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Short-time work and short-time allowances in Germany

The instrument under German Law for helping employers in a crisis where they can no longer afford to continue to employ employees for a temporary period of time is the so called Short-Time Allowance (KUG) paid by the Federal Employment Agency (BfA) provided that the employer has implemented short-time work.

Short-time work in this context means the complete or partial, however, always temporary, "closure" of the company (by reducing the working time of the employees, for example as a result of a drop in orders due to COVID-19). Short-time work is a prerequisite for the KUG which is paid by the BfA to the employer; the employees continue to assert their (reduced) remuneration claim against the employer but receive compensation of 60% or 67% for their loss of earnings (see below). A two-step procedure is in place for the application of KUG (notification and application, see below), which is prone to delays (see notes at the end).

On March 14, 2020, the Short-time Working Allowance Amendment Act, which had already been passed the day before, was announced. The draft law, which applies retroactively from 1 March 2020, provides for the Federal Government to be authorized to issue decrees, on the basis of which it will be possible to obtain the KUG more easily. It is envisaged that the BfA will take over social security contributions under the new rules.

Short-Time Work
The implementation of short-time work requires a legal basis in the employment relationship either in the form of works agreement, collective bargaining agreement or statutory provisions or, where such collective regulations are not available by respective provisions in the individual employment agreements. To the extent that no collective regulations exist or can be negotiated with employee representatives and the employment contracts, as rather common, do not provide for the possibility of the employer implementing short-time work, the employment contracts with all affected employees would need to be amended which is often difficult to achieve as it would require either amicable solutions or alteration dismissals, which however were subject to the general laws on protection against dismissal.

Thus, short time work is easiest to implement where already foreseen in collective agreements or where a works council is existent with whom a respective works agreement can be entered into (often collective bargaining agreement only provide for a general framework but leave the actual agreement of short time work to the employer and the works council). Such works agreement has to include comprehensive provisions on the duration, location and distribution of the short-time work, as well the affected employees or departments.

As a result of short-time work, the working time (and accordingly the remuneration) is reduced in whole or in part for all or certain employees of a company (or a part of a company or a company department). Instead the employees will be entitled to KUG (and, depending of the arrangement some supplementary payments made by the employer). The KUG will be paid out by the employer who in return can claim reimbursement of the KUG against the BfA (depending on the satisfaction of certain requirements, see below).

Short-Time Allowance – KUG
In order to be entitled to KUG, the introduction of short-time work as outlined above must be notified in writing (by form) to the responsible Institute for Labor (AfA), which is the AfA at the employer's headquarters. Since currently most AfAs are closed to the public, the notification should be made online via the e-services portal of the AfA.

The notification must be reasoned (c.f. below) and described in detail, where a works council exists, a statement of the relevant works council must be attached. Upon notification, the proper introduction of short-time work is to be confirmed by the authority "without delay" (which however, may currently take a while due to a significant amount of short time work notifications). In terms of timing, the notification should be made no later than upon expiry of the month for which KUG shall be claimed for the first time, e.g. if KUG shall be claimed as from March, the notification should be made no later than upon 31 March, if possible (thought there are exceptions for unforeseeable events it would be safest to keep this deadline)

If short-time work has been introduced and properly notified and reasoned, the employer can apply for the reimbursement KUG as from the months in which the notification was made. This is done in writing (by form) within a preclusive period of 3 months, i.e. if the notification was made in March 2020 and the first KUG was paid by the employer in March 2020 as well, reimbursement of the March amounts must be claimed no later than by June 2020. The AfA of the district in which the payroll accounting office is located is responsible (may therefore differ from above).

Based on the reasons given in the notification the AfA will grant the reimbursement of the KUG if the following preconditions are satisfied:

  • A significant loss of working hours, which in return lead to a loss of remuneration is required, i.e. economic reasons or an unavoidable event (whilst COVID-19 pandemic is recognised as such event) lead to a loss of working time of at least 10% of the employees of the company in the respective calendar month; these employees in return are affected by a loss of remuneration of more than 10% of their gross remuneration
  • The employees for whom reimbursement of KUG is claimed have not been issued notice of termination
  • The loss of working hours must be "temporary", i.e. after expiry of the KUG period, a return to normal working hours has to be expected.
  • The loss of working hours must be "unavoidable", i.e. it may be necessary to take any remaining vacation days; the use of working time accounts in the form of initially building up negative balances on working time accounts is waived following the retroactive entry into force of the decree on the simplified receipt of KUG.
  • In personal terms, the entitlement to KUG is limited to "non-terminated" employees who continue to be employed subject to statutory insurance and suffer a loss of remuneration (see above). In accordance with the decree on the simplified receipt of KUG, leased employees are also be entitled to KUG; there is no difference in treatment with regular employees. 
As a consequence, the employer has to pay out the KUG himself, but is reimbursed by the BfA upon request. However, a reimbursement can be expected after about 14 days at the earliest. The KUG amounts to 60% of the net wage difference (67% for employees with children). Social security contributions are reimbursed 100% by the BfA in accordance with the decree on the simplified receipt of KUG. The maximum period for which KUG is paid is basically 12 months but can be extended to 24 months by the legislator, for example in view of the continuation of the COVID-19 pandemic.

Information on implementation
A bottleneck in applications to the AfA is to be expected and, as a result, considerably longer processing times. This can essentially only be avoided by submitting applications as early as possible and by using the e-service portal (see above). It is essential that the notification and application are as comprehensive and precise as possible in order to avoid delays caused by enquiries from the authorities. The notification to the relevant authority should include:

  • Reasons for the loss of working hours; Comparative figures showing underutilization
  • Information on products/services; Main clients or contractors
  • Information on the temporary nature on the loss of working hours
If there is no corresponding works agreement on short-time work in a company with a works council, it should be concluded on short notice.


Dr. René Döring, Partner

Dr. Ulrich Sittard, Counsel

Dr. Niklas Eckert, Associate