Please stay! How companies can strengthen staff retention despite short-time work

For some companies, the COVID crisis and short-time work are already in the seventh month. Even if many affected employees initially indicated their understanding with the financial limitations associated with short-time work, the patience and solidarity of many are gradually reaching their limits. A lack of prospects and opportunities and the loss of income mean that companies can fear that highly sought-after professionals and high performers will leave for greener pastures, if they have not already experienced an exodus.

While there are some countermeasures employers can take to encourage employees to stay, these measures are not normally for free. This article looks at the options for strengthening employee retention despite short-time work.

Statutory supplements for short-time allowances

The cheapest – it’s even free for employers – option to encourage employee retention is the use of the new statutory provisions on the progressive increase of short-time work allowances (KUG) until 31 December 2020: the amount of benefits reimbursed by the Employment Agency increases in the fourth month that the allowance is drawn to 70 or 77% and from the seventh month it increases to 80 or 87%. For this to apply, the employee must be facing a loss of at least 50% of their wages. However, the loss of wages does not have to be this low all the time: it is sufficient if it is this low in the fourth and seventh months respectively. At the end of the third and sixth months of drawing the allowance, it will be assessed whether there is a loss of at least 50% of the wages for the month. In this respect, it should be noted that the assessment of the duration that the allowance has been drawn is calculated individually, based on the allowance month for each individual. It does not matter if the allowance is drawn for a continuous period. Where there are gaps, the total period can still be calculated as long as it all within the period from March to December 2020.

This gives employers the possibility to manage short-time work so that the loss of wages is at least 50% at the critical time, ensuring that the employees fulfil the requirements in order to benefit from the supplements. Of course, there must still be the required loss in working hours and the codecision rights of any works council must also be respected.

Voluntary increase in the short-time allowance by the employer

In addition to the supplementary allowances from public funds, employers can also increase the short-time allowance from their own funds. These supplementary payments are not subject to social security contributions or tax until they reach 80% of the difference in net salary and are not taken into account for the KUG. Voluntary increases in allowances are particularly interesting for companies that do not benefit from the statutory allowances because the percentage of employees who are not facing short-time work is too high or because the period of short-time work is not long enough. The voluntary allowances do not have to be paid the whole time, but can be promised for specific months, for example. In addition, voluntary payments do not affect the thresholds that must be fulfilled for the receipt of KUG (at least 10% loss in wages of at least 10% of workers).

In addition to the principle of equal treatment, the introduction and adjustment of voluntary supplementary payments must respect the codetermination rights of the works council in accordance with § 87 (1) No. 10 Works Constitution Act (BetrVG). Note, however, that these restrictions relate to the principles of distribution and not the question of whether the employer will make supplementary payments at all. How much money the employer will make available for these payments, what the purpose of these payments will be and which circle of persons should receive the payments is a question for the employer.

COVID bonuses

The special provisions that have been adopted also give employers the option to pay subsidies and support in the form of tax-free and social security free “COVID bonuses” of up to EUR 1,500 to their employees in order to mitigate the extra burdens caused by the corona crisis. There are no restrictions based on sector or activities. Such bonuses are tax-free even if the employee is receiving short-time work allowances. In addition, the COVID bonus will not affect the amount of any short-time work allowance.

Like the supplementary allowance, the corona bonus also does not affect the thresholds necessary for short-time work to be implemented within the company. The grant of COVID bonuses is therefore interesting for companies that have a loss of working hours only just above the necessary 10% but that still want to give their employees a swift and clear positive boost. Any COVID bonus must also respect the principle of equal treatment, so that any differentiation between employees must be justified. In addition, works councils have codecision rights with respect to the grant of voluntary one-off payments, such as the corona bonus, in the same way that they have codecision rights for the grant of supplementary allowances.

Caution when seeking to repurpose or change the dates of Christmas bonuses

Quite often, when seeking to quickly motivate employees and reduce their financial burden, employers will consider moving forward the payment of any holiday or Christmas bonuses that would otherwise be paid. Financially, this is a less radical step for an employer than the payment of supplementary allowances or a COVID bonus.

Bringing forward the payment of such one-off bonuses is a double-edged sword: while they are not taken into account when calculating the amount of the KUG and will not reduce the amount of any short-time work allowance that employees will receive, they will, however, have an impact on the operational thresholds that must be fulfilled (more than 10% loss of earning for at least 10% of the employees). In the worst-case scenario, the well-meaning early payment of bonuses can mean that, for the month in which the bonuses are paid, a loss in the claim to short-time work allowances for the whole site and for those who have indicated the loss of work to the Agency for Employment. Incidentally, these negative consequences can also be threatened by the regular, i.e. not premature payment of a contractually owed bonus. However, employers should avoid exposing themselves to this problem earlier than necessary.

If employers are considering premature payment of bonuses, it is important to obtain legal advice tailored to your specific circumstances in order to avoid any undesired, fatal consequences.

Dr Corinne Klapper

Jasmin Onderscheka

Please note:A similar version of this article appeared in the Newsletter of the IHK Schwaben of 2 July 2020.


Labour Law Covid Short-Time Work

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