The Temporary COVID-19 wage subsidy scheme enables employees whose employers are affected by the pandemic, to receive supports directly from their employer through the payroll system. The scheme is expected to last 12 weeks from 26 March 2020.
Employers who are keeping staff on their payroll will be able to make a tax free payment to employees that is equivalent to 70% of their average “net weekly emoluments” (Net Pay) for those who earn up to €586 gross for which they will receive a direct subsidy from Revenue.
Whilst welcome the scheme is not without risks and uncertainties as the legislation as enacted in the Dáil leaves a lot of questions to be answered and dependent on revenues guidelines.
Guidelines are as they state –guidelines and are not the law.
The objectives of the scheme are fantastic in that it enable employers to keep staff on their payroll for the term of the Crisis in the country.
The subsidy is not taxable when received but will instead will be taxable on the subsidy paid to them by their employer by review at the year end.
Employers will get a reduced rate of PRSI from 11.05% to 0.5% and no employees Prsi.-An important element is that Entitlements will not be broken for PRSI.
The subsidy is capped at a maximum of either €350 for those earning gross €586 to €960 or €410 for those earning up to €586. As the average net pay increases, the available subsidy decreases. There is no subsidy available for employees whose Net Pay is more than €960 per week.
"Net Pay" is an employees’ Gross Pay less, PAYE, USC and PRSI. The average value for the "Net Pay" is based on the submissions made to Revenue for the employee between 1st January and 29th February 2020. Employers will also be able to make an additional "Top-Up" payment of up to 30% of the "Net Pay", however this top-up amount is subject to PAYE and USC and PRSI class J9.
Furthermore and most important, employers who top up by more than 30% will have their subsidy reduced on a Euro for Euro basis, so for every Euro above the 30% threshold, the subsidy will be reduced by the equivalent amount.
The average “Net Pay” and subsidy are calculated as follows:
A: Normal Weekly "Net Pay" = Gross Pay Less PAYE, USC, Employees PRSI / Insurable weeks
B: Tax Free COVID-19 Payment to Employee = 70% of A
C: Maximum allowed employer Top Up (taxable) = 30% of A
The COVID-19 Wage Subsidy Scheme is being rolled out in three phases:
Phase 1 - 26th March to 20th April
Employers calculate each employee's average Net Pay based on the submissions made to Revenue between 1st January to 29th February 2020. The employer then calculates the "Tax Free COVID-19 Payment" as 70% of the average Net Pay.
The subsidy is limited based on the average "Net Pay" as follows;
Average Pay from €0 to €586 is capped at €410
Average Pay from €586 to €960 is capped at €350
Average Pay above €960 is not entitled to the subsidy.
Where the employer decides to make an additional "Top-Up" higher than 30% of the average "Net Pay" the subsidy will be reduced on a Euro for Euro Basis.
For example, if the 30% Top Up threshold is breached by €50 then Revenue will reduce the subsidy by €50.
During Phase 1, Revenue will automatically pay a subsidy of €410 per week for every J9 submission received even if the amount of the employee received is less than €410. For example, if an employees’ weekly payment is €380, Revenue will refund €410 to the employer and then a review must be carried out at the end of Phase 2 where the employer will refund revenue by the €30 over-payment.
It is important for employers to note that if they get the net pay calculation wrong at the outset they could be in a position where there is liability owed back to Revenue at the end of phase 2.
Phase 2 – 20th April – 18th June
In Phase 2, Revenue will have introduced a new payroll submission process whereby employers report the exact amounts paid to the employees under the scheme. Revenue will then issue the subsidy payments based on these submissions where the amounts paid out by Revenue to employers will agree to the amounts paid to employees. This is different to how the scheme operates under Phase 1 where revenue will pay a subsidy of €410 irrespective of the amount paid to employees.
Phase 3 – After 18th June
Revenue will reconcile all subsidies paid to employers based on the payroll submission and a complete review will be required to account for all subsidies claimed under the scheme. At this stage it will be determined whether there has been an over-payment to the employer .
It is why it is critical that the Net Pay calculations are correct from the outset, or else employers may have an additional liability due to revenue at the end of the twelve weeks.
Ultimately employers will have to decide if the benefit of the subsidy outweighs the time and costs of availing of the subsidy. In order to avail of the scheme employer will consider that:
They must demonstrate that the negative disruption has led - to a minimum of 25% decline in actual or predicted turnover,
An inability to pay normal wages and outgoings and, to other circumstances which is yet to be defined
Submit a “Covid-19: Temporary Wage Subsidy Self-Declaration” on ROS;
Employers name will be published on the Revenue website which is quite normal where one avails of State Aid.
If the employer calculates the Net Pay incorrectly, they may have a large liability due to revenue at the end of the twelve week period;
There is no subsidy for employees on an Net Pay of more than €960 per week;
There is a claw back of the subsidy where employers choose to top up the payment by more than the 30% threshold;
The scheme is under the operation of the Revenue commissioners and will therefore be subject to Verification /Queries/Potential Audit and Even Investigation
The COVID-19 wage scheme is not without risks. Employers will need to consider the options very carefully and whether the scheme is appropriate for their business.