What companies should know about the Temporary COVID-19 Wage Subsidy Scheme (Sponsored)

Mar 27, 2020

The Government announced on 24 March that the current Employer COVID-19 Refund Scheme is being replaced by a new scheme, the Temporary COVID-19 Wage Subsidy Scheme, from Thursday 26 March.

The existing Employer COVID-19 Refund Scheme was an emergency scheme from the Department of Employment Affairs and Social Protection (but administered by Revenue) where employers were able to make an emergency payment of €203 per week to employees who would otherwise have been laid off.

The new Temporary COVID-19 Wage Subsidy Scheme is a completely different scheme from Revenue to directly subsidise an employee's salary.

The new Temporary COVID-19 Wage Subsidy Scheme

Under the new scheme, Employers will be able to make a tax free payment to employees that is the equivalent 70% of their average after tax  pay for which they will receive a direct subsidy from Revenue. This subsidy is capped at a maximum of either €350 or €410, depending on what the average after tax pay ends up being. As this average goes up, the available subsidy goes down.

After tax pay is defined as gross pay: PAYE - USC - PRSI (EE). The average value for this after tax pay is based on the submissions made to Revenue for the employee between 1 January and 29 February 2020

In addition to this, employers will be able to make an additional top-up payment of up to 30% of the after tax pay, however, this top-up amount is subject to PAYE, USC and PRSI at J9 rates.

Employers who top up by more than 30% will have their subsidy reduced on a like-for-like basis, so for every euro above the 30% amount, the employer will receive a euro less from Revenue by way of a subsidy.

How is it being implemented by Revenue?

This scheme is going to be implemented in two distinct phases:

Phase I - 26 March to 20 April

Employers will be required to calculate what each employee's average after tax  pay is based on the submissions made to Revenue in the period from 1 January to 29 February 2020. 

The employer then calculates the tax-free COVID-19 payment as 70% of the average after tax pay.

This tax-free COVID-19 payment is limited depending on the average after-tax pay as outlined below:

  • Average pay from €0 to €586 limits it to €410.
  • Average pay from €586 to €960 limits it to €350.
  • Average pay above €960 is not entitled to the subsidy.
Having established the value of the tax-free COVID-19 payment, the employer is now ready to decide if they are going to make a top-up payment. As outlined earlier, this top-up is subject to PAYE, USC and PRSI at class J9.

A top-up payment higher than 30% of the average after tax pay will reduce the amount of subsidy that Revenue will pay on a euro-for-euro basis. If you breach the 30% limit by €50, Revenue will reduce your subsidy by €50.

In Phase I, Revenue will automatically pay a subsidy of €410 per week for every J9 submission received, even if the amount of the tax free COVID-19 payment is less than that.

The important point to note here is that Revenue always refunds €410, even though you may have actually paid the employee less than that under the scheme.

Phase II - After 20 April

In Phase II, Revenue will have introduced a new PAYE Modernisation payroll submission process that will enable employers to report the exact amount paid to the employees under the scheme.

Revenue will then issue the subsidy payments based on these new employer submissions and the amounts paid by Revenue will match the amounts paid to employees.

What happens after that?

At this stage, all we can say is that Revenue plan to reconcile all subsidies down to the last euro, and employers will be required to account for all subsidies claimed under the scheme.

In Phase I, Revenue will pay a subsidy of €410, regardless of what you pay your employees. Where you have paid less to your employees, Revenue will want their money back and you will need to account for this.

Phase II will see more control over the amount of subsidies paid, but it is still possible that some employees who have more than one employment may receive payments higher than what they are entitled to receive. In these cases, Revenue is likely to claw this back from employees via their end of year statements. 

This is a complicated scheme which has been developed in a very short space of time. It is not perfect, but it is aimed at enabling employers and employees to make it through this current crisis.

Employers will find Revenue to be relatively sympathetic in cases where they have made honest mistakes in how they have operated the scheme. However, any employer who tries to take advantage of the scheme will be asked to account for their actions and cannot expect any sympathy from Revenue or the Irish taxpayer.

If you need further help with your payroll and advice on the Temporary COVID-19 Wage Subsidy Scheme, contact CollSoft Payroll.

(This article is sponsored by CollSoft Payroll. The views are that of the author and all information is correct at the time of writing. Professional advice may be required when dealing with such issues.)