic conditions, the possibility of employment of the respective employee may not only temporarily but also permanently cease.

If a Dismissal should occur, does the Short-Time Working Allowance then Affect the Unemployment Benefits for the Employee?

No. The receipt of short-time work compensation does not harm the amount of unemployment benefit. The basis for calculating unemployment benefit remains the remuneration that would have been earned without the loss of work.

What Effects does Short-Time Work have on Employees’ Pension Entitlement?

Employees’ pension insurance will continue to exist during the period of short-time work. The contributions to the pension insurance are, as usual, paid jointly by the employee and employer. However, pension insurance contributions are only paid based on the reduced earnings actually paid by the employee.

In addition, the employer must make further contributions based on 80 per cent of the lost earnings alone so that employees do not suffer disadvantages in their later pension level. In this case, the employer is therefore already required by law to top up the contributions. However, this does not completely replace the resulting contribution shortfall.

Short-time work thus has an impact on the employee’s pension entitlement. The legal regulation means that the effects are kept to a minimum.

Is it Possible to start a Secondary Job while receiving Short-Time Work Allowance?

The employer must also be notified of any secondary employment during the period of short-time work. If the secondary employment is only taken up during the period of short-time work and did not already exist before the short-time work, it is important to know that the short-time work allowance will be reduced. How high this reduction is, depends on the circumstances.

In this context, the Federal Government plans to introduce a statutory regulation that will make it financially more attractive to take up a secondary job while receiving short-time working compensation. This is especially the case if it is a secondary job in the so-called “systemically important occupations” and especially in agriculture.

Can Self-Employed Persons and Mini-Job Workers also receive Short-Time Working Allowance?

As this is a benefit from unemployment insurance, neither self-employed persons nor mini-job workers can receive short-time work benefits, as they are not compulsorily covered by unemployment insurance.

What are the Employer’s Options concerning Mini-Job Workers or Marginally Employed Persons?

Since there is no short-time working allowance here, the wage must continue to be paid. In addition, an amicable reduction of the agreed number of hours could be discussed with the employee. Finally, there would still be the possibility of dismissal for operational reasons, provided the conditions for this are met.

How does Short-Time Work apply to Trainees?

First of all, the company providing the training is still obliged to pay the training allowance even during periods of absence from work. According to § 19 BBiG, this applies in any case for a period of up to six weeks. According to the work instructions of the Federal Employment Agency, trainees are also entitled to a short-time working allowance if all possibilities have been exhausted.

Legal Advice on Short-Time Work at Schlun & Elseven

If you have any further questions, our specialist lawyers in labour law, Dr Thomas Bichat and Jens Schmidt will be happy to advise you in these difficult times. We are also happy to assist you with any other legal advice you may require in connection with short-time work and short-time working allowance.

At Schlun & Elseven Attorneys, we are a multidisciplinary and multilingual law firm based in Cologne, Düsseldorf and Aachen. In the current circumstances, we recommend contacting us using the form below, and from there, we can organise further communication through email, phone and video conferencing.