Now up to 87 percent short-time work compensation?

The sentence “We are still at the beginning of the crisis, the consequences of which are not yet foreseeable”, along with its various aspects, seems to be rather abstract in itself, yet the daily flow of bad news gives a foretaste of this extraordinary crisis. As a countermeasure with effect from 15 March 2020, the Federal Gov-ernment has reformed the law on short-time work within the framework of the “Act on the Crisis-Induced Temporary Improvement of the Regulations for Short-time Work Compensation”, which had already proven its worth in the course of the global financial crisis in 2008 and 2009. As a further measure taken by the business community, a resolution was passed last week by the coalition committee, which provides for a gradual increase in short-time work compensation (KUG).

The project has passed another hurdle with a decision by the Federal Cabinet on 29 April 2020 and will now be submitted as a draft law to the Bundestag for a decision to further cushion the social and economic consequences of the corona pandemic (Social Protection Package II).

This article will explore the KUG regulations to provide greater clarity and to also highlight the planned new regulations:

1. Requirements and current amount of KUG

An employee is basically entitled to KUG in accordance with §§ 95 SGB III et seq. if he/she is in a non-terminated employment relationship subject to compulsory social insurance, and if there is a consider-able loss of work with loss of pay within the company, or the specific department of the company, and this is notified in writing to the Employment Agency.

A considerable loss of working hours is deemed to exist if it is due to economic reasons or an inevita-ble event, is of a temporary nature and cannot be avoided. In addition, at least ten per cent of the em-ployees in the company - the hurdle of at least thirty per cent has already been removed within the framework of the reform - must be affected by a loss of earnings amounting to more than ten per cent of their monthly gross salary in the respective calendar month (entitlement period).

Companies which were threatened with insolvency even before the corona crisis are therefore not enti-tled to claim KUG, because the loss of work for economic reasons does not result “temporarily” from the corona crisis.
With regard to the amount of the KUG, a distinction is currently made between the increased compen-sation rate of 67 percent for employees with children to be taken into account for tax purposes and 60 percent for employees without children. Only the so-called net remuneration difference is decisive here, i.e. the difference between the flat-rate net remuneration which the employee should have received in the normal way and the flat-rate net remuneration correspondingly reduced by the short-time work. However, KUG is capped at EUR 6,900.00 gross of the regular monthly remuneration.

2. Decision of the Federal Cabinet

The draft law passed by the Federal Cabinet now provides for the following changes:

KUG is to be gradually increased from 1 May 2020. For employees whose working hours are reduced by at least 50 percent due to the pandemic, this means the following:

For households without children, the previous rate of 60 percent will remain in place for the first three months. From the fourth month, however, the rate rises to 70 percent and from the seventh month on-wards 80 percent of the reduced flat-rate net salary is to be paid out.

For households with children, the previous rate of 67 per cent will also remain in the first three months. Starting from the fourth month, KUG will be increased to 77 percent and from the seventh month to 87 percent.

According to the draft law, the scheme is to apply up until 31 December 2020 at the latest. The Federal Cabinet has already adopted the corresponding draft law to further cushion the social and economic consequences of the corona pandemic (Social Protection Package II). The bill will now be submitted first to the Bundestag and then to the Bundesrat for decision, although no major objections are ex-pected here, so a swift decision can be expected in the next few days. The Social Protection Package II thus implements the planned measures on which the coalition government had already agreed in prin-ciple on 22 April 2020.

3. Summary

The draft law is generally to be welcomed. It increases the level of protection for the employees of ap-proximately 700,000 companies, which have so far applied for KUG for their affected workforce or parts thereof.
However, the application for KUG is still not user-friendly and many individual questions remain unre-solved. For this very reason, extreme caution is required when applying for KUG, since overpayments of KUG which have been made unjustly not only lead to considerable repayment claims, but can even make the management liable to prosecution. This would even amount to so-called subsidy fraud which is an offence that can also be committed negligently. Accordingly, special care should be taken when applying for KUG and external legal advice should be obtained in cases of doubt.