Reduction of Working Hours – The State Will Provide Support Only After the Employer Pays Full Salary

The reduction of working hours with state support is a new measure for preserving jobs at employers whose operations are threatened due to the COVID-19 pandemic. It will be implemented by the Employment Service, which has published the conditions and procedures for obtaining financial support on its website.

Employers who reduce working hours for some or all of their employees can receive monthly financial support of up to 2000 kuna, intended for the payment of net salaries. The measure can only be used for employees employed full-time, without changing the employee’s rights. The employee works reduced hours, but all social and financial rights are retained as if they were employed full-time. They must not work irregular hours or overtime. Support cannot be used for employees who work remotely (work from home).

Employer Obligations

The measure applies from June 1 to December 31, 2020. The amount of monthly support depends on the unworked hours, i.e., the hours for which full-time work has been reduced. Working hours can be reduced by a maximum of fifty percent, or twenty hours per week, so the amount of support is determined based on the hours of reduced full-time work in a given month, and for each month, regardless of the number of working days in the month, it can amount to a maximum of 2000 kuna per employee. An employer who receives support is obliged to pay the employee the full salary specified in the employment contract, collective agreement, and/or work regulations and report it in the JOPPD form along with the corresponding contributions, income tax, and surtax.

In the second line of the same JOPPD form, the part of the total salary reported in the first line, which is financed from state support, is indicated. For this purpose, the Income Tax Regulation has been amended, and a new code has been established for reporting data on the part of the salary financed from support for the reduction of working hours. Data from this separate line on page B of the JOPPD form will be used exclusively for data exchange between the Tax Administration and the Employment Service. After state institutions exchange data, the Service will allocate funds to the employer for the net salary and contributions related to that part of the employee’s salary. Therefore, the employer must pay the full salary and pay all public contributions based on the paid salary, and the Service will subsequently allocate support equal to the net salary, increased by contributions from the salary related to the co-financed salary.

Who is Eligible

The job preservation measure can only be used by employers who employ ten or more workers, provided they cumulatively meet three conditions: 1) that they reduce working hours by at least ten percent of the total monthly fund of working hours for all employees employed full-time; 2) that their revenue in the month for which they seek support has decreased by at least twenty percent compared to the same month of the previous year; 3) that they record a decline in orders, contract terminations, inability to deliver finished products, inability to procure raw materials and tools, etc. More lenient conditions are prescribed only for the manufacturing industry. Employers in the manufacturing industry can receive support even if their revenue decline is less than twenty percent, but they must meet the third prescribed condition.

To qualify for support, an employer who employs between ten and fifty workers must reduce working hours for at least twenty percent of the workers, and if they employ 51 or more workers, they must reduce working hours for at least ten percent of the workers. Support can only be granted for workers who were employed on May 31, 2020, and owners, founders, members of the management board, directors, and procurators are excluded, regardless of the extent of their working hours.

An employer who intends to use the measure and is bound by a collective agreement is obliged to reach an agreement with the unions that are signatories to the collective agreement regarding the introduction of reduced working hours. If they are not bound by a collective agreement, an agreement must be reached with the workers’ council or with the union operating at the employer’s premises. If there is no agreement, the employer makes a decision on reducing working hours. These documents must be submitted to the Employment Service.

What Must Be Done

The application for support must be submitted for each month, and the Service will allocate funds by the thirtieth of the month for the salary relating to the previous month (e.g., for the salary for July by August 30, etc.). Along with the application, many documents must be submitted. Among other things, during the period of using the support, the employer is obliged to electronically submit to the Service the weekly work schedule for each worker for whom they are utilizing support, along with data on the worker’s work location and the start of working hours. After the month ends, the employer is obliged to submit to the Service the time record for each worker for whom they received support, signed by the worker. Employers utilizing the measure for reducing working hours must not pay dividends, profit shares, or bonuses exceeding non-taxable amounts to individuals authorized to manage the company’s affairs until December 31, 2021, nor acquire their own shares or grant rights to purchase their own shares.

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