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What is short-time work?

How is short-time work defined?

Short-time work is a temporary reduction in company working hours when the following conditions are met. It is usually associated with a corresponding reduction in the employee's salary. These employees can use the short-time allowance unemployment insurance to get through temporary job or production difficulties. 

Legal basis

Regulations on the prerequisite and application of the short-time allowance can be found in §§ 95 to 109 SGB III.

Control of salary types 

Prerequisites 

An entitlement to a short-time compensation exists if the following requirements are met according to §95 SBG III : 

1. There has been a significant loss of working hours with loss of remuneration
2. the personal requirements for entitlement to KUG are met
3. the corporate prerequisites for the entitlement to KUG are met
4. the employment agency was notified of the loss of working hours .

How is a substantial loss of working hours defined?

A loss of working hours is considered to be significant according to §96 (1) SGB III if the loss of working hours is due to:

• is based on economic reasons or an unavoidable event ,
• is temporary ,
• is unavoidableand 
• at least one third of the people employed in the opening are affected by a loss of more than 10 percent of their monthly gross salary in the relevant calendar month (entitlement period).

Note:
The first accrual period starts on the first of the calendar month in which the loss of working hours occurs and the minimum requirements are met.

An economic cause is usually an event that results from the business operations of an organization. These could be, for example, a lack of resources in production or a lack of sales, which could disrupt or delay operations. 

An event is considered to be unavoidable if the loss of working hours is due to exceptional climate conditions or is caused by official measures. These could be, for example, flooding or official instructions in response to a pandemic. These regulations do not apply to workplace accidents that are due to usual weather conditions, such as a loss of work during the winter months for an organization in the construction industry. 

In addition, a short-time compensation may only be granted if the loss of working hours is only temporary and the business will return to full working hours in the foreseeable future.

A loss of working hours is considered unavoidable if the employer unsuccessfully attempted to avert or limit the loss of working hours before applying for KUG. Even while on a short-time compensation, the organization shall make every effort to reduce or eliminate the lost working hours. Measures to avoid loss of working hours can include warehouse and clean-up work, temporary employment in a different section, or reducing overtime. Deficit hours can also be considered as a possibility, as long as it’s within the working hour agreement.

What are the personal requirements?

The personal requirements for KUG according to §98 SGB III are met if: 

• the employee continues to work that is subject to mandatory unemployment insurance after the start of the loss of working hours
• the employee takes up employment that is subject to mandatory insurance for compelling reasons, for example, if the work contract was agreed before the short-time work was foreseeable
• the employee is taken on in employment subject to mandatory insurance contributions after their vocational training has been completed

Note:
Trainees are usually in an employment subject to mandatory insurance and are, in effect, entitled to a short-time compensation. However, this will take effect after a time frame of six weeks at the earliest. Until then, the employee is entitled to continue to receive their training allowance.

At the same time, the employment must not have been terminated or ended by a termination agreement.

Note:
A fixed-term employment contract does not constitute a termination, even if the employment period accrues during the KUG period. This means that the employee may receive the short-time compensation until their last day of employment. 

The following employees are not exempt from short-time compensation:

• Employees who have reached the age for a standard retirement pension within the meaning of the statutory pension insurance 
• Employees who receive a pension due to a full disability
• Employees in marginal employment 
• Student interns

In certain cases, the following employees are also excluded from receiving benefits, for example, to avoid double benefits: 

• Employees who receive sickness benefits 
• Employees who participate in further professional training as part of their employment relationship and are entitled to unemployment benefits or interim benefits during further training 

What are the operational requirements? 

According to § 97 SGB III , KUG may only be granted in organizations in which at least one employee is employed. This also applies to trainees. An enterprise can also be an enterprise department within the meaning of the KUG. 

Note:
The employee total should include employees who are sick, on leave, or who left during the accrual period. Not counted are trainees, employees participating in professional development courses who are entitled to unemployment or transition benefits, and employees whose employment is suspended because they are on parental leave, for example. 

Period 

Notification of short-time compensation 

According to §99 (2) SGB III , the short-time compensation can be granted at the earliest from the calendar month in which the notice is received by the employment office. At the same time, the employer must be able to provide evidence of the loss of working hours and the company's operational requirements. The application to the Bundesagentur für Arbeit can be in writing or electronically. 

Note:
A delayed notification for the previous month will usually not be counted. The only exception to this is in the case of a loss of working hours due to an unavoidable event. If the notification is made immediately after the event. 

Period

the short-time allowance is granted in accordance with §104 (1) SGB III for a maximum period of 12 months . This begins with the first calendar month in which KUG is paid in the company. The expiration is calendar-based and always ends on the last day of a calendar month, even if they revert to full working hours during the course of a month. 

If no KUG has been paid for a continuous time frame of at least one month, the entitlement period is extended by this time frame. In case of a break of three or more calendar months, a new entitlement period generally starts. This means that the loss of working hours must be notified again. 

Note:
In exceptional circumstances in the labor market, the government may extend the KUG entitlement period to 24 months in accordance with §109 (4) SGB III . 

KUG amount 

In accordance with §106 SGB III , the amount of KUG is based on the flat-rate net salary loss in the respective entitlement period (calendar month). This is calculated as the difference between the flat-rate net salary of the employee's target salary, i.e. the salary that the employee would have received without a loss of working hours, and the flat-rate net salary of the current salary, i.e. the salary that the employee actually received during the short-term work period. This is referred to as the net pay difference. 

What is the target salary?

The target salary is the gross salary that the employee would have received in the relevant calendar month without the loss of working hours. The following salary components are included in this calculation: 

• the gross remuneration that is subject to contributions
• Employer-financed contributions
• Performance and hardship bonuses 
• Surcharges for Sunday, night work and public holiday work if they are subject to tax or social security contributions

Not included:

• overtime compensation
• a one-time salary payment
• tax and social security-free surcharges for Sundays, night work and public holidays

What is the actual salary? 

The actual salary is the gross salary that is achieved in the respective calendar month, including all ongoing salary components to which the employee is entitled, such as compensation for overtime and bonus payments. This does not take into account any one-off salary payments. 

KUG benefit rate

To calculate KUG based on the net salary difference, there are two rates of benefit that can be applied for the employee. Firstly, 67% (increased benefit rate) for employees who can provide evidence of a child as defined in tax law and 60% (general benefit rate) for all other employees who are entitled to KUG. 

KUG with a higher benefit rate is granted if a child allowance of at least 0.5 is entered in the electronic tax card. If this is not the case, but the employee has a child on the basis of §32 (1), (3) to (5) EStG,the relevant certificate must be submitted to the employment agency and the employer. This applies to the following employees, among others: 

• The employee has the income tax class V and the child allowance has been entered on their partner's tax card
• Employees in the income tax class VI

Calculation of KUG

To determine the amount of the KUG job, the employment agency provides a table for the calculation of short-time work benefits ( KUG ).

The general calculation of KUG requires that a calculated benefit rate be read from the table for both the target and the actual salary. The KUG for the respective calendar month then forms the difference between these two benefit rates. 

Example:

An employee with the following characteristics will receive a short-time compensation in June 2024

• Tax category IV
• Child allowance 0.5 (benefit rate 1 with 67%)
• In June, the organization goes into short-time work, with employees only working 60% of their actual working hours.
• Target salary: €2,000.00
• Actual salary: €1,500.00

This results in the following calculation: 

Additional income during KUG

Special rules apply to employees who receive remuneration from another employment or self-employment during the period they are receiving KUG.

case 1: employment started during KUG

If the employee has commenced employment or is self-employed while they are receiving KUG, their gross income will be taken into account in the full amount when calculating KUG as actual remuneration. It is irrelevant whether this employment is in marginal employment or subject to social security contributions. The employee is required to submit a supplementary income certificate. 

 

case 2: The employment started before KUG

If the employment or self-employment was started before receiving KUG and is simply continued, the generated income is not taken into account in the KUG calculation. This will also apply if the employee's salary increases during the KUG cycle. 

Subsidy for short-time allowances 

It should be stated upfront that there is no legal entitlement to a KUG subsidy payment. However, in some company agreements, collective and employment contracts, this payment during a loss of working hours is agreed. If a subsidy of this type is paid, it is generally subject to tax, but is non-contributory provided it does not exceed 80% of the lost remuneration. 

Example 

An employee with the following characteristics will receive a short-time compensation in June 2024

• Tax category IV
• Child allowance 0.5 (benefit rate 1 with 67%)
• Target salary: €2,500.00
• Actual salary: €1,250.00

This results in the following calculation: 

Determination of a possible non-contributory subsidy: 

If the employer paid a subsidy of more than €344.51, the excess part would be subject to contributions: 

• the employer pays a contribution of €500.00
• the maximum non-contributory amount would be €344.51 

Accordingly, €155.49 would have to be deducted. 

Note:
The exception rule for the tax-free payment of subsidy was only in place from 01.03.2020 to 30.06.2022 during the coronavirus pandemic.

KUG during public holidays

If the workplace accident falls on a public holiday, a separate regulation for KUG applies. In this time frame, the employee is not entitled to KUG, but to public holiday salary according to §2 (2) EFZG. However, due to collective agreements or employment contracts, the employer does not pay the full salary of the employee in this case, but only the short-time salary plus KUG. The amount is subject to contributions in full. 

KUG and incapacity for work 

If an incapacity to work (AU) falls within the KUG reference period, a distinction is made between two cases based on the start date of the incapacity to work: 

1. the inability to work occurs at the same time as or after the start of KUG
2. the inability to work occurs before the start of KUG

case 1: the inability to work occurs at the same time as or after the start of KUG 

Example:

• the short-time work period begins on 01.07.2024
• the employee is sick from 10.07.2024

In this case, the AU begins during the KUG entitlement period. The continued payment of KUG benefits rests with the Employment Agency. ´

Note:
If working hours without KUG had been planned for the AU period, employees would continue to be entitled to full continued payment of remuneration by their employer. 

 

case 2: The inability to work occurs before the start of KUG

Example:

• the short-time work period begins on 01.07.2024
• the employee is sick from 10.07.2024

The AU thus begins before KUG is paid, and the employee entitles the employee to sick pay in the amount of KUG for the lost hours. This amount may be reimbursed to the employer by the responsible health insurer. 

More types of short-time compensation

Transfer KUG

If the organization has to reduce staff permanently due to a permanent reorganization of its operations, the employees concerned are entitled to transfer short-time allowances. This will compensate the loss of salary for that period for a maximum of 12 months. 

Contact your employment agency for more information. 

seasonal KUG

During the period of inclemency from December to March, the construction industry can use the seasonal short time allowance to make up for any lost income. 

Contact your employment agency for more information.