The Covid-19 Temporary Wage Subsidy Scheme explained for employers

As part of The Emergency Measures in the Public Interest (Covid-19) Act, the Government introduced the Temporary Covid-19 Wage Subsidiary Scheme (the “Scheme”).

While initially appearing attractive for employers, a full investigation of the Scheme and its practicalities should be considered before employers avail of it. We have highlighted the core provisions of the Scheme below.  It should be noted that the above is based on draft legislation which has not yet come into law. We will update you on any developments as they occur.

The core provisions of the Scheme are as follows:

The Scheme was designed to enable employers to retain links with employees so businesses will be able to trade through the crisis. It is expected to operate for 12 weeks from the 26^th March 2020.

If they choose to avail of the Scheme, employers will continue to make wage payments through their normal payroll service and then, within two days of payroll submission,  will be reimbursed up to the thresholds as set out in the next paragraph.  Employers are expected to use their best efforts to top up the supplement and ensure their employees are paid 100% of their wages, or as close as possible to it.

Revenue will not apply Income tax, USC or employees’ PRSI to the subsidy. Employer’s PRSI will be reduced from 11.05% to 0.5% on any top up payment the employer makes.

How much will the Government pay?

Where employees earn less than €38,000 gross per annum, employers will receive a subsidy of up to 70% of the employees take home pay, up to a weekly tax free amount of €410.

• Where employees earn between €38,000 – €76,000 gross per annum, employers will receive a subsidy of €350 per week, however it appears that this will be reduced to nil at a salary of €76,000 or higher.

Employees earning more than €76,000 gross per annum, are not covered by the Scheme.

Which employers are eligible to avail of the Scheme?

The scheme is available to employers in all sectors of the economy (excluding the public service and non-commercial semi-state sector) once the following criteria is met:

1. The employer must self-declare that they are experiencing severe negative economic disruption by the virus and its effects,
2. At a minimum, the employer must be able to show a decline in at least 25% of turnover, or customer orders, from the 14^th March 2020 – 30^th June 2020,
3. The employer must not be able to pay their employees wages or other normal outgoings,
4. The employer must have the firm intention to keep the employees on the payroll,
5. The employee must have been on the payroll on the 29^th February 2020.

The Scheme may not be availed of if the employee is claiming support by another method, for example if an employee is claiming the Covid-19 Pandemic Unemployment Payment from the Department of Employment Affairs and Social Protection.

Potential concerns for employers:

• As the Scheme requires employers to self-declare that they cannot pay their staff or their ordinary costs, concerns have been raised that this may be seen as the employer declaring that they cannot pay their debts and there therefore insolvent. A business which continues to trade while they are knowingly unable to pay their debts, could be found to be fraudulently trading and face sanctions under Irish company law.   While this may initially cause some concerns, Revenue have issued a statement of comfort to employers that the declaration will not be seen as a declaration of insolvency.
• Another potential concern to employers may be that the names of the employers operating the Scheme will be published on Revenue’s website after the Scheme has expired. This may be alarming to businesses who would not want their competitors or the general public to know that they were unable to pay their staff during the crisis.
• As the subsidy is based on self assessment, it should be noted that there are serious penalties for employers who are not compliant with the Scheme. Revenue will not be investigating each employer during this period, however they may do so at any time within 6 years of the employer availing of the Scheme. If Revenue determine that an employer was not compliant with the Scheme by self declaring incorrectly or by not providing top up funds to employees interest may be charged at a daily rate. This could lead to a substantial sum being owed to Revenue- more so than the subsidy provided.

How can employers apply?

Click here and follow the instructions as set out on Revenue’s website.

Given the legislation drafted to date is complex, and that the Revenue guidance which has issued is just that, guidance, it is recommended that legal advice be sought before entering into the Scheme. Care should be taken before declaring a business as eligible to receive the subsidy due to the potential repercussions and penalties which may be imposed at a later date.

About the author: Emer Murphy, Solicitor on The Employment Team