Are you confused about the COVID-19 Wage Subsidy scheme?
Aine Kiely O’Donnell provides much needed clarity on the temporary COVID-19 Wage Subsidy Scheme.
UPDATE 15th April, 2020 – The wage subsidy scheme has been updated since this article was first published. Minister Donohoe today announced further changes to the Scheme which apply to those earning less than €500 per week (approx. €31,000) as well as those earning in excess of €586 per week (€38,000). You can read about those changes by clicking here.
What Is the Scheme?
The Scheme, enables employees, whose employers are affected by the pandemic, to receive significant supports directly from their employer through the payroll system.
The Scheme will be available to employers who keep employees on the payroll throughout the COVID-19 pandemic, meaning employers can retain links with employees for when business picks up after the crisis.
Employers are encouraged to facilitate employees by operating the scheme, by retaining employees on their books and by making best efforts to maintain a significant, or 100% income for the period of the scheme.
Application of the Scheme
What Employees are entitled to:
- The Scheme increases the maximum non-taxable refundable payment available to €410 or 70% of the employee’s Average Net Weekly Pay, whichever is lesser, for employees earning less than or equal to €586 per week net.
- Increases the maximum non-taxable refundable payment to €350 or 70% of the employee’s Average Net Weekly Pay, whichever is lesser, for those earning over €586 per week net and less than or equal to €960 per week net.
- The Scheme allows employers to make additional payments to its employees. These additional payments are subject to tax and USC in the normal way. Employees are not to be paid higher than the average net pay.
Important information for Employers:
- All employers who have applied to the older COVID-19 Employer Refund Scheme will be automatically transferred onto the new, higher payment.
- In the transition phase of the Subsidy Scheme an employer can choose to make an additional payment to the employee to fully or partially make up the difference between the amount provided by the subsidy scheme and the employee’s normal Average Net Weekly Pay. Such additional payments are liable to Income Tax and USC.
- If the employer makes an additional payment greater than the difference allowed by the scheme (i.e. the employee receives more than the Average Net Weekly Pay) then the subsidy value refundable to the employer will be reduced by this excess amount when the refund reconciliation is performed by Revenue in due course.
- The employer is expected to make best efforts to maintain as close to 100% of normal income as possible for the duration of the Subsidy period. There is no minimum amount that the employer must pay in order to be eligible for the scheme, but the employer will need to enter at least €0.01 in Gross Pay when running its payroll.
- Directors can avail of the scheme if directors are paid through the payroll system and are included in the relevant payroll submissions for an eligible employer, then they are eligible to receive the wage subsidy.
- You must not submit more than 4 days in advance to get refunds, as more than 4 days in advance of pay day will not be processed for the refund.
- You are obliged to refund any subsidy over the entitlement back to the Revenue or subsequent payments will be reduced.
- Subsidies are for the employee and therefore the employer is not entitled to the money in their own right and it cannot be used for any other purpose other than in accordance with the provisions of the scheme.
- Eligible companies can suspend the operation of BIK for eligible employees for the period that the employee is on the scheme. For employees covered by this scheme, BIK or notional pay does not need to be included in Gross Pay, however the notional pay will be liable tax and USC on review at the end of the year.
- Employees who were laid off after 29 February 2020 may be taken back onto the payroll for the purposes of this scheme.
Qualification for the Scheme and Supporting Documentation overview
Application for the scheme is based on self-assessment principles. We have received clarity on the qualifying employer and how they can provide proof that the business is significantly impacted by the crisis.
- That the employer’s turnover is likely to decrease by 25% for Quarter 2, 2020.
- That the business is unable to meet normal wages or normal outputs.
The employer is best placed to make the determination and may base this judgement on the decline in orders in March 2020, in comparison to February 2020, or the likely turnover for the quarter compared to Q1 or if appropriate Q2, 2019, or on any other basis that is reasonable.
In this context employers retain their evidence/basis for entering the scheme. The future returns of the business will be monitored by way of an indicator to Revenue on the self- assessment.
“The critical requirement is to be able to show significant negative economic disruption due to COVID-19”.
If for some reason the decline in turnover was less than 25% the business should retain documentation supporting its rationale for believing that it would suffer such a decline.
- Copies of notifications or communications to employees and staff representative bodies of salary/wage cuts implemented as a direct result of the COVID-19 pandemic.
- Copies of documentation that show that any cash reserves in the business that are required to fund debt with a review of same, please discuss with our advisors on same.
- Evidence of reliance on the Government Credit Guarantee Scheme or overdraft facilities or other borrowings for capital purposes.
The clarification has been detailed enough for businesses to make self-assessments; it is this self-assessment that needs to be backed up with relevant documentation.
Important to Note:
Employers should note that the names and addresses of all employers operating this scheme will be published on Revenue’s website in due course, after the scheme has expired. Penalties will apply to any abuse of the Wage Subsidy Scheme by self-declaring incorrectly, by not providing funds to employees or non-adherence to Revenue and any other relevant guidelines.
Please give us a call on 052 61 37775 to discuss where we can assist your business in making the right call during these unprecedented times.