Sick Pay and Layoff Terms During COVID-19 (Part 2: Germany & China)

The current global pandemic will be the biggest business continuity issue that any of us are likely to experience in our working lives. Global payroll professionals will play a key role in ensuring that pay keeps being delivered and those working continue to receive the incomes that allow the basics of life to carry on. The delivery of sick pay to those absent from work through illness, and also the position for those put on short time working or even layoff has rapidly changed in the wake of the virus.

In this series of blogs we examine the approach taken in a number of countries, and explain what amendments to standard practice are being introduced. In part one we reviewed implications for France and The Netherlands, and now we turn our attention to Germany and China.


Germany has also made emergency changes to its short term working arrangements and the payment of benefits known as Kurzarbeitergeld. The usual scheme is available to any employer who experiences a sudden reduction in working time due to an emergency situation. For qualifying employees the state will fund the employer with an allowance worth 67% of pay (for employees with children) or 60% of pay (everyone else) for up to 12 months in lieu of the unemployment benefit that the state would otherwise have to pay. To ensure that employers have access to the support they need with effect from 1st March the scheme rules have been amended as follows:


  • The minimum percentage of the employers workforce affected by the short time working falls from one third to 10%
  • Any employer using a time bank system based on fluctuating working hours must first use time off to wipe out any negative balance held on the bank
  • The employer will receive full reimbursement for any social insurance premiums made on the short time benefit (currently the employer is expected to make these at their cost)

There are two points employers should consider. Firstly they may be required under the terms of a collective bargaining agreement to make up the 60/67% allowance to up to full pay. Secondly the scheme does not apply to mini jobbers (those earning up to €450 per month) – given that many employees in the retail and hospitality industries do fall into this category there may be a significant portion of the employers staff who are not eligible to receive the support.

The support for Kurzarbeitergeld is claimed by the employer from the Federal Employment Agency, but it is the employer’s responsibility to calculate the exact level of each employee’s benefit. Not all pay is included in the calculation, items such as overtime and premiums for night, public holiday and Sunday working are excluded. The allowance is paid free of income tax but is subject to what is known as tax increasing progression (Progressionsvorbehalt) – this means that whilst it is not taxed in itself, it is treated as income in the hands of the employee for determining the employees top rate of income tax. Fortunately this very complicated position is resolved via the employee’s tax return rather than by payroll calculation. The allowance paid to each employee must be reported under its own field on the monthly payroll tax and social security reports. Details of the scheme are available here.


In China, which has experienced the most prolonged shutdown, a number of measures have been applied. The basic provision of support continues to come from the local unemployment insurance fund for those workers who have lost their jobs. However the Ministry of Human Resources and Social Security has issued a circular to companies warning them not to terminate contracts or indeed force workers to attend work who must, because of government orders quarantine themselves. Illegal termination of a contract can see the employer being liable for double the usual severance payment. Employers should continue to pay wages, however it is possible to delay the full payment with agreement from the relevant union for a period of up to three months. The employer must however continue to pay at least the minimum wage set by the province in which they operate In order to provide some form of financing for companies, a refund of 50% of the companies unemployment insurance premiums paid in 2019 can be claimed in the following circumstances:

  • For small businesses with up to 30 employees when the layoff rate reaches 5.5% of staff numbers
  • For businesses with 31+ employees when the layoff rate reaches 20% of staff numbers

A declaration to employers from the Ministry of Human Resources and Social Security can be viewed here.

This has been just a brief look at what governments around the world are doing to counteract the effects of Covid-19 on business. With amendments to sick pay regulations, special support measures to ensure employers can avoid widespread redundancies and the ability to delay the remittance of payroll taxes there is plenty for the payroll team to consider. All of this comes with adjustments to existing payroll practice and a requirement for all of us to learn the new administration involved quickly so that we can play our part in keeping our companies and the workforces we serve functioning effectively. The situation is changing constantly so stay up to date and, most important of all, please stay healthy.


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