In the wake of COVID-19, many companies in Germany implemented short-time work (Kurzarbeit) in order to safeguard jobs and save on personnel. In our previous blog, we outlined the application process and provided an overview of the updated short-time work regulations introduced by the German government in the light of the coronavirus crisis.
Now that short-time work has been implemented, employers are facing questions arising from the handling of short-time work in practice in the day-to-day. We answer the most frequently asked by employers below.
Employees on short-time work may consider offering their workforce to other employers by way of a secondary employment in areas in which workforce is currently needed. This would help them topping up their reduced salary. Starting a secondary employment is subject to the employer's approval which, however, should be given if operational reasons do not conflict with this.
If the secondary employment was already carried out before the short-time work has been implemented, there are no special particularities to observe; in particular, pay from the secondary employment is not being set off against the short-time work allowance.
Normally, if employees take up a secondary employment after implementation of short-time work, salary from the secondary employment will be set off against the short-time work allowance. This does not apply, however, to marginal employment, i.e. if the salary from the second employment does not exceed EUR 450.00 per month.
Another exception has been temporarily implemented in the course of the COVID-19 law amendments. From April 1, 2020 to October 31, 2020, salary from secondary employment earned in system relevant sectors or professions while receiving short-time work allowance will only be offset if the overall earnings of the employee plus the state allowance exceed the employee's normal full-time salary.
Occupations indispensable to public life and to the security and provision of people's livelihood are particularly considered to be system relevant. These inter alia include the health and nursing sector with hospitals, doctors' practices and pharmacies, the agricultural and food industry and the supply of food, energy and water sector, etc.
Because the main employer is responsible for calculating and paying out the short-time work allowance for each employee properly, employers are advised to ask employees to timely disclose any information about secondary employment taken up after the implementation of short-time work and the salary earned for this. A corresponding obligation of the employees to timely notify the employer prior to starting the secondary employment should be provided for in the employment contract.
Since the short-time work allowance amounts to 60 % (or for employees with at least one child, 67 %) of the net pay difference (the difference between the generalized net salary normally earned and the reduced generalized net salary earned during short-time work), employees obviously will have less money left at the end of the month. Top-up payments by the employer (partially) close the gap in the salary and may help to increase the acceptance of implementation of short-time work within the company.
Top-up payments paid by the employer are privileged which is why they are not considered for the calculation of short-time work allowance by the Employment Agency.
However, such top-up payments are not obligatory unless the employer's obligation to top up salary during short-time work arises from shop agreements (Betriebsvereinbarungen), collective bargaining agreements (Tarifverträge), if any, or from individual agreements.
Top-up payments are not subject to social security contributions, provided that, together with the short-time work allowance, they do not exceed the fictious salary which corresponds to 80 % of the loss in salary (ausgefallenes Arbeitsentgelt). However, if the top-up payment, including the salary during short-time work, exceeds the fictitious salary, the exceeding part of the top-up payment is subject to social security contributions. Furthermore, top-up payments are taxable benefits.
Due to the crisis, the Employment Agency has updated its guidelines, inter alia with regard to vacation entitlements. The guidelines provided that the employer had to ask employees to take their vacation carried over from the previous year as well as vacation accrued in the current year before being eligible to receive short-time work allowance. The updated regulation now waives the requirement to take remaining vacation of current calendar year before applying for short-time work allowance. This exception shall apply until December 31, 2020. However, if there are still vacation entitlements from 2019, these still must be used primarily.
Regarding the accrual of vacation entitlements for the current calendar year, it should be noted that holidays accrue in accordance with general principles also during short-time work. However, according to decisions of the European Court of Justice (inter alia judgement of 8 November 2012 - C-229/11), employers can reduce the vacation entitlement for the duration of short-time work in accordance with the reduced working days, e.g. employers may reduce an employee's annual vacation entitlement in case working hours are reduced to zero hours for each full month by 1/12.
In the course of the pandemic, it will be unavoidable that short-time work phases will collide with vacation requests already approved before the introduction of short-time work. The Employment Agency will not pay any short-time work allowance for employees on vacation. Instead, employees are entitled to receive their full regular pay as if they were not working reduced hours. The Federal Vacation Act (Bundesurlaubsgesetz – BUrlG) provides that reductions in pay due to short-time work are not considered for calculating pay during vacation. The same applies regarding vacation after the short-time work phase. Short-time work therefore has no negative effects for employees taking vacation.
If a public holiday and short-time work coincide (i.e., the working time on the public holiday would also be lost due to short-time work), the loss of work which has occurred is "deemed to have occurred as a result of the public holiday".
Consequently, the employer needs to pay
The employer alone must pay the social security contributions resulting from the holiday pay; there is no compensation from the Employment Agency for the social security contributions either. While the short-time work allowance from the Employment Agency is not taxable, the amount to be paid by the employer on a public holiday is subject to income tax, which is borne by the employee.
Employers are obliged to continue remuneration if the employee becomes incapable for work due to sickness during a period of short-time work. However, sick pay is only owed in the reduced amount of the remuneration that the employer pays its employees during short-time work. The obligation to continue sick pay therefore only ceases if the employee's hours are reduced to 0 %.
The reduced amount of sick pay is then increased by the short-time work allowance in case the incapacity for work due to sickness begins during the period of short-time work. In case the incapacity for work due to sickness begins prior to the period of short-time work, the employee receives sickness benefits from the health insurance (Krankengeld) in the same amount.
From the beginning of short-time work, the employee receives pay from the employer for the reduced hours up to the maximum of six weeks. After the six weeks have expired, the employee receives regular sickness benefits from the health insurance on the basis of the standard salary before the sickness.
After receipt of the short-time work application, the Employment Agency is generally obliged to assess whether the eligibility requirements are met. As a rule, within seven months of the end of the reference period for short-time work allowance, the reference periods are conclusively examined. This includes, among other things, the extent of the loss of working hours, i.e. the number of working hours lost.
For this purpose, the Employment Agency may inspect the documents relevant to payroll accounting, e.g. working time records, in order to check the extent of the loss of working hours. Therefore, it is recommended to keep working time records, from which the daily working time can be seen. This also applies in case of "trust-based" working hours, when the company normally does not require proof of working hours from its employees. There are no official templates or forms, but some local Employment Agencies provide a form that can be used.
Normally, the introduction of short-time work is intended to prevent termination of employment by the employer for operational reasons. Therefore, a termination of employment for operational reasons during short-time work will generally be unjustified if it is based on the same reasons for which short-time work has been implemented.
However, terminations for operational reasons are not excluded in the long-term if business does not pick up again. Generally, the same (strict) rules for a termination for operational apply during short-time work. Other rules, however, may apply due to shop agreements, collective bargaining agreements or individual agreements which in many cases provide that terminations for operational reasons are excluded during short-time work.
Please feel free to reach out to our Employment Team in Germany or your usual contact at Orrick to find out more or if you need any help.