Germany: Managing Costs During the Pandemic Through Short-Time Work

By Dr. Barbara Geck, Dr. Catharina Klumpp and Daniela Gudat © Bird & Bird LLP March 24, 2020
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Berlin

​In Germany, "short-time work" is a common labor-market instrument during a crisis in order to reduce liquidity shortages and preserve jobs. Short-time work compensation is granted by the government regardless of the financial situation of a company if it is affected by a temporary reduction of workload due to an external inevitable event. As a response to the COVID-19 pandemic, the German government has made the requirements for short-time work compensation temporarily more flexible as of March 1.

Overview

Short-time work is a temporary reduction of regular work hours in a company. The employees are temporarily wholly or partially released from their obligation to work and be eligible to pay that is reduced accordingly. The government provides subsidies to the employer, which it pays to employees affected by the reduction of work hours in order to compensate for the loss of remuneration. The short-time work compensation amounts to 60 percent to 67 percent of the employees' reduced net pay.

Introduction of Part-Time Work

Short-time work cannot be introduced unilaterally by the employer unless the employment contract already provides for this. If it does not, the employer must explicitly agree with the employee to introduce short-time work.

Short-time work may be introduced to the whole company or parts thereof that are affected by the loss of workload on the basis of a collective bargaining agreement, a shop agreement or an agreement with the employee. In case a works council is established in the company, its consent is required.

Prerequisites for Part-Time Work Compensation

The employment agency will grant short-time work compensation if the following prerequisites are met:

--A significant reduction of workload that is based on external economic reasons or force majeure such as COVID-19 that results in a loss of earnings. A reduction is significant if at least 10 percent (normally 30 percent but as of March 1 only 10 percent) of the employees of the company are affected by a loss of salary of at least 10 percent in the respective calendar month.

  • A notification of short-time work has been filed at the employment agency.
  • In case working time accounts exist, positive balances must be reduced to zero.
  • Only employees subject to payment of social security contributions are eligible to short-time work compensation, provided the employment relationship is not terminated and the individual employee is not excluded from the eligibility for short-time work payment (e.g., eligible for a pension).

Procedure

The notification of the reduction of workload has to be filed at the correct employment agency. (The employment agency in whose district the company is located.) There is no deadline for the notification but subsidies will be paid only from the beginning of a month after the employer's notification. In case a works council is established, its statement should be enclosed with the notification. After the notification, the employees start working reduced work hours and the company is obligated to pay the reduced salaries (or no salary in case of working time "zero") and the short-time work compensation.

Within three months of the payment the company may claim for reimbursement in relation to each individual's short-time work compensation. The employment agency reimburses the relevant amounts at short notice but subject to later review.

Dr. Barbara Geck and Daniela Gudat are attorneys with Bird & Bird in Frankfurt, Germany. Dr. Catharina Klumpp is an attorney with Bird & Bird LLP in Düsseldorf, Germany. © 2020 Bird & Bird LLP. All rights reserved. Reposted with permission of Lexology.

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