The Temporary Wage Subsidy Scheme – Frequently Asked Questions

In this month's First Tuesday Q&A, Aifric O'Dea, Associate in A&L Goodbody, takes a look at some FAQs from employers in relation to the Government's Temporary Wage Subsidy Scheme (the TWSS).

What is the TWSS?

The TWSS is a scheme to provide financial support to employees and employers who have been significantly impacted by the COVID-19 pandemic. It is expected to last for 12 weeks from 26 March 2020. Through the TWSS, the Government will fund 70% of eligible employees' salaries, up to specified caps.

The TWSS is underpinned by the Emergency Measures in the Public Interest (Covid-19) Act 2020. Revenue has also published guidance (the Guidance) which explains the operation of TWSS and provides responses to some frequently asked questions. The Guidance is updated on an ongoing basis and is currently on its 5th iteration. Employers should monitor the changes to the Guidance as each version provides further clarity on the operation of the TWSS.

What are the relevant caps?

A cap of €410 net will apply to the Government contribution towards the weekly take-home pay of an employee earning approximately €38,000 gross per annum. A cap of €350 will apply to the weekly take-home pay of an employee earning between €38,000 and €76,000 gross. Employees earning above €76,000 per annum are excluded from the scheme.

No guidance or explanation of the rationale for the exclusion of employees earning over €76,000 from the TWSS has been provide and the position has been the subject of some scrutiny. In the absence of a wage subsidy from the State, certain employers may be left with no option but to place their best paid staff on unpaid lay off, with those employees being left in the invidious position of having to apply directly to the Department of Employment Affairs and Social Protection (the DEASP) for the COVID-19 Pandemic Unemployment Payment, whereas their less well paid colleagues continue to receive payroll payments (that could be topped up).  

Which employers can access the TWSS?

The TWSS is available to an employer who has:

1.     been adversely affected by COVID-19 with the result that the employer is unable to pay normal wages

2.     the firm intention of continuing to employ the employee (and to pay them accordingly) and is making best efforts to pay some wages during the 12-week period

3.     provided certain information, such as tax number and bank account details via the Revenue online system (ROS)

An employer's business shall be regarded as adversely affected for the purpose of the TWSS where it demonstrates to the satisfaction of Revenue that because of COVID-19 at least a 25% reduction in turnover or customer orders will occur between 14 March 2020 and 30 June 2020.  Revenue has addressed (in the form of FAQs and guidance on employer eligibility and support proofs) the initial concern raised by many employers that a declaration to this effect could be construed as a declaration of insolvency.

What are the consequences where an employer abuses the TWSS?

Penalties will apply to any abuse of the TWSS by an employer self-declaring incorrectly, not providing funds to employees or non-adherence to Revenue, and any other relevant guidance issued.

Employers will be regarded as having committed an offence where they "knowingly or wilfully" provide or assist someone in providing any incorrect information in respect of the TWSS. A person convicted of such an offence can be liable to a fine of up to €5,000 and/or 12 months imprisonment (on summary conviction) or a fine of up to €126,970 and/or 5 years imprisonment (on indictment). In the case of a corporate entity, personal liability can arise for individuals within that entity (e.g. directors, managers, member of a management committee) in certain circumstances. 

Which employees are eligible to benefit from the TWSS?

An eligible employee is someone:

(i)              whose employer cannot afford to fully pay them because of COVID-19;

(ii)             who was on payroll on 29 February 2020, with their employer having made payroll submissions to Revenue with dates between 1 February and 20 February; and

(iii)            who earns less than €76,000 (gross) per year.

It is not possible to agree pay-cuts with employees earning over €76,000 (gross) to bring them within the scope of the TWSS, as the qualifying remuneration criteria are based on an employee's pay for January and February 2020.

Employees do not need to be laid off to avail to the TWSS. There is no age restriction and full-time and part-time employees, and those on short-time work arrangements are all eligible.

Is the employer obliged to top-up the wage subsidy payment?

The TWSS is available to employers who are making best efforts to pay some of employees' normal wages during the applicable period. The Guidance does not outline how an employer can demonstrate it is making best efforts where it is not paying wage top ups or where those wage top ups are only modest. Further, while the Guidance states that employers who avail to the TWSS are expected to make best efforts to "maintain an employee's net income as close as possible to normal net income" for the duration of the subsidy period, it acknowledges that  certain employers may not top-up. In those cases, an employer must nonetheless include a pay amount of €0.01 in gross pay in order for the wage subsidy to be processed by Revenue.

The Guidance confirms that an employer that experiences a significant decline in business but has strong cash reserves that are not required to fund debt will still qualify for the TWSS. In such a scenario, the Guidance states the Government would "expect" the employer to continue to pay a significant proportion of the employees' wages. It remains to be seen whether Revenue will treat this expectation as a moral as opposed to a legal one, particularly for well-resourced employers who qualify for the scheme but decide against topping up employee wages for cash conservation reasons.

Employers will certainly need to examine whether they have the financial capacity to pay a "top up" and regardless of the decision they make in this regard, document their rationale accordingly, ideally by reference to objective financial metrics. 

Is the TWSS subsidy pro-rated for employees on short-time?  

The Guidance is not explicit, but Revenue has indicated that the employee will receive a subsidy based on their earnings in January and February 2020. The subsidy for employees whose hours have been reduced will therefore be based on their normal full wage, regardless of their reduced hours.

Take the example of an employee who earns €500 net per five day working week but their employer requires them to work three days per week as a result of COVID-19, and accordingly pays them €300 net for that three day week. In this case, the subsidy payable will be 70% of the €500 – i.e. €350.

What if an employee was not on payroll in January or February 2020?  

There may be cases where an employee was in employment but did not receive normal pay in January or February 2020. They may have been on reduced pay, maternity leave or some form of unpaid leave. In those cases, the Guidance states that an employer can either;

(i)              operate the TWSS based on January/February average net weekly pay (i.e. the reduced payment); or

(ii)             pay the employee appropriate wages without receiving a subsidy refund. The guidance also acknowledges that in those cases an employee may decide not to participate in the TWSS and might instead apply directly to the DEASP for the COVID-19 Pandemic Unemployment Payment (a payment of €350 per week).

Who pays the wage subsidy and how much is the subsidy?

From an operational perspective, the wage subsidy is paid by the employer but then recouped by the employer from Revenue via the PAYE system. Revenue guidance suggests the refund will be processed within two working days of receipt of the payroll submission. Employers must file a payroll submission with Revenue on or before the day they pay their employees.

There are two phases to the TWSS. Phase 1 is intended to be a short, transitional phase, with Phase 2 commencing on 20 April 2020.

During the Phase 1 transition period the scheme will initially refund employers up to a maximum of €410 per each qualifying employee. To the extent that the refund received by the employer exceeds an employee's net average weekly pay for that period, Revenue will subsequently recoup the excess from the employer. By way of example, if an employee's net average weekly earnings are currently €400, the employer will receive a wage subsidy of €410 in respect of that employee until 19 April 2020. As an employer is, strictly speaking, only entitled to a wage subsidy equivalent of up to 70% of an employee's net average weekly earnings in respect of this period, the employer should have only received a wage subsidy of €280 (i.e. 70% of €400). Accordingly, the Revenue will subsequently recoup the excess weekly wage subsidy paid of €130 from future employer reimbursements. Notwithstanding a flat rate of €410 is to be reimbursed to employers in respect of Phase 1, the Revenue guidance provides that employers should enter a non-taxable amount equal to 70% of the average net weekly pay to:

• a maximum of €410 per week where the average net weekly pay is less than or equal to €586 net; or
• a maximum of €350 per week where the average net weekly pay is greater than €586 net and less than or equal to €960 net

Details of how to calculate average net weekly pay are outlined at Section 4 of the Revenue FAQ.

In Phase 2 the subsidy will be based on each individual employee's average net weekly pay up to the maximum weekly tax-free amounts. Revenue has stated that it will be issuing further guidance on Phase 2 shortly.