Increased short-time working allowance and extended additional in-come as of June 2020 possible

|  Labor Law

As early as April, the leaders of the Grand Coalition had generally agreed to gradually increase the short-time working allowance, which had previously been set at 60 % and 67 %, respectively (for employees with at least one child), of the lost net remuneration in accordance with the statutory regulations, in order to minimize the financial losses that may arise for employees as a result of Corona-related short-time work.

In the meantime, such plan has become law: With the Federal Council’s approval, the Federal Parliament passed the "Law on Social Measures to Combat the Corona Pandemic (Social Protection Package II)" on May 20, 2020. The law was published in the Federal Law Gazette (BGBl. I 2020, p. 1055) on May 28, 2020 and came into effect on May 29, 2020.

Art. 1 of the law provides for the short-time working allowance to be increased in two steps, as of the fourth and seventh month of payment, as follows:

  • As of the fourth month of payment: to 70 % and 77 %, respectively (employees with at least one child), of the lost net remuneration
  • As of the seventh month of payment: to 80 % and 87%, respectively (employees with at least one child), of the lost net remuneration

This results in the following short-time working allowance gradation:

Step 1: 1st to 3rd month: 60 % (67 % for parents)
Step 2: 4th to 6th month: 70 % (77 % for parents)
Step 3: as of 7th month: 80 % (87 % for parents)

Important

The entitlement to the increased allowance pursuant to step 2 and 3 requires for the person subject to short-time work to suffer a loss of remuneration, i.e. a difference between the contractually agreed and the actual remuneration, of at least 50 % in the respective calendar month. The decisive factor in determining whether or not such requirement has been met, is the scope of lost earnings in the month during which the (increased) short-time working allowance is to be paid (as of the 4th month of payment). Whether or not the loss of earnings amounted to at least 50 % prior to the increase, i.e. during the first three months of short-time work, is irrelevant for the increase.

Two things must be noted

  1. The calculation of the amount of short-time working allowance does not take into account the period for which the short-time working allowance is paid in the company as a whole, but the individual payment period for the respective employee. Accordingly, there may be different terms of payment and, consequently, different amounts of short-time working allowance within one company. 
  2. Reference month for the individual payment term’s calculation is March 2020. This means that the counting of payment months shall start from March 2020. Months prior to this reference date during which an employee has already received the short-time working allowance are not taken into account. Therefore, the increased short-time working allowance of the 2nd stage can be paid from June at the earliest, the allowance pursuant to the 3rd stage from September 2020 at the earliest. The loss of remuneration must therefore be at least 50 percent as of June or September if the increased short-time working allowance is to be paid. According to the new legal regulation’s wording, however, it is not necessary for the loss of remuneration to exceed 50 percent for the entire period (i.e. from March 2020). If the loss of remuneration is less than 50% during the first three months of payment, this does not prevent the increase as of the 4th month of payment, provided that the loss of remuneration amounts to at least 50% in this 4th month (see above).

The regulation regarding the short-time working allowance’s gradual increase shall be limited until December 31, 2020. However, the regulation’s overall effects and the number of employees who are going to benefit from such regulation remain to be seen. 

If collective agreements or works agreements provide for a higher short-time work allowance (by means of a corresponding top-up payment) at an earlier point in time than the 4th month of payment, these regulations, which are more favorable for the employees, will generally remain in effect. Depending on the individual case, such agreements should be adapted in order to prevent an additional payment of the top-up amounts, which were previously based on a statutory short-time working allowance of 60 or 67%, in addition to the increased short-time working allowance.

Employers whose staff has already been on short-time work since March should prepare themselves for the fact that from June 2020, they will have to make higher advance payments than under the previous statutory short-time work allowance. Until the (increased) short-time working allowance will be reimbursed by the Federal Employment Agency, they will have to bear the financial burden resulting from the increase.

Besides the aforementioned increase of the short-time working allowance, the Act on Social Measures to Combat the Corona Pandemic, which came into force on May 29, 2020, also allows employees affected by short-time working a higher amount of extra earnings from May 1, 2020 until the end of the year.

Previously, the following applied: If an employee starts a new secondary employment after the introduction of short-time work, the remuneration earned from such secondary employment will be credited to the short-time working allowance. Only a few, specific occupational groups were excluded from such crediting rule.

Now, the following applies: Since May 1, all employees on short-time work can earn additional income up to the amount of their original income until December 31, 2020, without these additional earnings being credited against the short-time work allowance. The only condition is that their total earnings must not exceed the total amount earned prior to short-time work. If the total income, i.e. income still paid from their main employment, the short-time work allowance and the additional income, exceeds the normal net monthly income, short-time work allowance will be reduced by the excess income.

Example

Employees who previously earned EUR 2,000.00 net and whose working hours have now been reduced by 50 percent, still receive (depending on the tax bracket) ca. EUR 1,000.00 net from their employer. The employment agency pays an additional amount of ca. EUR 600.00 (60 %) short-time working allowance. Consequently, the employee receives a total amount of only EUR 1,600.00 instead of the previous EUR 2000.00. He can earn the difference, that is EUR 400.00, from a secondary employment without a reduction of the short-time working allowance. If the short-time working allowance or the remuneration should increase during the period of the secondary employment (for example, because the reduced working hours will be increased again), the additional earnings must also be reduced accordingly, otherwise they will be credited.
 
Practical Tip

  1. Many (works) agreements on short-time work stipulate that the employer provides top-up payments or a subsidy in addition to the short-time working allowance. These provisions should be reviewed and renegotiated, if applicable, if they are not to be paid in addition to the increased statutory benefits as of June.
  2. Employers with staff on short-time work should prepare themselves for the fact that – depending on the duration and extent of short-time work – they will have to make higher advance payments of the short-time allowance as of June, i.e. they will bear a slightly higher financial risk than before.
  3. Employees who have been earning additional income since May must expect for such income to be at least partially credited if their short-time working allowance increases as of June.

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