Money for nothing

Apr 23, 2020

Originally published on Business Post, 5 April 2020


In the last 10 days, the giant engine of the PAYE system has been thrown into reverse.  Usually it's a machine for hoovering up tax.  Now it's doing the opposite, allowing government to pay the wages of businesses in trauma due to the government’s decisions taken to combat the Covid-19 health crisis.

 

By midweek, Revenue were already briefing that they had paid out €34 million in wages to over 30,000 employers already availing of the scheme.  If nothing else, that's an impressive piece of administrative work. 

 

The new Irish PAYE system which was introduced only at the start of last year was modelled on a British system.  It integrates the payroll process of employers with the data and money crunching IT systems of the Revenue Authority.  Yet the British refund system for employers will only start delivering the cash in the next few weeks.  The Irish system is doing it immediately.  Because nothing kills a business quicker than strangled cash flow, this urgency will make a real difference. 

 

For all that, the Minister for Finance still felt he had come out on Thursday morning to encourage employers to claim the assistance of up to €410 per week for employees who earn below the average industrial wage, and up to €350 per week if the employee typically earns anything up to €76,000 per week gross per annum gross.  Why was that necessary?

 

It certainly wasn't because people weren't being laid off.  We learnt later on Thursday from the CSO that over 280,000 people are now receiving Pandemic Unemployment Payment.  Within the space of a few short weeks, the country moved from virtually full employment to record levels of unemployment. 

 

Nor is it because employers are so flush with cash that they don't need government support.  Again on Thursday (which was rapidly turning into Gloomsday) we saw from the Exchequer returns for March that the monthly taxes collected from businesses, primarily PAYE and VAT, were down by almost €1bn on the same month last year.  This drop becomes all the more concerning because it doesn't just reflect the falloff in employment during the month of March.  Rather, it more reflects the cash flow difficulties for businesses.  Smaller businesses in particular seem to have been availing of the suspension of interest charges on VAT, and deferring payments which would have been due last month. 

 

In this country it's usually the big employers that make the headlines – the public service, the semi-states, the major multinationals, the big indigenous manufacturing and service firms.  It took an announcement of over a hundred new jobs to even get noticed by a media business desk, let alone merit a headline.  In reality, job numbers of that scale don’t reflect the typical profile of employers in Ireland. 

 

Approximately 176,000 businesses employed people before the crisis, but over half of Irish employers employ 3 or fewer people.  One in four have only one employee.  These are the small traders, small retail outlets, and small services businesses.  Some are what are termed personal service companies.  These are companies employing only one person, their owner, set up as a commercial structure to win contract work often within the IT industry.  Large employers in Ireland are the exception rather than the rule.  Only about 2% of employers employ more than 100 people. 

 

Because the profile of employers is so heavily skewed towards smaller entities, this may partly explain the official concerns about the level of take-up of the scheme so far, where only on in five employers have bought into it.  The majority of employers in Ireland do not have high power advisers or HR departments.  Up to now they might not simply have had the headroom to put claims in place, because the arrangements are fairly complex and new scenarios are emerging daily.  The PAYE machine has been thrown into reverse and when any machine is put into reverse you can end up with a lot of wheel spinning and grinding of gears. 

 

Other reasons for employers not availing of the wage subsidy scheme may include having highly paid employees who earn over the €76,000 per annum mark and who are therefore excluded from the scheme.  Yet another group of employers might be treating this crisis as an opportunity to fulfil their plans to reduce staff numbers, so they won’t be making claims for wage subsidies. 

 

Lastly concerns over privacy or post crisis vulnerability to litigation once the crisis has passed are still circulating.  These seem to have dissuaded some employers from making claims.  Beware of fake news.  Every commercial decision involves some risk, and employers should look at the terms and conditions of the scheme again and make up their own minds.

 

The wage subsidy scheme is not money for nothing.  Instead it is commercial recompense for government mandated commercial shutdown.  Employers who are entitled to it should avail of it. 

 

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland