Coping with the coronavirus crisis: 10 topical Q&As about temporary staffing measures in Germany

The ongoing Covid-19 crisis is unprecedented. Many employers across various sectors are exploring instruments to assist them with their staffing in the short term. Whether more drastic measures, including restructuring and redundancies, can be avoided in the medium and long term will depend on how long the crisis lasts and the damage it has done already.

We have listed a few of the most pressing questions clients are asking us in this context right now:

1. What options do I have in the short term?

Amongst the options currently open to employers – encouraging employees to take holiday, ensuring overtime credit is used and even terminating freelancers and dismissing staff in the probationary period (first six months of employment) – “short-time work” is proving popular.

2. What is the German government doing to alleviate the problems?

The German coalition government has recognised the huge negative impact the crisis is having on businesses and quickly enacted a change in the law effective 1 March 2020 through 31 December 2021 by making it easier for employers to apply for short-time work compensation and by providing additional financial support, making short-time work an even more attractive option to temporarily cut personnel costs.

3. What is short-time work?

Short-time work (Kurzarbeit) is an option all employers in Germany may use to cut personnel costs in the short term in order to avoid redundancies. The weekly working hours are re-duced (up to zero) for a certain period which of course leads to the employees’ salary being reduced

4. What is short-time work compensation?

To compensate the employee for the (partial or total) salary loss, the Federal Labour Agency will pay a certain percentage (60% or 67%) of the employees’ net salary loss during the en-tire short time work period. This is known as short-time work compensation (Kur-zarbeitergeld) and is reimbursed by the relevant labour agency to the employer who in turn pays it to the employees via the usual payroll. 

5. How does an employer implement short-time work?

The most common ways to introduce short-time work is via a collective agreement with the relevant works council or union. If there is no works council in place, it can be implemented by an individual agreement with each employee unless the employment contract contains a specific provision allowing the employer to unilaterally order short-time work. A practical is-sue at the moment is how to negotiate and conclude the relevant agreements if the stake-holders are working remotely.

6. How does an employer apply for short-time work compensation for its em-ployees?

The employer must file a formal written request with the local labour agency. The labour agency then assesses whether the legal conditions for short-time work in general and for short-time work compensation in each individual case are met. The general short-time work conditions are:

  • A considerable loss of work leading to the loss of salary due to either an economical reason or an inevitable event (e.g. the Covid-19 crisis) which occurs temporarily and is unavoidable;
  • At least 10% (now instead of one third) of the employees employed at the local business site are affected by a loss of salary of more than 10% of their monthly gross salary in the respective calendar month; and 
  • At least one employee must be employed at the operation or operational unit affect-ed by short-time work.

It is meant to provide its decision pretty much immediately. Whether this is feasible in the current climate remains to be seen.

7. How is short-time work compensation calculated?

The short-time work compensation is calculated on the basis of the respective employee’s net salary fall:

  • Employees without children are entitled to 60 percent of their net salary fall;
  • Employees with at least one child living in the household are entitled to 67 percent of their net salary fall;
  • The overall salary to be taken into account for short-time work compensation is capped at the “social security contribution ceiling” which currently amounts to EUR 6,900 (EUR 6,450 in Eastern Germany);
  • Any income from other employment or self-employment which is received during the period of short-time work compensation is offset.

A table providing for details and examples of how the short-time work compensation is calcu-lated is on the website of the Federal Labour Agency.

8. If the general conditions for short-time work are met, does this mean that all employees are automatically eligible to the short-time work allowance?

Not necessarily. Employees are only eligible to the short time work allowance if the following conditions are met: 

  • The employee’s employment is subject to social security payments; 
  • No termination notice has been issued and the employment relationship has not been terminated by way of a settlement agreement; and
  • The employee is not excluded from the short time work entitlement (e.g. if the em-ployee already receives daily sickness allowances). 

9. Is there a maximum period to receive short-time work compensation?

Yes.

The entitlement to short-time work compensation is limited to a maximum period of twelve months for the relevant site, commencing from the first calendar month on which short-time work compensation is paid. If there is an interruption of at least one calendar month, the maximum duration will be extended accordingly without a new application being required. After an interruption of at least three months, a new application for short-time work compensation can be submitted (subject to the maximum period of twelve months again). 

10. What practical tips do you have?

  • engage with employee representative bodies and employees sooner rather than later
  • Make sure all stakeholders e.g. management/HR/employee representative bodies are accessible
  • Ensure all paperwork is properly filled out
  • Explore all avenues including (voluntary) holiday/breaks, overtime credit being used, encourage those on parental leave to extend it where possible, and potentially ter-minating employment and freelancer agreements where easily done e.g. during the probationary period.