Increased short-time work compensation

The introduction of short-time work has proven to be one of the most important instruments for businesses to reduce (unused) personnel and the financial burden associated with it in times of a crisis. Short-time work is used to temporarily reduce the regular working hours (if needed, down to “zero”). At the same time, the pay claim which the employee concerned has against his or her employer is also reduced accordingly. From an employer’s perspective, introducing short-time work therefore serves to minimise the employer’s risk of being in default of accepting the services offered by its employees and de facto to prevent dismissals. 

The financial losses of the employees concerned which are associated with the introduction of short-time work are reduced subject to the conditions set out in sections 95 et seq. Book III of the German Social Code (SGB III) by the Federal Employment Agency granting short-time work compensation which the employer subsequently pays to the employees (for more details on the conditions for introducing short-time work and obtaining short-time work compensation see). Ultimately, the employees concerned therefore receive pay (reduced compared to their usual pay) for their (reduced) hours plus short-time work compensation. 

Amount of short-time work compensation so far

Short-time work compensation up to now generally amounts to 60% of the lost original standard net wage (pauschaliertes Nettoentgelt). For employees with eligible children, short-time work compensation is 67% of the lost original standard net wage. The standard net wage applying to the employee concerned can be found in the relevant federal government regulation. On this basis, the value of the short-time work compensation can be calculated using the table provided by the Federal Employment Agency.

For example:

Employee, tax class III and child allowance 1.0	Gross salary	Standardnet wage	Benefit rate: 67 %
Monthly gross salary	2.500,00 Euro	1.933,00 Euro	1.295,11 Euro
Monthly gross salary for 50 % short-time work	1.250,00 Euro	1.008,00 Euro	675,36 Euro
Short-time work compensation			= 619,75 Euro
Monthly gross salary	4.000,00 Euro	2.809,65 Euro	1.882,47 Euro
Monthly gross salary for 50 % short-time work	2.000,00 Euro	1.600,00 Euro	1.072,00 Euro
Short-time work compensation			= 810,47 Euro

 

Topping up short-time work compensation

Agreements for the introduction of short-time work sometimes provide that the employer pays an allowance to top up short-time work compensation. Such agreements are admissible and the payment of an allowance to top up short-time work compensation does not result in any cut in short-time work compensation under section 106 (2) sentence 2 Book III of the German Social Code (SGB III). 

If the obligation to pay an allowance to top up short-time work compensation is not part of the collective agreement applicable to the employment, such allowance payment by the employer is a voluntary benefit and, as a rule, the individual employee is not entitled to such payment. Neither can the works council demand that an agreement be concluded with it which provides for the payment of such an allowance to top up short-time work compensation. However, especially if an employer intends to introduce short-time work at very short notice by means of a works agreement, it should be kept in mind that works councils will in many cases be much more willing to enter into a corresponding works agreement at short notice where employers indicate their willingness to pay an allowance to top up short-time work compensation. 

In the light of the fact that by granting such an allowance, the financial relief generally associated with the introduction of short-time work is reduced in times where for many the financial situation is tight anyway, employers should nevertheless be reluctant to make such a commitment or to pay such allowances to top up short-time work compensation; it should be limited to exceptional situations.

Decision of the Coalition Committee on the amount of short-time work compensation

On 22 April 2020, the Coalition Committee in Germany decided, among other things, that short-time work compensation for employees receiving short-time work compensation due to the coronavirus for working hours reduced by at least 50% will be increased to 70% (or 77% for households with children) of the standard net wage from the fourth month of payment, and to 80% (or 87% for households with children) from the seventh month, in each case no longer than until 31 December 2020.

Assessment for company practice 

It is to be assumed that for calculating the point in time from which gradual increases in short-time work compensation are to apply, 1 March 2020 will be the reference date for receiving short-time work compensation due to the coronavirus. This means that in businesses where short-time work was introduced based on the Ordinance regarding the Facilitation of Short-Time Work (Kurzarbeitergeldverordnung – KugV), which was issued by the German Federal Government on 25 March 2020 with (retrospective) effect as of 1 March 2020, the increased payments will apply from 1 June 2020. Employers would be well advised to check until then whether the existing company rules on short-time work have to be adjusted. 

Effects of increased short-time work compensation on arrangements

Whether there is a need for action for the business concerned as a result of the increase in short-time work compensation most of all depends on the content of its short-time work arrangements. 

Where the relevant works agreements and individual agreements for the introduction of short-time work do not provide for any topping-up of government-paid short-time work compensation by the employer, there is currently no need for any adjustment. 

This is different in businesses where such topping-up of short-time work compensation has been agreed with the works council or individually with employees. The answer to the question of whether or not there is a need for adjustment crucially depends on the specific wording of the relevant agreement. 

Adjusting an agreement for the introduction of short-time work is usually not necessary if it defines a fixed percentage rate to which short-time work compensation is to be topped up. An arrangement according to which an employer tops up short-time work compensation for employees without eligible children to 80% of the net wage difference is unambiguous in this respect. The additional payment promised by the employer to top up short-time work compensation can first be reduced by 10% from the fourth month and subsequently be fully stopped from the seventh month of short-time work for the period in which the increased short-time work compensation applies, provided that the second condition – namely that working hours are reduced by at least 50% – is also fulfilled. If the short-time work introduced persists until after 31 December 2020, the full amount of the additional payment would have to be paid again from January 2021, in the absence of any additional legislative action in the meantime. 

However, there is a need for action and adjustment from an employer’s perspective if the agreement for the introduction of short-time work “simply” states that pay will be topped up by the employer during short-time work by 20%, for example. Such a provision leaves room for interpretation since it is unclear from it whether the employer intended to commit to topping up to 100% of the net wage. Besides this, such a provision could also lead to discrimination against employees with eligible children compared with employees without any eligible children. In future, employees with eligible children will receive 87% of the net wage difference in short-time work compensation from the seventh month of receiving short-time work compensation. The additional employer’s payment of 20% mentioned as an example above would have to be reduced to 13% for these employees because otherwise the result would be a de facto raise. Such arrangements should therefore urgently be adjusted and formulated clearly. The top-up amounts may not lead to inadmissible unequal treatment of employees with eligible children and those without. Furthermore, the agreement for the introduction of short-time work should be clear as to whether the employer intends to top up only to a certain percentage rate (such as 80% of the net wage difference) or whether it is the employer’s intention to keep topping up even when government-paid short-time work compensation is increased.