Germany supports employers by facilitating the payment of short-time work benefits (“KUG”). KUG is a service provided by the Federal Employment Agency to safeguard jobs and avoid redundancies when employees are temporarily unable to be employed. The previous regulations in this regard have been considerably improved. The new regulation is limited in time and is to expire at the end of 2021.

What is KUG?

KUG is paid by the Federal Employment Agency to compensate for the fact that a temporary reduction in working hours (and hence pay) is agreed between employees and the employer in a company or part of a company. If there is a works council, its co-determination rights must be observed.

Considerable loss of working hours

At the present time, there are two situations, in which employers can apply for KUG:

• temporary closure of the company by the authorities means a complete loss of work for at least a large part of the workforce; or

• an interruption in supply chains or a decline in demand for products or services means that employees cannot be employed at all or can only be employed on partial hours.

The new conditions for KUG

In cases of a temporary and unavoidable loss of working hours (which should generally apply in the case of a corona-related loss of working hours), there is an entitlement to KUG if at least 10 per cent of the employees of the company or part of the company suffer a reduction in pay of more than 10 per cent each. This is assessed by specific business unit where some are severely affected by the loss of working hours, but others only slightly affected or not at all. The loss of working hours is to be determined individually for each employee of the company or part of the company, so that the proportion of short-time work can also be different for each employee.

The employer must also do everything in its power to avoid or delay the loss of working hours for as long as possible, for example by granting leave and reducing overtime. However, it no longer has to build up minus hours on the employees’ working time accounts, as was the case under the old law.

The introduction of short-time work requires – and this must be considered even in times of crisis – a proper legal basis in the relationship between employer and employee. In addition to a corresponding provision in the employment contract or an applicable collective bargaining agreement, the introduction of short-time work is possible by means of a works agreement. When notifying short-time work, the Federal Employment Agency requires proof of a corresponding legal basis (contract, agreement, CBA, etc).

Amount and duration of KUG payments

The amount of KUG depends on the extent of the loss of work in the corresponding calendar month.  For employees with at least one dependent child, the KUG is 67 percent of the net loss of earnings in the corresponding calendar month, and for other employees 60 percent. However, there is a cap. Social insurance contributions attributable to the KUG are at least partially reimbursed to the employer by the Federal Employment Agency. KUG can be granted for a maximum of twelve months.

The application procedure

The application for KUG is made by the employer. The employer must notify the Federal Employment Agency of the loss of working hours. The Federal Employment Agency then issues the employer with a written decision as to whether the operational requirements are met. The employer can then apply for the KUG for each affected employee, providing proof of the personal loss in each case.

Conclusion

In times of crisis, short-time work is a government-subsidized means of temporarily reducing personnel costs for employers and so of preserving employments which might otherwise be lost. After the crisis, employers can in that way more easily immediately resume or expand production without having to hire and train new employees. In the past, short-time work and KUG have already helped the country’s companies in recessions several times. Since the current situation is obviously an absolutely unprecedented situation for everyone, we assume that the Federal Employment Agency will examine applications for KUG favourably. We also believe that the acceptance of the introduction of short-time work is currently high among employees, not least because of the prospect of help from KUG via their employers.

Under no circumstances should employers lose sight of the purpose of KUG. It is intended to stabilize the labour market and secure jobs in temporary times of crisis. It is therefore the wrong tool if a permanent loss of work is to be expected.