This article first appeared in the Business Post on 5th of April, 2020.
With businesses continuing to feel the economic impact of Covid-19, the government has brought in a series of measures designed to keep as many people in work as possible. The latest is the Emergency Measures in the Public Interest (Covid-19) Act 2020 which was signed into law on 27 March.
Known as the Temporary Wage Subsidy Scheme, the support payment scheme provides subsidised wage payments to businesses for their employees during the Covid-19 crisis.
The Scheme, which is open to all employers, replaces the previous Covid-19 Refund Scheme and will operate for 12 weeks from 26 March 2020. It aims to encourage employers to maintain links with their employees, facilitating a smoother transition to a normal working environment after the crisis and ensuring employees receive a substantial portion of their normal wage.
Despite the many positive elements of this Scheme, some reservations and concerns have been expressed. For example, the conditions which an employer must satisfy to qualify for the Scheme are somewhat arbitrary and clarification is needed in respect of the potential consequences for employers and employees.
If a business qualifies, it will receive a subsidy of 70% of its employees’ net weekly wage. The maximum subsidy amount is €410 for employees who take home a net weekly wage of up to €586. Where an employee earns between €586 and €960 net per week, the maximum subsidy is capped at €350. The Scheme does not apply to those earning over €960 net per week. While the subsidy is a tax-free payment, employees may be liable for income tax and USC on the subsidy received when Revenue review at the end of the year.
The different rates of payment possibly place higher earners at a disadvantage. Employers may then be less inclined to apply for the subsidy in respect of its higher-paid employees, which could result in them being laid off. Employers are not required to top up their employees’ wage above the subsidy. However, businesses that are in a position to do so will be expected to, which again, is ambiguous.
The employer must make a self-declaration that it will experience at least a 25% reduction in its turnover from 14 March 2020 to 30 June 2020. The employer must also show that, while it is making best efforts to pay employees, it is unable to make these payments due to the adverse effects of Covid-19 on their business.
Concerns have been expressed as to how an employer is to calculate the 25% reduction in turnover. Some employers may find it difficult to demonstrate a 25% reduction in business for the period specified, as it may be months before some feel the deepest impact from this crisis.
Queries were also raised about the insolvency of an employer where they make a declaration that that they are unable to pay employees. Revenue has now issued guidance stating that an employer doesn’t need to obtain professional advice to prove this 25% reduction and that the declaration will not amount to a declaration of insolvency. Furthermore, they have stated that the publication of a list of employers availing of the subsidy is nothing akin to a tax defaulters list but instead should be considered as a mark of honour of an employer who has tried to do the right thing.
A further difficulty arises regarding seasonal workers as the Scheme precludes employers receiving a subsidy for employees who were not on their books on the specific date of 29 February 2020. This poses a significant challenge for the hospitality sector, who have contracts to employ staff during the upcoming tourism period.
The Scheme is a positive step towards the support required for employers and employees during this crisis. The rate of payment for lower-earning employees is indeed laudable and the recent Revenue guidance in respect of the declaration of turnover is welcomed. However, employers should carefully consider the benefit of the Scheme to their employees and whether they even qualify. Employers should ensure that they are in a position to satisfy the conditions.
Revenue has stated that it will adopt a reasonable, fair and pragmatic approach in considering whether the criteria have been met. However employers should be mindful of the offences which they may be found guilty of where they provide false, incorrect or misleading information.
As stated above further clarifications are being sought by various bodies and Revenue Guidelines may be updated further.
David Pearson, Partner & Head of the Employment Department at J.W. O’Donovan Solicitors, Cork. Contact David at email@example.com.