Short-time work instead of dismissal: what companies need to know

Financial crisis, shortage of raw materials, supply bottlenecks, war, coronavirus pandemic … there have been many unavoidable events in the recent past that have had a negative impact on the economic situation.

Many businesses and companies experienced a temporary drop in orders or were unable to fulfill promised agreements due to a lack of materials. A situation like this is annoying for all sides: for employers, employees and customers alike. Since no or too little money comes in during such times, depending on the duration of the situation, continued payment of wages may be on the line. Terminate employees for operational reasons? One alternative to job cuts is short-time work compensation.

Short-time working – what exactly does that mean?

The number of hours to be worked is stipulated in every contract. However, various factors and unavoidable events can lead to employers having to temporarily reduce the working hours of their employees – and with them the pay for the affected employee groups. Such a measure may sound drastic at first, but it is an alternative to dismissal for operational reasons and thus to job cuts. It is a win-win situation for both parties: The short-time workers keep their job and receive almost the same salary despite reduced working hours, as the Federal Employment Agency compensates for a large part of the resulting salary gap by paying short-time work compensation. Thanks to the wage replacement benefit, the company that has applied for short-time work for its employees is relieved financially during the extreme situation and can still retain its skilled workers.

What are unavoidable events that can lead to short-time working?

There must be a “good” economic reason or an unavoidable event for a company to be allowed to introduce short-time working. Self-inflicted wage and work losses or those caused by unfortunate coincidences do not count, but only adverse economic changes that come from outside and over which employers have no influence. Some examples:

• Global shortage of raw materials and supply bottlenecks
• Lack of capital or labor due to significant economic fluctuations
• Natural disasters, pandemics and epidemics
• Transportation problems and lack of transport options
• Decline in demand, falling sales opportunities
• Loss of working hours due to official order
• unusual deviating weather conditions

What types of short-time working allowance are there?

Not all short-time working benefits are the same. There are not only different reasons that can lead to a temporary loss of earnings, but also different types of wage replacement benefit. The Federal Employment Agency speaks of three forms, each of which has a different purpose. In all cases, the amount of the specific continued payment of wages corresponds to the amount of the normal short-time allowance.

Cyclical short-time working allowance

This term refers to the continued payment of remuneration if a company is temporarily unable to work due to unavoidable events or economic reasons. The amount of compensation depends on the net pay difference resulting from the reduction in working hours. The application to the Federal Employment Agency must always be made in writing. In principle, all companies with at least one employee are eligible.

The transfer short-time allowance

A company can apply for transfer short-time allowance for its employees if it is unavoidable to permanently cut jobs for economic reasons. The wage replacement benefit is intended to facilitate the integration of employees into new companies and support them financially during the transition. Prior transfer advice from the Federal Employment Agency is a prerequisite for claiming transfer short-time allowance.

The seasonal short-time allowance

Companies in the construction industry, for example scaffolders, gardeners and landscapers or roofers, can apply for short-time working allowance for their employees subject to social insurance contributions in the event of bad weather conditions. The period between December and March is considered the bad weather period. Similar to cyclical short-time work, the bad weather regulation only applies in the event of a temporary and unavoidable loss of working hours.

What requirements must be met to register for short-time working?

In addition to the economic reason or the unavoidable event on which the notification of short-time work is based, further criteria must be met. For employers, for example, it must be a significant loss of work with a loss of pay of at least 10 percent. But what does significant mean? It does not mean that all employee groups in a company must be affected by the reduction in working hours, but significant means at least one third of employees. Companies with only one employee also have the option of applying for short-time working allowance.

In addition, the significant loss of working hours with loss of pay must only be temporary. In principle, it should be possible to expect that it will be possible to return to regular working hours during or after the period of short-time working allowance. A further prerequisite is that the company or business has already done everything possible to reduce the loss of working hours, for example by using employees’ work credits or vacation entitlements from the previous year.

Short-time work and collective agreement

It is possible to include provisions on short-time working in the collective agreement. This is known as a “short-time working clause”. As part of the collective agreement, it must contain, among other things, a notice period. This stipulates when employers must inform their employees about the application for and introduction of short-time work.

Short-time work and works council

The Works Constitution Act stipulates that the works council (if present) must agree to the registration of short-time working. If it does not, the employer’s hands are tied. Even if all affected employees agree to the measure – if the works council does not give its consent, the company cannot order short-time working. If the two parties cannot find a joint solution, the conciliation committee can be called upon to make a ruling.

Notification of short-time work: How to proceed as an employer

To make use of the short-time work regulation, you must notify your local employment agency of the loss of working hours in writing or electronically. Please note that the notification must be received in the month in which you wish to start short-time working. Furthermore, the application for short-time working allowance must be completed and submitted.

Once it has been checked whether you are entitled to the wage replacement benefit and your application has been approved, calculate the amount of the short-time working allowance. You can find out exactly how to do this in the next section. During the period in which your employees are on short-time work, you as the employer initially pay both the reduced wage and the calculated top-up amount per calendar month. However, the short-time working allowance will be reimbursed to you by the Federal Employment Agency.

How is the amount of short-time working allowance calculated?

Short-time working changes the composition of wages. One part is the reduced net pay and the other is the short-time working allowance. How high the reduced salary is depends on how many hours the working hours were reduced per calendar month. The net pay difference is now used for the short-time working allowance, i.e. target pay for full employment minus actual pay for short-time working.

However, the continued payment of wages does not cover 100% of the difference. Single people and those without children are reimbursed 60% and households with children 67%. This means that anyone who has to go on short-time work will receive less pay during the reduction in working hours. Nevertheless, this measure is still the best solution for employees. In the event of dismissal or redundancy, there is a risk of much higher financial losses and the complete loss of the job.

The employer is responsible for calculating the short-time working allowance. The calculated value is communicated to the Federal Employment Agency.

The employer subsidy

As an employer, you can support your employees with an allowance for short-time work. However, employees are not entitled to this. The employer allowance was tax-free during the coronavirus pandemic. However, it is now subject to contributions again as soon as it, together with the short-time working allowance, exceeds 80% of the lost pay.

Entitlement period and duration of entitlement to short-time working allowance

Like all other provisions and regulations relating to short-time work, the maximum duration of a wage replacement benefit in the event of temporary, unavoidable loss of working hours is set out in the Third Book of the German Social Code (SGB III). Short-time working allowance can be granted for up to twelve months, provided the requirements are met. If the period of entitlement is interrupted for at least one month, the period is extended. If the interruption to short-time working lasts for more than three months, a new application for short-time working allowance must be submitted to the relevant employment agency.

Short-time work and social insurance

The receipt of short-time working allowance is associated with financial losses for the affected groups of employees, but not with compromises in terms of their social security. The social security contributions for the reduced pay are borne equally by employers and employees as usual. The employer alone must pay the social security contributions for the working hours lost due to short-time working. These are reduced to 80 percent.

Conclusion: Short-time work in companies

Whether it’s the war in Ukraine, flooding or coronavirus – recent events have shown that almost any company can be hit by a significant loss of working hours with loss of pay due to unforeseeable and unavoidable events. Those who lay off their employees for operational reasons in this context may be saying goodbye to qualified and well-trained specialists who will have to be found and trained as soon as the company’s economic situation improves again. One alternative is the introduction of short-time working. It prevents job cuts and ensures that employees are fully operational as soon as working hours increase again. Further advantages: Short-time work compensation can be introduced immediately and reduces costs for employers, as the Federal Employment Agency relieves companies of the burden of continuing to pay the affected employees’ wages. Terminated employees are instead entitled to their full salary until the end of the notice period.

The temporary introduction of short-time working benefits increases the workload for HR management, especially as not all employee groups are affected to the same extent. A digital solution such as the Teamhero software can be helpful here: it collects all payroll accounting, personnel files, hours worked, vacation entitlements, absences, work schedules, etc. in one place and allows quick access to all the necessary data in the event of operational changes – such as the introduction of short-time working.