AN operational guide to the COVID-19 Wage Subsidy Scheme

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 which they will receive a direct subsidy from Revenue.

The subsidy is capped at a maximum of either €350 or €410 depending on what the average "Net Pay". 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 an employees 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, ee PRSI / Insurable weeks
B	Tax Free COVID-19 Payment to Employee	=	70% of A capped at €410 or €350
C	Maximum allowed employer Top Up	=	(A - B)

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 make tops up in excess of and the normal average "Net Pay", the subsidy will be reduced on a Euro for Euro Basis. For example, if the normal average net pay is €500 and the employer makes a Top Up to bring the net pay to €550, Revenue will reduce the subsidy by additional €50. During Phase 1, Revenue have indicated that they 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 €350, Revenue will refund €410 to the employer and then a balancing exercise will be carried out at the end of Phase 2 where the employer will refund revenue by the €60 over-payment. This may change in practice as the details of the scheme are become clearer however 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

By 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 balancing exercise 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 which is why it is critical that the Net Pay calculations are correct from the outset, 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, to an inability to pay normal wages and outgoings and, to other circumstances as set out in soon to be published Revenue Guidelines;

• Submit a “Covid-19: Temporary Wage Subsidy Self-Declaration” on ROS;

• Employers name will be published on the Revenue website;

• 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 employees net weekly pay;

The COVID-19 subsidy scheme is not without risks. Employers will need to consider the options very carefully and whether the scheme is appropriate for their business.