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Short-term layoffs due to the corona virus

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Legal news
calendar 24 March 2020
globus Sweden

The coronavirus (COVID-19) has resulted in major economic consequences. Many companies are therefore facing declines in turnover and redundancies. The negative economic impact is expected to continue, which is why the Swedish government has – together with the social partners - introduced several measures to save companies and employees from bankruptcy and termination.

Already, the outbreak of the coronavirus has resulted in great economic damage and many companies and employees are affected. In order to aid companies and employees during this crisis, the Swedish government has – together with the Swedish social partners – proposed to implement short-terms layoffs. The proposal on short-term layoffs is built on the proposal on an increased system for short-time work. The difference is that short-term layoffs will include a significantly increased subsidy from the state – from the original one third to three quarters – and will only apply between 16 March and 31 December 2020. The aim is to mitigate the effects of the corona virus on the Swedish labour market. The proposal of this measure was handed over to the Swedish parliament on 19 March 2020 and will be finally decided upon on 2 April 2020.

The short-term layoffs system enables companies to adjust to the current situation by temporarily reducing employees’ working hours and salary, while also receiving state grant to cover most of the salary costs. Pursuant to the proposal, eligible employers’ salary costs will be reduced by half as the state will stand for three quarters of the costs. Because of the subsidy, the companies’ employees can have their working hours reduced and still receive over 90 % of their salary. The purpose is for affected companies to be able to retain their staff and switch back up quickly when the situation turns.

The subsidy from the state will depend on how much the employees’ working hours are reduced, allowing eligible employers to reduce their costs from 19 – 53 %. Pursuant to this system, eligible employers'  costs will be reduced by:

  • 19 % if working hours are reduced by 20 %
  • 36 % if working hours are reduced by 40 %
  • 53 % if working hours are reduced by 60 %

The proposed wage ceiling is set at SEK 44,000 per month. This may however be changed to SEK 40,000, which is the current level for the underlying system on short-time work. Any exceeding costs must be covered by the company.

Allowance under the system can be applied for from 7 April 2020, but the allowance can be granted retroactively from 16 March 2020. Application is made to the Swedish Agency for Economic and Regional Growth (Tillväxtverket). The company can receive subsidy from the state for six months, with possibility to extension for additional three months.

In order to be eligible for subsidy under the short-term layoffs system, the company is required to have support in central and local collective agreements. If the company does not have a collective agreement, a written agreement with minimum 70 % of the employees is required. Further, the company must be able to demonstrate difficulties in meeting the financial challenges that result from the corona virus. The difficulties must hence be caused by circumstances outside of the company’s control and specifically affect the company’s operations. Additionally, the company must have used other available measures to reduce labour costs in order to be eligible. Lastly, at the time of the application, the company cannot be obligated to establish a balance sheet for liquidated purposes pursuant to the Swedish Companies Act, undergoing a business restructuring or be subject to bankruptcy.

Further to the implementation of short-term layoffs, the Swedish government has introduced several other measures, among which are:

  • The Swedish state will take over all costs for sick pay during April and May 2020;
  • Deferral with payment of payroll tax, employees’ provisional tax and VAT;
  • Temporarily revoked qualifying deduction;
  • No requirement on doctor’s certificate up to day 14 of employees’ sickness period;
  • Capital contributions to Almi Företagspartner and increased loan frame/credit guarantee ceiling for Svensk Exportkredit and Exportkreditnämnden to improve small and medium-sized companies’ and export companies’ opportunities to borrow money.

Already, the outbreak of the coronavirus has resulted in great economic damage and many companies and employees are affected. In order to aid companies and employees during this crisis, the Swedish government has – together with the Swedish social partners – proposed to implement short-terms layoffs. The proposal on short-term layoffs is built on the proposal on an increased system for short-time work. The difference is that short-term layoffs will include a significantly increased subsidy from the state – from the original one third to three quarters – and will only apply between 16 March and 31 December 2020. The aim is to mitigate the effects of the corona virus on the Swedish labour market. The proposal of this measure was handed over to the Swedish parliament on 19 March 2020 and will be finally decided upon on 2 April 2020.

The short-term layoffs system enables companies to adjust to the current situation by temporarily reducing employees’ working hours and salary, while also receiving state grant to cover most of the salary costs. Pursuant to the proposal, eligible employers’ salary costs will be reduced by half as the state will stand for three quarters of the costs. Because of the subsidy, the companies’ employees can have their working hours reduced and still receive over 90 % of their salary. The purpose is for affected companies to be able to retain their staff and switch back up quickly when the situation turns.

The subsidy from the state will depend on how much the employees’ working hours are reduced, allowing eligible employers to reduce their costs from 19 – 53 %. Pursuant to this system, eligible employers'  costs will be reduced by:

  • 19 % if working hours are reduced by 20 %
  • 36 % if working hours are reduced by 40 %
  • 53 % if working hours are reduced by 60 %

The proposed wage ceiling is set at SEK 44,000 per month. This may however be changed to SEK 40,000, which is the current level for the underlying system on short-time work. Any exceeding costs must be covered by the company.

Allowance under the system can be applied for from 7 April 2020, but the allowance can be granted retroactively from 16 March 2020. Application is made to the Swedish Agency for Economic and Regional Growth (Tillväxtverket). The company can receive subsidy from the state for six months, with possibility to extension for additional three months.

In order to be eligible for subsidy under the short-term layoffs system, the company is required to have support in central and local collective agreements. If the company does not have a collective agreement, a written agreement with minimum 70 % of the employees is required. Further, the company must be able to demonstrate difficulties in meeting the financial challenges that result from the corona virus. The difficulties must hence be caused by circumstances outside of the company’s control and specifically affect the company’s operations. Additionally, the company must have used other available measures to reduce labour costs in order to be eligible. Lastly, at the time of the application, the company cannot be obligated to establish a balance sheet for liquidated purposes pursuant to the Swedish Companies Act, undergoing a business restructuring or be subject to bankruptcy.

Further to the implementation of short-term layoffs, the Swedish government has introduced several other measures, among which are:

  • The Swedish state will take over all costs for sick pay during April and May 2020;
  • Deferral with payment of payroll tax, employees’ provisional tax and VAT;
  • Temporarily revoked qualifying deduction;
  • No requirement on doctor’s certificate up to day 14 of employees’ sickness period;
  • Capital contributions to Almi Företagspartner and increased loan frame/credit guarantee ceiling for Svensk Exportkredit and Exportkreditnämnden to improve small and medium-sized companies’ and export companies’ opportunities to borrow money.

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Anders

Etgen Reitz

Partner

Franziska

Brüggemann

Associate

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