Emergency measures in the Public Interest (COVID-19) Bill
What the wage subsidy measures mean for you and your business
Previous indications from Government outlined a wage subsidy scheme to protect workers who may have found themselves either out of work or working significantly reduced hours. The rapidly changing landscape has meant that many companies are now increasingly focussed on Government supports to ensure business survival and the continued payment of employee wages in the short to medium term.
The Scheme is available to employers from all sectors (excluding the public service and non-commercial semi-state sector). It is open to employers who retain staff on payroll; some of the staff may be temporarily not working or some may be on reduced hours and/or reduced pay. Provided the employer meets the conditions set out below and subject to the levels of pay to the employees, the employer may be eligible for the scheme for some or all of its employees. Employers must not operate this scheme for any employee who is making a claim for duplicate support (e.g. Pandemic Unemployment Payment) from the DEASP. Where an employee previously laid off has been re-hired, the employee will qualify for the Subsidy scheme if their DEASP claim is ceased.
The Emergency Measures in the Public Interest (COVID 19) Bill (“the Bill”) was passed by Dáil Éireann on 26th March 2020, introducing a number of specifically targeted measures to address disruption faced in the wake of the evolving COVID 19 crisis.
Wage entitlements under the scheme
The wage subsidy scheme is provided for in Part 7 of the Bill, and the relevant sections outline that where the relevant conditions are met, a “temporary wage” subsidy will be paid by the Revenue Commissioners directly to an affected employer. The amount of the wage subsidy shall be determined by the relevant Government Ministers, and differing amounts may be determined in relation to differing classes of employee. In particular the Bill provides as follows:
- Where net weekly salary otherwise payable to the employee amounts to no more than €586 per week, the amount of the temporary wage subsidy shall not exceed 70% of the net weekly salary that would otherwise have been payable.
- Where the net weekly salary otherwise payable amounts to between €586 - €960, the maximum temporary wage payment is €350 (or 70% of the employees average net weekly pay if less than €350)
- A temporary wage subsidy shall not be paid where the net weekly salary of that employee is in excess of €960 per week.
Applicable conditions to be met
The wage subsidy is available to support “specified employees” as defined in the Bill (defined as, inter alia, an employee who was on the payroll of the employer at 29 February 2020 and for whom a payroll submission has already been made to Revenue in the period 1 February 2020 to 15 March 2020).
The Bill provides for three “baseline” conditions to be met by the employer prior to allowing any relief in the form of a wage subsidy:
Adverse impact on business of employer
- The business of an employer has been adversely affected by COVID 19 to a significant extent
- The employer is unable to pay the salary they would have otherwise paid to their employee.
Best efforts made
The employer has the firm intention of continuing to pay the specified employee and is making best efforts in this regard
- Submission of the “COVID19: Temporary Wage Subsidy Scheme” declaration to the Revenue Commissioners via the Revenue Online Service (ROS)
- Provide details of the employer’s bank account on ROS.
The business of an employer is treated as being adversely affected where the employer demonstrates a reduction of at least 25% either in the turnover of the employers business or in customer orders being received by the employer as a result of the disruption caused by COVID 19. The time period in question whereby this reduction is expected to occur is between 14 March 2020 to 30 June 2020 – this necessarily will require an element of revenue forecasting to be carried on by affected businesses. Revenue guidance on the matter provides further clarification on eligibility, noting the following key points:
- The reduction in question is in expected turnover for Q2, 2020.
- The employer themselves are best placed to determine whether such a reduction is likely to occur.
- Employers may assess their reduced turnover on a “reasonable” basis (i.e. a decline in orders in March 2020 in comparison to prior months, or a decline in project turnover for Q2 compared to Q1 or similar time frame).
Importantly, the Revenue guidelines have specified that they will not at this stage look for proof of qualification for the wage subsidy scheme. They may in the future examine such qualification at a later date and therefore retention of adequate records by the employer will be important in supporting any claim for the wage subsidy.
Revenue guidance has also provided an illustrative list of supporting documentation which may be maintained by the employer in demonstrating eligibility for the wage subsidy scheme, in particular the use of documentation submitted to financial institutions and documenting pertaining to the cash reserves of the business.
Steps on completion of the conditions
Where the conditions outlined above have been met, the Revenue Commissioners shall pay to the employer a sum in respect of the temporary wage subsidy, by way of bank transfer within two working days of the payroll submission. Where the temporary wage subsidy is paid in respect of more than one employee Revenue may aggregate payments for the purpose of making the payment to the employer.
Notwithstanding the payment of the temporary wage subsidy, it is still open to the employer (should they choose to do so) to top up the salary of the affected employees.
Registering for the Temporary Wage Subsidy Scheme
Any employer, already registered with Revenue for the purposes of the Employer COVID-19 Refund Scheme, is not required to take any further action. The employer can continue to make payroll submissions from 26 March 2020 under the subsidy scheme arrangements on the same basis as they were doing for the Employer Refund Scheme.
Employers, or their agents, wishing to register for the scheme can apply to Revenue by carrying out the following steps:
- Log on to ROS myEnquiries and select the category ‘Covid-19: Temporary Wage Subsidy’.
- Read the “Covid-19: Temporary Wage Subsidy Self-Declaration” and press the ‘Submit’ button.
- Ensure bank account details on Revenue record are correct. These can be checked in ROS and in ‘Manage bank accounts’, ‘Manage EFT’, enter the refund bank account that the refund is to be made to.
Operating the scheme
Revenue issued a helpful set of FAQs on the Operation of the Transitional Phase of the Temporary COVID-19 Wage Subsidy Scheme which provides guidance to employers with regard to how the scheme will operate available here.
In the FAQ document, Revenue outline that there are two phases to the scheme:
Phase 1 - intended to be a “short, transitional phase that builds on the current emergency Employer Refund Scheme that has been operational since 15 March 2020”. The subsidy scheme will initially refund employers up to a maximum of €410 per each qualifying employee regardless of the employee’s income. It should be noted that where the €410 payment to the employer exceeds the maximum subsidy amount due to the employee, e.g. because it exceeds the average net weekly pay for that employee, the excess is refundable by the employer to Revenue. The mechanism for this repayment to Revenue has not been outlined in detail.
Phase 2 - From no later than 20 April 2020, the operation of the scheme will ensure that the subsidy paid to employers will be based on each individual employee’s average net weekly pay, subject to the maximum weekly tax-free amounts. Further information on how these arrangements will work is to issue from Revenue.
The average net weekly pay should be calculated using the values in the payroll submission for each pay date in Jan and Feb 2020 as follows:
- Employee’s gross pay for every pay period in January and February less PAYE, USC and employee PRSI paid equals weekly pay;
- Total the weekly pay for each pay date in Jan and Feb 2020 and divide by the number of insurable weeks for the period.
Revenue provide an example of this on page 9 of the FAQ document.
Employers should enter the following details when running their payroll:
- Set PRSI Class to J9.
- Enter a non-taxable amount equal to 70% of the employee’s net weekly pay to:
- a maximum of €410 per week where the average net weekly pay is less than or equal to €586 or
- a maximum of €350 per week where the average net weekly pay is greater than €586 and less than or equal to €960.
- If an employer is not making any top up payment to the employee, they should include a pay amount of €0.01 in Gross Pay.
- If an employer is making a top up payment to the employee, they should include this amount in the Gross Pay.
- Do not include the Temporary Wage Subsidy payment in Gross Pay.
- The total net pay (temporary wage subsidy and additional pay) must not exceed previous normal pay.
- The payroll submission must include pay frequency and period number.
Tax implications of the subsidy
The subsidy payment is exempt from PAYE, USC and employee PRSI payroll withholding. Any top-up payment is subject to PAYE/USC withholding but is exempt from employee PRSI. Employer PRSI will not apply to the subsidy payment and a reduced rate of 0.5% will apply to the top-up payment.
Revenue have indicated that any income tax and USC refunds that arise as a result of the application of tax credits and rate bands can be repaid by the employer and Revenue will also refund this amount to the employer.
The temporary wage subsidy will be treated for tax purposes as income chargeable tax under Schedule E within the meaning of Section 19 Taxes Consolidation Act 1997 (“TCA 1997”). As such, tax is payable on the temporary wage subsidy amount paid to employees notwithstanding the fact that the Bill expressly removes such payments from the scope of the PAYE Regulations.
The wording of the Bill in this regard therefore suggests that the wage subsidy may be taxable on the employee at the end of the tax year as opposed to tax being withheld at source under PAYE rules. The FAQs note that this will be completed by review at the year-end but is silent as to the practical application of this and further clarification in this regard is vital as we move forward.
Other points to note
After the scheme has expired, the names of all employers operating the scheme will be published on Revenue’s website.
Penalties will apply to any abuse of the Subsidy scheme by self-declaring incorrectly, not providing funds to employees or non-adherence to Revenue, and any other relevant, guidelines.
Next steps and timeline
Per the Bill, the applicable period for the scheme commences on 26 March 2020. Based on Government indications prior to the release of the Bill, the scheme is intended to run for a period of 12 weeks, but may be subject to review.
The Bill is due to be debated by the Seanad today (Friday 27th March) with a view to being signed into law in the coming days.
As above, early engagement is critical. Please do not hesitate to reach out to your normal Deloitte contact should you wish to discuss any of the above or how we can support you in these uncertain times.