COVID-19 Temporary Wage Subsidy Scheme – FAQs from employers
In our update on 25 March 2020, we outlined details of the newly announced Temporary Wage Subsidy Scheme (the TWSS) operated by Revenue. The legislation underpinning the scheme, the Emergency Measures in the Public Interest (Covid-19) Act 2020 (the Act) was enacted on Friday 27 March 2020 following an expedited legislative process.
Concerns were raised late last week as to whether the TWSS will have the intended effect of encouraging employers to retain and pay employees during the COVID-19 pandemic and thereby reduce the burden on the Department of Employment Affairs and Social Protection (the DEASP). The concerns related particularly to the eligibility criteria concerning an employer's ability to pay wages.
The Tánaiste, in addressing the Seanad late last week, acknowledged that time was not on their side in passing the legislation and stated that if mistakes have been made that they may be corrected in the weeks ahead.
Minister for Business, Enterprise and Innovation, Heather Humphreys TD, has since issued a statement encouraging employers to avail of the TWSS, emphasising that employers with cash in reserve, who have been hit by a significant decline in business, will still qualify for the scheme.
With 26,000 employers already registered for the TWSS, we address below some of the common queries employers have in relation to the TWSS:
- What is the TWSS?
The TWSS has been established to provide financial support to employees and employers who have been significantly impacted by the COVID-19 pandemic. It is currently expected to last for 12 weeks from 26 March 2020.
Through the TWSS, the Government will fund 70% of employees' salaries, up to specified caps. A cap of €410 net will apply to the Government contribution towards the weekly take-home pay of an employee earning approximately €38,000 gross per annum. A cap of €350 will apply to the weekly take-home pay of an employee earning between €38,000 and €76,000 gross. Employees earning above €76,000 per annum are excluded from the scheme.
Employers are being encouraged to top up the TWSS payment to as close to 100% of normal wages as possible for the subsidised period.
- Who can access the TWSS?
The Act provides that the TWSS is available to an employer who has:
- been adversely affected by COVID-19 with the result that the employer is unable to pay normal wages
- the firm intention of continuing to employ the employee (and to pay them accordingly) and is making best efforts to pay some wages during the 12 week period
- provided certain information, such as tax number and bank account details via the Revenue online system (ROS)
The first two criteria have been causing concern among employers and the Revenue has sought to address those concerns by publishing guidance in the form of FAQs and guidance on employer eligibility and support proofs.
The Act states that in accordance with the guidelines the employer's business shall be regarded as adversely affected where it demonstrates to the satisfaction of Revenue that as a result of COVID-19 at least a 25% reduction in turnover or customer orders will occur between 14 March 2020 to 30 June 2020. As has been widely reported in the media in recent days, employers were initially concerned that the declaration that had to be made by employers to Revenue to avail of the scheme could potentially be construed as a declaration of insolvency. With a view to specifically addressing this concern, the guidance subsequently published by Revenue makes clear:
1. the 25% decline in turnover or customer orders is a projected decline and employers will not subsequently be deemed ineligible to have availed of the scheme if it transpires that actual decline is not as severe as projected at the outset
2. there is no specified period against which the projected decline must be measured. Specifically Revenue has advised that employers can compare this period against Q1 2020 or the equivalent period in 2019 or "on any other basis that is reasonable"
3. the declaration of the employer is not a declaration of insolvency. It is simply a declaration based on reasonable projections, that there will be, as a result of disruption to the business caused or to be caused by COVID-19, a decline of at least 25% in the future turnover of, or customer orders for, the business for the duration of the pandemic; and as a result the employer cannot pay normal wages and outgoings fully, but nonetheless wants to retain its employees on the payroll
4. the scheme operates on a self-assessment basis and Revenue will only follow up with employers on their declarations "where that is considered necessary"
- Is the employer obliged to top-up the wage subsidy payment?
The Act provides that the TWSS is available to employers who are making best efforts to pay some of employees' normal wages during the applicable period. There is, as yet, no specific Revenue guidance on how an employer can demonstrate it is making best efforts where it is not paying wage top ups or where those wage top ups are only modest. The published Revenue guidance acknowledges that certain employers may not top-up and states that if an employer is not making any top-up payment, they must nonetheless include a pay amount of €0.01 in gross pay in order for the wage subsidy to be processed by Revenue.
Revenue guidance confirms that an employer that experiences a significant decline in business but has strong cash reserves that are not required to fund debt will still qualify for the TWSS. However, in such a scenario, the guidance states the Government would "expect" the employer to continue to pay a significant proportion of the employees' wages. It remains to be seen whether, in practice, Revenue will treat this expectation as a moral as opposed to a legal one, particularly for well-resourced employers who qualify for the scheme but decide against topping up employee wages for cash conservation reasons.
Employers will certainly need to examine whether they have the financial capacity to pay a "top up" and regardless of the decision they make in this regard, document their rationale accordingly, ideally by reference to objective financial metrics.
- Which employees are eligible to benefit from the TWSS?
Only employees on the payroll as at 29 February 2020 are eligible to benefit. Furthermore, their employer must have made a payroll submission to Revenue in respect of them between 1 February 2020 and 15 March 2020 in respect of remuneration relating to the period 1 February and 29 February.
While it was initially understood that the TWSS would not be available to employees over 66, the most recently published Revenue guidance confirms there are no applicable age restrictions. All employees are eligible to benefit, including those on full-time, part-time and short-time work arrangements but subject to the applicable annual earnings limit.
Revenue guidance states very firmly that employers must not operate the scheme for any employee who is making a claim for duplicate support (e.g. the Pandemic Unemployment Payment) from the DEASP.
- Who pays the wage subsidy and how much is the subsidy?
From an operational perspective, the wage subsidy is paid by the employer but then recouped by the employer from Revenue via the PAYE system. Revenue guidance suggests the refund will be processed within two working days of receipt of the payroll submission. Employers must file a payroll submission with Revenue on or before the day they pay their employees.
There are two phases to the TWSS. Phase 1 is intended to be a short, transitional phase, with Phase 2 commencing on 20 April 2020. During the Phase 1 transition period the scheme will initially refund employers up to a maximum of €410 per each qualifying employee. To the extent that the refund received by the employer exceeds an employee's net average weekly pay for that period, Revenue will subsequently recoup the excess from the employer. By way of example, if an employee's net average weekly earnings are currently €400, the employer will receive a wage subsidy of €410 in respect of that employee until 19 April. As an employer is, strictly speaking, only entitled to wage subsidy equivalent to 70% of an employee's net average weekly earnings in respect of this period, the employer should have only received a wage subsidy of €280 (i.e. 70% of €400). Accordingly, the Revenue will subsequently recoup the excess weekly wage subsidy paid of €130 from future employer reimbursements. Notwithstanding a flat rate of €410 is to be reimbursed to employers in respect of Phase 1, the Revenue guidance provides that employers should enter a non-taxable amount equal to 70% of the average net weekly pay to:
- A maximum of €410 per week where the average net weekly pay is less than or equal to €586 net; or
- A maximum of €350 per week where the average net weekly pay is greater than €586 net and less than or equal to €960 net.
Details of how to calculate average net weekly pay are outlined at Section 4 of the Revenue FAQ.
In Phase 2 the subsidy will be based on each individual employee's average net weekly pay up to the maximum weekly tax-free amounts. Revenue has stated that it will be issuing further guidance on Phase 2 shortly.
Revenue is regularly reviewing and updating its guidance on the TWSS and we recommend that employers check the most up to date guidance when deciding on whether or not to apply for the scheme. We will continue to provide regular updates on the Wage Subsidy Scheme, as well as all other COVID-19 developments for employers. Please regularly check the A&L Goodbody COVID-19 Hub to ensure you are up to date with the latest developments.
For specific queries on the TWSS, please contact Michael Doyle, Partner, Triona Sugrue, Knowledge Lawyer, or any member of the ALG Employment Team.
Date published: 31 March 2020