Revenue has been authorised by government to operate a Temporary Wage Subsidy Scheme. The scheme will run for 12 weeks from 26 March 2020.
The scheme enables employees, whose employers are affected by the pandemic, to receive supports directly from their employer. Revenue says the subsidy will be available to employers who keep employees on the payroll throughout the Covid-19 pandemic.
The state will co-fund the cost of salaries up to a maximum of €410 per week 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.
The maximum refundable payment of €350 or 70% of the employee’s Average Net Weekly Pay, whichever is lesser, is payable for those earning over €586 per week net and less than or equal to €960 per week net.
Sometimes referred to as ‘top-up payments’, 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 Average Net Weekly Pay. Such additional payments, which cannot be regrossed, are regarded as gross pay and liable to Income Tax and USC.
In Association with
An employee is not an eligible employee for the subsidy if their Average Net Weekly Pay exceeds €960, or the sum of payments (subsidy plus any additional payment but excluding tax refunds) payable to the employee, in the week being processed, exceeds the Average Net Weekly Wage.
Revenue Clawback
The kicker in the scheme is that, for some reason, Revenue has decreed that the subsidy payment is not subject to tax now but will be later.
Income tax, USC and PRSI are not deducted from the Temporary Wage Subsidy. However, the employee will be liable to Income Tax and USC on the subsidy element of their pay by way of review at the end of the year. In effect this means that there will be a clawback by Revenue on the subsidy payment. This will most likely be effected through reduced tax credits for the individual through 2021.
For the employee receiving portion of their pay funded by the subsidy, say €350 a week for 12 weeks, and assuming they are usually liable to the 40% income tax rate, this results in a looming personal tax liability of c.€2,000 down the road.
An option for the employer availing of the scheme is to focus on the employee's net pay position. If the aim is to maintain the individual's regular net pay, then the employer's pay portion can be reduced by a greater amount than the regular gross pay minus the subsidy. The amount the employer saves now could be used later on to top up staff pay to compensate for their reduced tax credit.
Whatever, the situation is unsatisfactory for the employer and the employee.
According to analysis by think-tank ESRI, the additional cost to government of the Temporary Wage Subsidy Scheme may be minimal, in part because its current design is less generous to lower earners than the Pandemic Unemployment Payment they would receive if laid off.
Two Phase Scheme
Revenue says Phase 1 is a transitional phase that builds on the emergency Employer Refund Scheme that was operational since 15 March 2020, under which the employer receives a refund of €203 per week for each employee that it keeps on its books. The Wage Subsidy Scheme will increase the €203 refund to a maximum of €410 in respect of all employees for employers who operate the Subsidy Scheme, regardless of whether the employer makes an additional payment to the employee’s earnings.
In Phase 2, 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.
It should be noted that the subsidy scheme will be worth more to employers for their April payroll than for March. This is because the Temporary Wage Subsidy Scheme replaces the Refund Scheme, now scrapped, that was announced on 15 March and which had a maximum subsidy of €203 per week.
To straddle both schemes, guidance from Revenue states: “For March payroll with pay date between 12 March 2020 and 31 March 2020, enter a non-taxable amount equal to 70% of the employee’s net weekly pay to a maximum of €812 (€203 x 4). This is based on a 4 week March with four weeks at the €203 rate.”
Going forward, Revenue says the Temporary Wage Subsidy Scheme starts from 26 March, for payroll submissions relating to pay dates on or after the 26 March. Revenue says that the expectation is that this would cover payroll for the week commencing Monday 23 March. It cannot be backdated prior to that date.
• Download detailed guidance from Revenue on Temporary Wage Subsidy Scheme
• Donohoe Tweaks Wage Subsidy Scheme
Key Features
• Replaces the previous Covid-19 Refund Scheme.
• From Thursday 26 March 2020, the subsidy scheme will refund employers up to a maximum of €410 per each qualifying employee.
• Employers should pay no more than the normal take home pay of the employee.
• The subsidy scheme applies to employers who top up employees’ wages and those that aren’t in a position to do so.
• Employers make this support payment to their employees through their normal payroll process.
• Employers will then be reimbursed for amounts paid to employees and notified to Revenue via the payroll process.
• Revenue says that the reimbursement will, in general, be made within two working days after receipt of the payroll submission.
• In April, the scheme will move to a subsidy payment based on 70% of the weekly average take home pay for each employee up to a maximum of €410. According to Revenue, this will be clarified later.
• Income tax and USC will not be applied to the subsidy payment through the payroll.
• Employee PRSI will not apply to the subsidy or any top up payment by the employer.
• Employers PRSI will not apply to the subsidy will be reduced from 10.5% to 0.5% on the top up payment.
Who does the scheme apply to?
The scheme is available to employers from all sectors (excluding the public service and non-commercial semi-state sector) whose business activities are being adversely impacted by the Covid-19 pandemic.
The scheme is available for employers who retain staff on payroll, even if they are temporarily not working or on reduced hours and/or reduced pay.
Revenue says that to qualify for the scheme, employers must:
• be experiencing significant negative economic disruption due to Covid-19
• be able to demonstrate, to the satisfaction of Revenue, a minimum of a 25% decline in turnover, either on the previous quarter (Q1 2020) or on the corresponding quarter last year (Q2 2019)
• be unable to pay normal wages and normal outgoings fully
• retain their employees on the payroll
Qualifying employees for the subsidy are those who were on the employer’s payroll as at 29 February 2020, and for whom a payroll submission has already been made to Revenue in the period from 1 February 2020 to 15 March 2020.
For the moment, the above issues do not have to be evidenced. Entitlement is based on self-declaration.
The Revenue's self-declaration form includes the following: “I confirm that the business is experiencing significant negative economic disruptions due to Covid-19, and can demonstrate to the satisfaction of Revenue that the negative disruption is leading to a minimum of 25% decline in actual or predicted turnover, an inability to pay normal wages and outgoings and to other circumstances as set out in published Revenue Guidelines.”
Supporting Proofs
In guidance on Supporting Proofs, Revenue stressed that its general approach to businesses experiencing cashflow and consequent tax payment difficulties is to work towards agreeing mutually acceptable solutions that assist a return to viability as soon as possible.
“In any such engagement, Revenue expects businesses to be able to produce relevant supporting documentation when requested to do so and to fully engage with Revenue on any follow up discussions or checks,” the guidance document states.
To qualify for the wage subsidy scheme, a business must be experiencing a significant negative economic disruption due to the Covid-19 pandemic.
“In general, this will be readily apparent,” says Revenue. “Some businesses and some sectors have had to close their premises. The impact of public health advice on individual businesses in terms of restrictions on trade, physical distancing, the nature of essential and non-essential businesses, will be obvious. It will also be obvious that some businesses will continue trading and, in some cases, have an increase in business.
“Our purpose is to support businesses through the scheme. Our approach will be based on a presumption of honesty and we expect businesses to approach the scheme in a similar manner.”
• Download Revenue guidance on Employer Eligibility and Supporting Proofs
In relation to the likely reduction in turnover of 25% or more, Revenue clarifies that this is a reduction in expected turnover for Q2 2020 (i.e. April to June 2020).
According to Revenue guidance: “The employer is best placed to determine that, 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.
“Revenue will not be looking for proof of qualification at this stage. We may in future, based on risk criteria review eligibility. In this context employers should retain their evidence/basis for entering the scheme.
“It will of course be very clear to us from our normal relationship with businesses and our normal interaction with businesses that there was no doubt about their qualification and most importantly it will be very clear that the businesses were so impacted.
“In any check, Revenue will focus on the types of business records, having regard to the nature and scale of the business that should normally be readily available for such a business. Where, for example, a business has negotiated forbearance measures with a financial institution, the documentation from the financial institution will generally be adequate for verification purposes as evidence of financial disruption.”
The Revenue guidance clarifies that self-declaration of business stress “is not a declaration of insolvency”.
The tax authorities also state that they do not consider that any employer will require professional advice or assistance in being able to prove to the satisfaction of Revenue that these criteria are met. “Should Revenue seek to validate employer eligibility for the scheme, it will adopt a reasonable, fair and pragmatic approach in considering whether the criteria have been met,” says the guidance.
Cash Reserves
One of the key issues regarding the wages subsidy scheme is whether employers with cash reserves qualify. At the start of the Revenue guidance, qualification indicators are listed as “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; and any other indicators set out in our guidelines”.
However, later the guidance document states: "An employer that has been hit by a significant decline in business but has strong cash reserves, that are not required to fund debt, will still qualify for the scheme but the government would expect the employer to continue to pay a significant proportion of the employees’ wages.
"The declaration by the employer is not a declaration of insolvency. The declaration is simply a declaration which states that, based on reasonable projections, there will be, as a result of disruption to the business caused or to be caused by the Covid-19 pandemic, a decline of at least 25% in the future turnover of, or customer orders for, the business for the duration of the pandemic and that as a result the employer cannot pay normal wages and outgoings fully but nonetheless wants to retain its employees on the payroll.”
Registering for the Temporary Wage Subsidy Scheme
The Temporary Wage Subsidy Scheme replaces the Employer COVID-19 Refund Scheme introduced earlier in March. Any employer already registered with Revenue for the Employer COVID-19 Refund Scheme is not required to take any further action.
The employer may 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, and €410 will be refunded in respect of each eligible employee per week.
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
The employer runs the payroll as normal, entering the following details for each relevant employee under the Scheme:
• PRSI Class set to J9.
• A non-taxable amount equal to the employee’s net take home pay or €410 whichever is the lesser.
• If an employer is not making any payment to the employee, they should include a pay amount of €0.01 in Gross Pay.
• If an employer is making additional wage payments to affected employees, they should include this amount in the Gross Pay.
• It is important that employers do not include the Temporary Wage Subsidy payment in Gross Pay.
• The payroll submission must include pay frequency and period number.
Income tax, USC, LPT, if applicable, and PRSI are not deducted from the Temporary Wage Subsidy.
Revenue points out that sn many cases the payment of the Temporary Wage Subsidy and any additional income paid by the employer will result in the refund of Income Tax or USC already paid by the employee.
Revenue says 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.
Employers hare awrned that they must not operate this scheme for any employee who is making a claim for duplicate support (e.g. Pandemic Unemployment Payment) from the DEASP.
Based on the information provided in payroll submissions and adherence to the maximum limits, Revenue says it will credit employers with the temporary wage subsidy paid to each employee.
