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In the run-up to Rishi Sunak’s announcement of the Job Support Scheme, speculation was rife that the UK was looking to mirror Germany’s policy of short-time working. Dr Sybille Steiner, dual qualified in UK and German law, examines both interventions and finds the two have little in common.
Most European states have used some form of income support scheme to respond to the coronavirus pandemic. In some cases, countries have set up entirely new income support schemes where none existed before, but in most cases, they have adapted existing short-time working schemes.
The Prime Minister has often boasted about the UK’s ‘world beating’ support for businesses and workers. In the context of the new Job Support Scheme, does that stack up?
It is thought that the Job Support Scheme is based on the German style short working scheme – known as Kurzarbeit, but in fact the two schemes are very different.
The concept of Kurzarbeit has been in existence in Germany for over a century. A system of Kurzarbeitergeld (short-working money) was first introduced in Germany in 1910 to address a downturn in the potash mining and fertiliser industry and it became fully established in 1924 as a response to the economic crisis of the Weimar Republic.
Its purpose is to avoid mass redundancies in an economic downturn and keep a skilled workforce together. It is expected that the costs for the short-time working allowance in Germany this year will be around €30bn.
In August 2020 around 4.6 million employees were on Kurzarbeit in Germany, down from 6.7 million in May.
The UK Job Support Scheme can only be used for employees who work at least 33% of their usual hours. The government may increase this percentage from 1 February 2021 (three months into the scheme). The requirement for staff to work at least 33% of their usual hours means that employers who do not have enough work for them to do (perhaps because of local lockdowns) won’t be able to use the scheme and may be pushed into making redundancies even if their jobs could be viable in the longer-term.
In Germany, the threshold is lower. Kurzarbeit means the temporary reduction of regular working hours or the complete cessation of work due to a considerable loss of work or extraordinary circumstances. In order to partially compensate for the loss of earnings in these situations, a short-time working allowance (Kurzarbeitergeld) can be paid. The short-time working allowance will only be granted if there is a significant reduction in working hours with loss of remuneration, if certain other requirements are fulfilled and the short-time working has been registered by the employer with the Federal Employment Agency.
There is only a significant reduction in working hours if it is due to economic factors or uncontrollable circumstances, is temporary (there must be a certain likelihood that the operation will switch back to full-time work in the foreseeable future), is unavoidable (all reasonable measures must be taken to prevent a reduction in working hours) and, currently in relation to Covid-19, more than 10% of the employees are affected by a loss in remuneration of more than 10%.
The UK Job Support Scheme requires employers to pay the biggest share of the costs. Employers have to pay their employees for all the hours they actually work at their normal rates of pay plus a percentage of the time they don’t work. The government will then chip in. This means that employees will be paid up to two thirds of their usual wage for the time they don’t work. However, employers have to pay a minimum of 55% of the employee’s wages which is then topped up by up to 22% by the government, subject to a monthly cap of £697.92. This means that employers have to pay their staff at their normal rate of pay for time they are not actually working.
However, under the German scheme, the short-time working allowance amounts to 60% of lost net income (67% for employees with children). Until the end of 2021, the government subsidy available actually increases the longer someone is on the scheme. For example, workers who have lost at least half of their income receive subsidies of 60%, increasing to 70% (77% for employees with children) after four months and 80% (87% for employees with children) after seven months. The short-time working allowance in Germany is ultimately paid by the German state which reimburses employers for payments made. Furthermore, employers will also have the employer social security payments for the unworked hours reimbursed by the state. It is not yet clear if UK employers will have to pay Class 1 employer national insurance contributions and pension contributions on both worked and unworked hours.
In the UK the Job Support Scheme will last for six months starting from 1 November. In Germany, Kurzarbeit is generally limited to 12 months. However, if there are exceptional circumstances on the labour market, the maximum duration may be extended to up to 24 months by statutory order. The extension option has been used to extend Kurzarbeit and the short-time working allowance until the end of 2021.
Although the proposed contribution to wages by the government under the Job Support Scheme may be based on the German scheme of Kurzarbeit and short-time working allowance, in reality the difference between the two schemes is stark.
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