Temporary Wage Subsidy Scheme (TWSS) further Revenue guidance

The Temporary Wage Subsidy Scheme (TWSS) was first introduced on 26 March 2020 to provide income support to eligible employers where the business activities have been negatively impacted by the COVID-19 pandemic but who continue to keep employees on payroll. Our previous guidance on the TWSS is available here. Since the TWSS was announced, Revenue have updated their guidance on the employer eligibility and supporting proofs available here and various versions of their FAQs available here.

We have covered some of main updates to the TWSS since its introduction below:

Employer eligibility 

  • The legislation provides that an employer’s business will be considered to be significantly impacted by Covid-19 where it can demonstrate that its expected turnover or customer orders for the period from 14 March to 30 June will decrease by 25%. 
  • The updated guidance confirms that where a company is divided into individual business divisions and one division suffers a 25% reduction in turnover or customer orders, then the company should be eligible to claim the subsidy in respect of eligible employees working in that division. It must be possible to identify separately, the decline in turnover or customer orders relevant to that business unit; otherwise the company turnover must be considered as a whole. 
  • Furthermore, Revenue have indicated that each business division within the company must have a clearly defined and separate formal management structure to the other business divisions in the company and these structures must have been in place in advance of the Covid-19 crisis. 
  • Employers wishing to avail of the TWSS in respect of a specific business division within their overall entity should retain supporting documentation to evidence the fact that this is a separately identifiable division with the appropriate management structures in place as Revenue have indicated that they may examine the basis on which a company applied for the scheme in respect of a specific business division rather than in respect of the overall company. 
  • Revenue have also given further clarity where employers are considering eligibility following a reduction in customer orders. 
  • Revenue have confirmed that in instances where the “turnover” or “customer orders” test do not adequately reflect the extent to which a business is suffering significant negative economic disruption to Covid-19, an alternative “reasonable basis” test should be applied. On initial reading, this would appear to imply that companies which are adversely impacted by Covid-19 may be able to avail of the TWSS notwithstanding that their turnover or customer orders will not reduce by 25% in the period to 30 June. However, the guidance goes on to state that the starting position is that neither the turnover test nor the reduction in customer orders test is capable of being applied to the business in question; it is not sufficient that the business does not meet either of these tests. Thus, in order for a company to be eligible for the TWSS on some “other reasonable basis” they must be able to clearly demonstrate that it is not possible to apply the “turnover” or “customer orders” test to their business.
  • No further guidance has been given as to what might or might not constitute a reasonable basis; it appears that this will be considered on a case by case basis as Revenue have stated that in all such cases, guidance should be sought from the relevant Revenue division. This may be relevant for businesses such as construction companies where they may have no turnover or customer orders in the period to 30 June but their business will be adversely impacted as their contracts will not complete for a longer period of time and currently no work is taking place as building sites are closed.
  • For other businesses it may not be quite as clear cut whether they may be eligible for the TWSS on the “other reasonable basis test” as they may be able to apply the turnover test; however, although their business may not suffer a 25% reduction in turnover in the period to 30 June, their business will be significantly adversely impacted by Covid-19 perhaps due to a reduction in turnover later in the year or an increased level of bad debts. Given that Revenue have indicated that in their administration of this scheme, the key focus will be on significant negative economic disruption due to Covid-19, it would appear logical that businesses in this category should be eligible to avail of the scheme. As the guidance is not entirely clear on this point it may be necessary for businesses to make a submission to Revenue; and in fact this is required anyway where a company is availing of the scheme on the basis that it is eligible due to some “other reasonable basis” other than the turnover or customer orders test. 
  • The updated guidance also provides clarity for group entities where the business as a whole is negatively impacted by Covid-19 but the employer company will not meet the criteria if looked at on a standalone basis (as the employer company may be different to the company which operates the trading business). In such cases, Revenue have confirmed that the employer company can avail of the scheme provided the employees concerned were wholly or mainly employed in one or other of the trading companies which is impacted by Covid-19. 
  • Employees based in the head office division will be eligible for the subsidy if they spend more than 50% of their time on duties relating to the business division that is eligible for the subsidy.

General updates on processing

Processing the subsidy and the additional payment 

  • The subsidy payment is exempt from PAYE, USC and PRSI payroll withholding. Under the TWSS, the employer can choose to make an additional payment to the employee to fully or partially make up the difference between the subsidy and the employee’s average net weekly pay for January and February 2020 (ANWP). Revenue have stated that the additional payment cannot be re-grossed. The additional payment is treated as gross pay and liable to PAYE and USC. The additional payment is exempt from employee PRSI and subject to J9 rate of employer PRSI, i.e. 0.5%. 
  • While the subsidy is not taxed through payroll, the subsidy is ultimately taxable and the tax due for each employee will be calculated at the year-end. Revenue have indicated that any tax owing in “manageable amounts” will be collected by reducing an individual’s tax credits for a future year(s) in order to minimise any hardship. The tax position for each employee will depend on their personal tax bands and credits.
  • As the subsidy payment is not taxed through payroll, refunds of tax paid in prior periods may be triggered through payroll. Revenue also advised that any employee who wishes to obtain an amended 2020 tax credit certificate on a Week 1/Month 1 basis should contact Revenue via MyEnquiries to do so. This may be relevant to employees who do not wish to receive refunds of tax paid for the year to date. This will minimise potential tax liabilities at the year-end reconciliation.
  • The net payment to an employee (excluding tax refunds) must not exceed their ANWP (capped at €960 per week). If the employer makes excessive additional payments, the subsidy value will be tapered with the subsidy refundable to the employer reduced or the employee may not be eligible for the TWSS.

Pension and other net pay deductions

  • Revenue have confirmed that a pension contribution should not be made from the subsidy payment as the purpose of the payment is to ensure a minimum amount is paid to employees during the emergency period. That said, the subsidy payment is treated as part of the employee’s net relevant earnings for pension purposes. Therefore, an employee cannot make a pension contribution through payroll on the subsidy payment but employees can still contribute to their pension and claim tax relief on their 2020 personal income tax return.
  • In addition, the Revenue guidance notes that pension scheme approval will not be withdrawn where an employer suspends pension contributions during the TWSS period. 
  • The guidance does not clearly state that pension contributions can be made from the additional payment and it is hoped that Revenue will clarify the distinction between pension contributions and other non-statutory deductions in due course.
  • The guidance confirms that any non-statutory deductions, such as union fees or medical insurance, which are normally deducted from net pay should not be deducted from the subsidy. 
  • Deductions may be made (from the additional payment if the additional payment is sufficient to absorb the deduction) with agreement of the employee. 
  • If there is no additional payment, it may be necessary for employees to consider direct payments to providers to ensure their memberships/premiums are maintained. 

Backdating the TWSS

  • Recent updates to the guidance state that the TWSS cannot be applied retrospectively. Any amendment may be subject to verification, rejection of the submissions from the TWSS and possible penalties.
  • If a submission has been made under the TWSS, it should not be amended and if amendments are required, a submission should be made to Revenue via MyEnquiries. 

Employees who are laid off and the Pandemic Unemployment Payment (PUP)

  • The TWSS cannot be claimed for any employees who are in receipt of the COVID-19 PUP from DEASP. Revenue is sharing data with DEASP who will use this to identify dual payments and will cease future PUP payments for employees that are benefiting from the TWSS. 
  • Due to the upcoming changes to the TWSS for employees from 4 May (see below), the subsidy amount will increase for employees earnings up to €586 net for week. The changes will mean that the potential subsidy is more in line with the PUP payment. Employers may consider re-hiring employees to avail of the TWSS. In such cases, the employee should “sign-off” from the PUP payment. As noted in our earlier guidance, an eligible employee is someone who was on payroll on 29 February 2020 and the employee must have been included on payroll submissions between 1 February and 15 March 2020.
  • Revenue have indicated that the PUP will be taxable. 

Updates from 16 April 2020

The TWSS has been amended to include employees whose pre-COVID gross salary was greater than €76,000, and their post-COVID annual gross salary has now fallen below €76,000 (broadly €960 net per week but has now fallen below €960 net) due to a pay-cut. This amendment should also apply to an employee who had an annual gross salary of less than €76,000 but was excluded from the TWSS as the ANWP exceeded €960 per week, due to payment of once off payments in January and February such as bonuses and commission. The updates are summarised below:

The maximum subsidy payable is calculated by reference to the employee’s ANWP and the payment now being made by the employer. The subsidy available is subject to the tiered arrangements and tapering will apply to ensure the actual net pay received does not exceed €960 per week.

To date, Revenue have not issued sample workings of this calculation. 

Updates from 4 May 2020

The following amendments to the TWSS are expected to apply to payrolls with a payment date on or after 4 May 2020 (Phase II). Again, the ANWP will continue to be based on the January and February 2020 payroll.

Employee previously earning up to €586 net per week

The subsidy available is as follows:

Employees previously earning in excess of €586 net per week

For employees whose previous ANWP is greater than €586 per week but not more than €960 per week, the subsidy shall not exceed €350 per week, and is calculated by reference to the amount of any additional payments made by the employer as follows:

Tapering of the subsidy shall apply to all cases where the gross pay paid by the employer plus the subsidy amount exceeds the previous ANWP. The single exception to tapering is where an employer wishes to pay an employer contribution which when added to the wage subsidy for the employee does not exceed €350 per week. In such cases, tapering of the temporary wage subsidy shall not be applied.

Revenue are due to issue further guidance on these changes in due course.

Next steps

The guidance on the TWSS is being updated regularly. Employers need to ensure that they are up to date with the latest Revenue guidance and that there is appropriate communication with their employees and their payroll software providers.

We will need to see Revenue’s guidance, when it issues, to confirm the changes for Phase II.

Deloitte's Temporary Wage Subsidy Scheme (TWSS) Flyer

Download the PDF
Did you find this useful?