The Corona crisis puts the world in its grip and with it, the short-time work in Germany (Kurzarbeit): 3.3 million employees have been put on short-time work in Germany.
Health authorities are working untiringly for months, society sticks together to fight the virus, and an economic shutdown is forcing a large number of companies in Germany to apply for short-time work in Germany.
With an uncertain time comes one question upon another: what’s short-time work and much more, how is the short-time allowance computed? What impact does short-time allowance have on taxes? We've kept a cool head to give you answers to all your questions!
What is short-time work in Germany?
As the term "short-time work" already hints at it, short-time work means that the working hours of some or all of the company's employees are shortened; so to speak, "shortened working hours" due to a shortage of work. As a result, employees work fewer hours than originally agreed upon in their employment contract.
So, perhaps your customers drop out during COVID-19, or your projects can no longer be carried out during the crisis. You're working for an event agency? Then this might even mean that you won't have to work at all during short-time work and you're in fact on a "short-time zero".
“Kurzarbeit in Germany puts the priority on securing jobs: With the law to facilitate short-time work, companies are to be given direct help in avoiding redundancies during COVID-19, allowing the company and its employees to get back on track as soon as the crisis is over.
”
A true "win-win" situation so to say: Short-time work keeps you out of unemployment and allows you to secure your basic needs despite the crisis whilst employers retain qualified employees with company know-how.
Short-time work in Germany affects manufacturing sector hardest
Did you know that based on calculations and estimates by the ifo institute, around 3.29 million people were on short-time working in Germany throughout the corona crisis in October? At the same time, some sectors were hit harder than others by the corona crisis. In October 2020, around 1.34 million employees in the manufacturing sector were affected by short-time working, followed by the retail sector with almost 410 thousand and the hotel and restaurant industry with nearly 290 thousand employees in short-time working.
| Sector | Number of short-time workers in Germany (Oct 2020) |
|---|---|
| Manufacturing | 1.338.066 |
| Retail | 328.791 |
| Hospitality | 285.512 |
| Freelance, scientific and technical services | 165.601 |
| Transport and storage | 162.029 |
| Construction | 122.481 |
How does short-time work in Germany work?
Short-time work in Germany is a state scheme set up by the Federal Employment Agency, under which you as an employee receive 60% of your lost salary compensated by the state.
And in a few steps you receive compensation during short-time work in Germany:
- Your employer reports the shortage of work to the Federal Employment Agency even if fewer than a third of the employees in the company are affected by reduced pay (but at least 10%!)
- Your employer issues you a certificate that specifies the new arrangements for your working hours
- Ta-da, done!
By the way, it's now also possible for temporary employment agencies to register a loss of work at the Federal Employment Agency.
Your company hasn't taken steps to deal with this yet? Get in touch with your HR department!
How is the short-time working allowance computed?
Let's move on to the most pressing part: how much compensation do you get for short-time work in Germany? The short-time work allowance equals 60 per cent of the missing net pay and 67 per cent for parents with children. What's more: your social insurance contributions are fully reimbursed by the Federal Employment Agency when you work on short-time work!
So, let's walk through a simple calculation example. Remember, your salary will be calculated based on the percentage by which your working hours were reduced during short-time work.
Example: You contractually agreed working hours amount to 40 hours per week, for which you receive a gross monthly salary of 1,733 euros.
Scenario: Your employee reduces your working time from 40 hours to 30 hours. This means that you work 75% of your contractually agreed working time and therefore only receive 75% of your other monthly salary. This means, 1,299.75 euros.
Scenario: Your employee now reduces your working time from 30 hours to 10 hours, which is only 25 per cent of your usual working time of 40 hours. Therefore, you only receive one-quarter of your monthly gross salary during short-time work, that is 433.25 euros.
What's for sure, the Federal Employment Agency won't make you wait long for payment: as soon as the documents for the compensation application have been checked, the short-time working allowance will be paid into the employer's account within 15 days at the latest!
No overtime during short-time work in Germany
Once the employer introduces short-time working, he signals "there' s not enough work to keep our employees busy on a full-time basis". Vice versa, your employer can't ask you to work overtime during short-time work in Germany; ultimately, it contradicts the fact that there's still enough work to do.
How are holidays during short-time work computed?
Indeed, doors to other countries aren't wide open inviting you for holidays at this time but taking homebound holidays can still soothe your mind in such a crisis. That being said, the employer must grant you holiday pay at the usual rate.
How can I declare short-time work compensation in a tax return?
Although short-time work compensation is tax-free as a substitute for wages, watch out:
“with the progression proviso it will increase the tax rate on your taxable income!
”
In other words, the general tax rate on all your taxable income (your annual salary and additional income) may be higher, causing you to pay more tax. That's down to the progression proviso and its special tax rate, which is the sum of the rate, the sum of current income and wage replacement benefits. In fact, the higher tax rate is then used to tax your current income.
Better prepare yourself for a tax penalty at the end of the year instead of a tax return. If you plan to live in Germany longer, short-time work might have had an impact on the amount of your pension!
Short-time work at a glance
In short, Kurzarbeit in Germany aims to secure jobs in companies, to keep employees from becoming unemployed and thereby safeguard basic needs at all times. At a glance, Kurzarbeit in Germany should:
- partially compensate for a temporary loss of income and avoid dismissal
- Payout an increased short-time working allowance until 2021 - about 80 per cent of the lost net salary
- Have a maximum subscription period of 24 months.
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