Employment-promotion scheme in metalworking in danger of collapse

In 1998, employers in the Lower-Saxony metalworking industry and the IG Metall trade union concluded a collective agreement which promoted employment by allowing employees to reduce their working hours, with unemployed people recruited to fill the working time vacated. The employees involved receive a bonus as partial compensation for their loss of income, from a fund set up for this purpose, financed jointly by employers and employees. However, in early 2002 the scheme is in danger of collapse, following a decision by the Ministry of Finance that the bonuses to employees cutting their working time are subject to taxation.

In July 1998, the metalworking sectoral employers' association for Lower-Saxony (Verband der Metallindustriellen Niedersachsens, VMN) and theIG Metall metalworkers' trade union concluded a collective agreement on the promotion of employment (DE9808175N). Under the agreement, employees may voluntarily reduce their weekly working time from 35 hours to a minimum of 17.5 hours for a maximum period of two years. Formerly unemployed people may be hired for this period to fill the working time vacated. If, for example, four employees reduce their working time from 35 to 28 hours per week for two years, one unemployed person can be hired for this period. When the two-year period of reduced working time is over, continuing employment opportunities for people hired as a result depends on company conditions.

Overall, of the 80,000 or so employees in the Lower-Saxony metalworking industry, more than 1,100 have reduced their working time and as a result about 275 unemployed persons have been employed. One incentive for employees to reduce their working time is a special bonus payment: as partial compensation for the loss of income caused by the reduction of working time, employees receive a bonus which is equivalent to between 70% and 90% of the lost income. The money for the bonus comes from a fund called the'association for the promotion of employment' (Verein zur Beschäfigungsförderung, VBf), founded by VMN and IG Metall in November 1998. Some EUR 5.1 million was contributed to the fund by the employers and each of the 80,000 employees agreed to forgo the previous refund by their employer of their pay-related bank charges, worth up to EUR 1.3 per month, and to place it in the fund.

According to the law as it stands, the bonus supplement paid to employees is subject to social security contributions and taxation law. However, an exemption was sought and, as long as this matter was undecided, the VBf fund financed the taxes due on the bonus. The federal state government of Lower-Saxony unsuccessfully attempted to have the tax exemption for the bonus accepted in the Federal Council (Bundesrat) - the upper house of parliament - arguing that similar compensation payments were tax-free under the partial retirement scheme. The Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) has now also rejected the tax exemption. The scheme is thus in danger of breaking down, because about half of the funds of the VBf go in taxation, so that no new entrants can be funded.

IG Metall and VMN state that, with the government deciding in January 2002 to subsidise the low wages of former long-term unemployed people through the nationwide extension of the'Mainzer model', there is no reason why the Lower-Saxony metalworking scheme cannot be subsidised too. Although tax-free payments to the employees concerned have been ruled out, discussions on how to continue this employment-promoting model are continuing between the social partners.