Opinion | Kurzarbeit: The Lifeline Of The Romanian Economy?

Mihai Cristea 21/08/2020 | 14:48

Kurzarbeit, which translates to “short-time work”, is a solution applicable in special crisis situations. It came to being in Germany more than a century ago, but only became known following its excellent results during the financial crisis of 2008-2009. While the other European countries were suffering a 3% increase in unemployment, Germany’s unemployment rate fell by less than 1% during the crisis, therefore saving more than 200.000 jobs.

By Ioan Dumitrașcu (partner), Roxana Trîmbițaș (associate), Filip & Company

 

The Kurzarbeit model has been called “Germany’s most successful export product”, and the European Commission is now recommending it to all Member States in the fight to mitigate the risks of unemployment following the Covid-19 pandemic. The European Union approved the SURE program (yet to be implemented), aiming to reimburse the expenses incurred by the states for certain categories of active measures, but especially for Kurzarbeit-type of measures.

The concept is simple: the employer unilaterally reduces working time, pays the salary for the actual working hours provided by the employee, and the state contributes with a percentage of the rest. There are advantages for all parties involved. The employee keeps his/her job and receives a salary bigger than the one he/she should have received for the reduced working time. The employer pays for the work it benefited from and keeps its chances of recovering over time. The state continues to collect taxes and social security contributions, in most cases contributing with amounts that are lower than the unemployment benefits it would otherwise have to pay in case of redundancies. However, the disadvantages include the state’s (in)ability to bear such costs on a long-term basis and the potential bureaucratic obstacles, which is an issue that has delayed the implementation of the model in several other European countries.

 

  1. The implementation of the Kurzarbeit model in Romania. What does the national version look like?

On Monday, 10 august 2020, Emergency Ordinance no. 132/2020 on the implementation of support measures intended for employees and employers in the context of the epidemiological situation caused by the spread of SARS-CoV-2 virus, as well as on the stimulation of the employment rate, came into force. The new emergency ordinance mainly describes a national version of the Kurzarbeit model, a solution proposed in the context of the exceptional situation we find ourselves in.

  • What changes does it bring?

Employers can now reduce the working time of their employees by up to 50% for a minimum period of 5 consecutive working days, after having informed and consulted the union, the employees’ representatives, or the employees, as the case may be. At least 5 days before the application of the measure, the employer is required to communicate to the affected employees: the decision to reduce their working time, the updated work schedule, the distribution by days and their salary-related rights. The change in the working hours must be recorded in REVISAL.

  • What are the criteria?

The employer may employ the working time reduction subject to the following 3 cumulative criteria: (1) the temporary reduction of activity is a result of the state of emergency/alert/siege; (2) the reduction affects at least 10% of the total number of employees of the undertaking; and (3) the reduction in activity is justified by a decrease in turnover (for the month preceding the implementation of the measure or, at most, for the month before the month preceding it) by at least 10% compared to the same month of the previous year.

  • How does the indemnity work? What is the state’s contribution? Who makes the payment first?

During the unilateral reduction of working hours, the indemnity that the employees will benefit from will amount to 75% of the balance between the gross basic salary under the individual employment agreement and the gross basic salary for the hours actually worked (e.g. in practice, if the working time is reduced by half, the employee is to receive 50% of the salary from the employer and 75% of the remaining half from the state) and will be paid from the unemployment insurance budget. The indemnity represents income of a salary-like nature and will be subject to taxation and social contributions.

The employer will have to pay the indemnity to the employees and will later recover the sums from the unemployment insurance budget by settlement. The settlement procedure, as well as the application period of the measure will be established by the Government at a later date.

  • What are the restrictions?

During the applicability of the flexible work schedule, among other restrictions, the employer will not be able:

  • to conclude new employment contracts for activities identical or similar to those performed by employees whose working time was reduced;
  • to subcontract activities carried out by employees whose working time was reduced;
  • to reduce the working hours of the employees that fall under art. 52 para. (3) of the Labour Code;
  • to grant bonuses and/or other additions to the basic salary of those who hold positions in the management structure;
  • to allow employees under the reduction measure to perform overtime; or
  • to initiate collective redundancies.

At the same time, the measure cannot be applied to the following categories of employers:

  • public institutions;
  • employers in bankruptcy, dissolution, liquidation or which have suspended activities; and
  • employers registered in non-cooperating jurisdictions for tax purposes.

These restrictions are imposed in order to avoid abuses by companies on the market.

  • Other categories of beneficiaries

Other categories of persons may also benefit from a monthly indemnity funded from the state budget, of 41.5% of the average gross salary, as provided by the Law on the Social Insurance State Budget. Such categories may be: professionals (according to the Civil Code, all those who operate an undertaking, e.g. liberal professions), as well as persons who have entered into individual labour agreements based on Law 1/2005 on the organization and functioning of cooperatives – in case of a temporary reduction of their activity resulted from the state of emergency/alert/siege.

  • Is it allowed to combine this indemnity with other active measures?

Employers may apply simultaneously for this allowance as well as for other benefits granted by the state, but for different employees.

  • What will be the applicable sanctions?

An employer allowing the employee to work, including teleworking or work at home in the interest of the employer, outside the reduced working hours, may be fined RON 20.000 (approx. EUR 4,100) for each person found to do such work, without exceeding a cumulated penalty amount of RON 200.000 (approx. EUR 41,000).

  • Recommendations

Given that these are public aid-like measures, it is very likely that the competent authorities will carry out verifications. Therefore, our recommendation is that the implementation of the measures elaborated upon those presented above be documented in a decision of the competent management/body that should point out that all the conditions imposed by the law are met.

 

  1. What measures have been adopted by other European countries?

Germany (Kurzarbeit) – all employees who pay social security contributions are eligible to receive an indemnity for the reduced working time, for a maximum of 12 months (or 24 months in special cases). The employer pays for the hours actually worked by the employee and the Federal Labour Agency pays for 60-67% (or up to 87% in 2020 under special conditions) of the salary the employee had before isolation.

France (Chômage partiel/activité partielle) – part-time work within companies (in the form of reduced working hours/temporary closure of a segment or of the entire activity) is subsidized as a percentage of 84% of the net salary (70% of the gross salary), 100% for those with a minimum wage (and 71% after 1 June 2020) or EUR 7,74 per hour for companies with less than 250 employees. The limit for reducing working hours is 100% of the legal working time and 1,607 hours per year. The maximum duration of the partial activity is 6 months, and may be extended up to 1.2 years.

Italy (Cassa Integrazione Guadagni) – all those who, on 23 February 2020, were already employed in a company with over 5 employees, receive an indemnity of 80% of the salary they had before isolation, which varies between EUR 939 and EUR 1,129. The program was initially implemented for a period of 9 weeks and was subsequently extended until 31 August 2020. The most affected industries can benefit from this program until the end of October.

Spain (ERTE) – a temporary program intended for the companies most affected by the Covid-19 pandemic, applicable regardless of the number of employees. The subsidy covers 70% of the salary for the first 6 months and then 50%, the amounts granted being between EUR 501.98 and EUR 1,411.83.

UK (Furlough) – all companies affected by the Covid-19 pandemic are eligible to receive compensations for their employees, amounting to 80% of the salary they had before isolation until August, decreasing to 60% until October.

Source: Allianz Research – „The risk of 9 million zombie jobs in Europe

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