COVID-19 Update: Germany to Give Easier Access to State-Funded Short-Time Working Allowance

4 minute read | March.18.2020

On March 13, 2020 the German parliament passed the “law on the crisis-related temporary improvement of the regulations for short-time work allowance” (Gesetz zur befristeten krisenbedingten Verbesserung der Regelungen für das Kurzarbeitergeld) in a fast-track procedure which gives companies easier access to state-funded short- time work allowance (Kurzarbeitergeld) amid the coronavirus outbreak.

What Exactly is Short-Time Work?

Short-time work is the temporary reduction in working time in order to reduce the wage costs for an employer. In the event short-time work applies, employees will work less for a temporary period and be eligible to less remuneration during this period. It is even possible to completely reduce working time to the extent that the working times corresponds to zero working hours (“Kurzarbeit Null“).

How is the Loss of Remuneration Compensated?

The (partial) loss of remuneration of the employee is compensated by the short-time work allowance by the Federal Employment Agency (Bundesagentur für Arbeit) in the amount of 60 % of the net pay difference or in the amount of 67 % of the net pay difference for employees with at least one dependent child. The net pay difference is the difference between the regular net remuneration (without short-time work) and the actual net remuneration (with short-time work) in the month in which the loss of working hours occurs. After confirmation by the Federal Employment Agency that the requirements are met, the employer needs to formally apply for short-time work allowance. The amount of short-time work allowance is calculated individually for each employee and can be completely omitted if the employee’s income from short time work is above the income threshold (Beitragsbemessungsgrenze).

How Can Short-Time Work be Implemented?

The implementation of short-time work is not possible without the employee’s consent, unless the employment contract already provides for this possibility. An employer cannot unilaterally reduce the employees’ hours and order short-time work. Instead, it must be based on a collective bargaining agreement (Tarifvertrag), a shop agreement with the works council (Betriebsvereinbarung) or where a works council does not exist, a mutual agreement with the employee, e.g. in the employment contract or in an amendment. However, because short-time work may be one of the last opportunities to maintain the business at all, under certain conditions it may also be enforced by way of a dismissal for operational reasons and the option of implementing short-time work with the employee.

What are the New Regulations for Short-time Work in Light of the Coronavirus Crisis?

The German parliament has amended and facilitated the requirements for receiving short-time work allowance on March 13, 2020 by the “law on the temporary crisis-related improvement of the regulations for short-time work allowance”. The amendments have been implemented by the Federal Government by way of legislative decree on March 16, 2020. The new regulations apply retroactively with effect from March 1, 2020. The following requirements currently apply:

  • The company must have a substantial loss of working hours, either for economic reasons or due to an unavoidable event. The Federal Employment Agency has already clarified that work breakdown due to the coronavirus outbreak qualifies as such event.

  • In addition, the loss of working hours must be temporary and unavoidable. The employer must try to take all reasonable measures to prevent the loss of working hours. Before the legislative amendments one of the requirements was that the employer had to compensate the reduction of working hours by using certain types of working time accounts. This requirement has now been suspended.

  • Lastly, under the new law, more than 10 % of the employees employed in the company need to be affected by a loss of salary (and not 1/3 of the employees as this was the case before the legislative amendment) of more than 10 % of their salary in the respective calendar month.
Furthermore, the legislative amendment provides that the Federal Employment Agency will reimburse the employer for all social security contributions and it further allows short-time work for temporary agency workers (Leiharbeitnehmer).

To receive the benefits, employers must register directly with the employment agency: (German only).

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 with applying for the allowance.