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AmCham Romania Resource Center for COVID-19 Response Business Advisory The success of a Kurzarbeit program depends on its imposed conditions and its flexibility

The success of a Kurzarbeit program depends on its imposed conditions and its flexibility

by bpv GRIGORESCU STEFANICA July 7, 2020
Labor Market, Business Continuity, Legal, Tax & Finance

  • Kurzarbeit brings benefits for employees, employers and the state
  •  What income can an employee get if they benefit from this program
  •  What kind of companies can apply for this program
  •  Flexible measure, applied in Germany for 110 years

The success of the Kurzarbeit model and the willingness of employers to use this support scheme offered to the companies depends on the conditions that will be imposed for accessing it.

The Kurzarbeit model can be found by the name of “Support for a flexible work program” in the “Rebuilding Romania – National Investment and Economic Recovery Plan” launched recently by the Romanian Government. The Government will establish the details regarding the implementation of the flexible work program (Kurzarbeit model) in the period immediately following the announcement.

Kurzarbeit brings benefits for employees, employers and the state. Employees do not lose their jobs and receive almost full pay even though they work less. Employers keep their workforce and have a better chance of bringing the business back, at least to a functional, if not to a profitable level when the activity restarts. The state avoids increasing the number of unemployed people by allocating smaller amounts of money than in the case of unemployment benefits. It continues to collect taxes and social contributions and decreases the pressure for social support to more people in difficulty.

What is Kurzarbeit

The Kurzarbeit concept means short-time work and is an economic model launched 110 years ago, in Germany. Kurzarbeit was also used during the two world wars but became widely known during the 2008 global financial crisis.

OECD estimations show that by the third quarter of 2009 more than 200,000 jobs in Germany had been saved due to Kurzarbeit.

Although Germany’s Gross Domestic Product fell by almost 6% in 2009, the number of employees remained stable.

On the other hand, in other strong economies such as France, Italy, the United Kingdom, Japan, the USA or Canada, the number of employees decreased, the largest contraction being in the USA, up to almost 4%, according to International Monetary Fund data[1].

How much an employee can earn, how much the state can earn

If a company applies for this program, the state subsidies an allowance of 75% of the difference between the gross basic salary provided for in the individual employment contract and the gross basic salary for hours actually worked.

For example, if someone’s working time would be reduced to 50%, the employee would receive 50% of the salary from the employer and 37.5% from the state. This means a total of 87.5% for an actual work time of 50%.

If an employee’s activity would be reduced to 50%, here are some calculations based on different salary levels:

a) Average gross salary (5,201 lei in April 2020) – the state spends 1,950 lei and receives 1,991 lei. The employee receives 4,551 lei as a gross salary.

b) Minimum gross salary (2,230 lei) – the state spends 836.25 lei and receives 804 lei. The employee receives 1,951 lei as a gross salary.

c) Gross salary of 9,000 lei – the state spends 3,375 lei and collects 3,446 lei. The employee receives 7,875 lei as a gross salary.

What kind of companies can apply for Kurzarbeit

For this program can apply the companies that have temporarily reduced their activity and whose turnover has decreased by at least 10% compared to the same month of the previous year. Also, in the economic recovery plan launched by the Government is specified that the measure can be implemented for a minimum period of three to six months and will apply in case of reduced working time for at least 10% of a company’s employees.

I belive that all types of companies with temporarily reduced activity, whether we are talking about SMEs or large companies, will be interested in accessing this program. The measure is expected by the entire business environment in Romania, whether they are companies that have made or not layoffs or companies they have suspended the employment contracts through technical unemployment.

The Government will establish the conditions under which a company can apply for this program period immediately following the announcement.

The interest of the companies to apply for Kurzarbeit is influenced by the evolution of the economy, by the possibility for companies to access several support models and by the condition required to be fulfilled. In fact, the success of this model will largely depend on the level of conditions and restrictions imposed on companies to access it. If the conditions are impossible or too difficult to meet, employers might take measures that are easier to implement, which, in this case, could mean layoffs. The speed of Kurzarbeit implementation is essential for saving as many jobs as possible and even for saving many companies from closing down, so I hope that the program will become operational really soon.

Read also about 10 facts you should know about Kurzarbeit, the short-time work program by means of which you will have received full salary and which can save your job

Labor Market, Business Continuity, Legal, Tax & Finance

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