Review of short-time allowance by the Federal Employment Agency

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Since the start of the coronavirus pandemic, many companies have taken advantage of the possibility of claiming short-time work allowance, thus saving considerable costs and at the same time avoiding layoffs. In May 2020, 6.7 million people were receiving short-time work allowance. Unfortunately, the so-called “easy money” is not only an invitation for abuse and fraud but also for unintentional wrongdoing that may be regarded as a criminal offence. Currently, the authorities assume that there are far more than 2,000 suspected cases and damages in the hundreds of millions.
This is why employers should be cautious and act with great care. The legal requirements for mandating short-time work were often created under great time pressure. The employment agencies were usually only able to conduct a superficial examination of the eligibility requirements. The notices were therefore regularly issued subject to subsequent review. The following aspects of short-time work must therefore be observed to ensure correct handling and to avoid clawbacks from the authorities as well as possible penalties.

Requirements for receiving short-time working allowance
The central requirement for the payment of short-time work allowance is the existence of a sudden loss of work, which, among other things, must be based on an unavoidable temporary event. The work loss must be documented for each department, strictly speaking even for each workplace.
Industries that have been hit by the COVID-19 pandemic, such as the restaurant industry, retail trade, companies in the trade fair and event industry or airlines, will have no problems with demonstrating an unavoidable loss of work. The situation is different for companies where there is no connection between the decrease in demand and the coronavirus pandemic, like in the automotive industry or the energy sector, for example. These companies do not only need a credible explanation for the decrease in orders or sales, they need to have continuous documentation of all internal processes.

It is more difficult for those companies to prove that the loss of work is unavoidable. This requires that all reasonable arrangements have been made in the company to prevent the loss of work. Regarding the obligation to provide evidence, this means that it must be documented which types of work can be performed in the home office, for example, and which cannot be performed in the home office and for what reason. In this case, the authorities may also check whether there was a significant amount of overtime at the company before the start of short-time work. The purpose of such an examination is to detect any distortions of the alleged coronavirus effects. The same procedure applies to overtime after the reopening of a temporarily closed company.

Possible effects of falsely received short-time work allowance
Government inspections are concerned with reclaiming short-time work allowance from companies that have been wrongly paid out or overpaid. However, the line to criminal liability of the responsible institutions is quickly crossed even in the case of just negligent behavior. The focus is the criminal liability for fraud and subsidy fraud.
Depending on the type and degree of severity of the case, there is also the risk of penalties of up to ten million euros or even prison sentences, as well as the possibility that a board member or CEO is deemed unfit to serve and asked to step down. Companies are also facing the possibility of exclusion from public contracts.
The authorities usually focus on the management of the companies. However, there is also a risk for the employees. Employees who agree to short-time work when in fact there is no short-time work or who falsely document working hours, for example, can be treated as so-called complicit employees.

Options for current action
The prerequisites for receiving short-time work allowance must not only be given, they must also be provable – and not only today, but also in two or three years. It can be helpful to carefully check all the information, i.e. the actual number of employees, work absences, payroll lists, (remaining) vacation entitlements, etc., and to document them exactly. In addition, the employer should make sure that employees do not continue to work “full time” if short-time work has been agreed. Informing employees about the requirements and risks of short-time work makes sense and avoids the impression that false statements about working hours are tolerated.

Preventive measures
To avoid clawbacks, companies should ensure that there is a responsible person with access to documents, information and verifications. Employment agencies, investigative authorities or customs can request a variety of documents from different areas of the company: Order and cancelation lists, purchase requisitions, work time accounts or availabilities and much more. For working from home, keeping the following records is important: work schedules, timesheets, work notes, emails, Outlook appointments. The HR department, legal department or internal auditors should be involved in checking the requirements for short-time work allowance.

Damage control
If there is a chance that a company has wrongly received short-time work allowance, there is still an opportunity to limit the damage. To do this, companies must review the case in detail and analyze whether there may have been a violation of social security and tax regulations.

Once this assessment has been completed, things should move quickly. After all, only an immediate correction or submission of the necessary evidence before the authorities discover the violation can bring the desired reduced penalties or, in the best case, prevent charges from being brought against the company. Companies can also reveal their own faults to the employment agency as well as to the social security authority and the tax office. Anyone who continues as before despite realizing that the company is not actually entitled to the short-time work allowance is acting intentionally from that point on.

Summary
While short-time work allowance can be a helpful tool in times of crisis, it should never be claimed carelessly. Even if false information was not intended, there may be unpleasant consequences for employers and employees. The authorities will continue to check for years whether the payments to the companies were justified. Those who are then no longer able to prove the legitimacy of receiving the short-time work allowance will have to expect clawbacks, and even criminal investigations.
The utmost important issue at hand for companies to remember is to have proper documentation of all the requirements for receiving short-time work allowance.

smiddendorf@kpmg-law.com

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