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Short-time work allowance due to the corona virus

Three questions for employers

Published: 2020-04-15

On April 2 the Swedish Parliament approved the government proposal for a new system for short-time work allowance. Sweden already has a system for short-time work allowance in place which can be activated by the Government in case of severe recession/financial crisis. The new system will act as a complement to the current system, meaning that employers will be able to apply for the allowance during temporary and serious financial difficulties. We will here provide an overview of three common questions regarding short-time work allowance.*

In practice, short-time work means that employees work less hours during a period while the state funds part of their salary. The employer’s employee costs are reduced, and the employees get to keep a large part of their original salary. Short-time work can be used to avoid giving notices and facilitate when companies gear up to full strength again when the demand has returned. Using short-time work requires that the employer and employees agree to this.

Under which circumstances can employers be granted the short- time allowance?

One condition for the allowance to be applicable is that the company has employees. Thereby, sole traders without any employees are not eligible to apply for the allowance. Apart from these, employers, with the exception of certain governmental entities, may receive support in the event of short-time work if the requirements for the allowance are fulfilled.  Employers must be able to show temporary and serious financial difficulties in coping with the challenges that have arisen in the wake of, for example, the corona virus. This means that the difficulties must have been caused by circumstances outside of the employer’s control and must specifically have negatively impacted the company’s business operations. When assessing whether an employer has experienced temporary and serious financial difficulties, it will be taken into account whether the employer simultaneously carries out dividends or other payments.

While the employer must be experiencing financial difficulties to be granted the allowance, the employer may not be bankrupt, insolvent, be subject to an obligation to prepare a control balance sheet for liquidation purposes or be undergoing restructuring.  A control balance sheet should be prepared by a limited company when there is reason to assume that the company equity is less than half of its registered capital. On top of this, the employer must show a long-term strong competitiveness and a healthy financial development over time. Read more about company insolvency (in Swedish).

What can the employer prepare for the application?

Prior to the application, the employer can take certain preparatory steps.. A first measure is to ensure that there is a collective bargaining agreement in place that allows short-time work (centrally and locally), or that at least 70 percent of the employees in the operating unit consent to and participate in the short-time work. The reduction in work-time and salary that is agreed upon should be the same for all employees. The agreement between the employees and employer can be signed digitally.

In order to be comprised by the short-term work allowance, employees must have been employed during a so-called comparison month three months prior to the decision from The Swedish Agency for Economic and Regional Growth and have had an employment where the employer has been obligated to pay employer’s social security contributions during the comparison month. An employed business owner and employees belonging to the family of the owner, are covered by the allowance. During an exemption period between March 16 and December 31 2020, employees who have been given notice will also be comprised by the short-term work allowance.

There are four fixed levels for the work time reduction, 20 percent, 40 percent, 60 percent and 80 percent and depending on the chosen level the employer’s costs are reduced by 19 percent, 36 percent ,53 percent or 72 percent, given that the employee’s salary lies below the cap of SEK 44 000. It is possible to apply for a short-time work allowance up to 80 percent of the working hours for the months of May, June and July, including for those who applied for the allowance before May 1. The maximum allowance an employer can receive is SEK 34 707, which requires a reduction of 80 percent and a monthly salary of SEK 44 000. As the allowance is further enhanced, the agency reviews of applicants are increased as well. 

The allowance only covers the cash payment, which should be noted if the employee and employer have agreed upon occupational pension. The pension premium payments will remain and the basis for the pension premium is calculated on the total sum that the employee receives from the employer and from the state.

How is the application, processing and payment carried out?

The application opened at April 7 and is made online on the Swedish Agency for Economic and Regional Growth’s website. The applying employer is required to submit information about the company, the amount of allowance applied for, and background information about the company in a yes or no format. The Swedish Agency for Economic and Regional Growth will crosscheck the information provided with registries from The Swedish Tax Agency, The Swedish Companies Registration Office and The Swedish Enforcement Authority. It should be noted that the government bill explained that for the Swedish Agency for Economic and Regional Growth to review whether the difficulties are temporary it is necessary for the employer to provide financial information showing the company’s developments. Only a company with a healthy financial development can be deemed to have temporary difficulties. This can commonly be presented if the employer submits backtracking compilations of financial data and financial highlights that demonstrate profitable developments, debt-equity ratio and orders received. What the exact requirements will be, remains to be seen but it can be assumed that employers that apply for the allowance will need to submit such financial information upon request. The allowance will be payed to the specified PlusGiro or BankGiro account.

The allowance payment is, according to the current system, made through a credit of the employer’s tax account. In the new system the allowance will be payed to the bank account notified by the applying employer.

Deloitte Legal provides advice and assistance to clients in relation to drafting the application and coordinating the application process towards the Swedish Agency for Economic and Regional Growth.

*The information should neither be regarded as advice nor exhaustive. For individual advice, please contact us via the contact information below.

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