On 24 March 2020, the Government announced new measures to provide financial support to employers and employees affected by the COVID-19 crisis. The COVID-19: Temporary Wage Subsidy Scheme will subsidise the employer for part of the net pay of the employee, thereby relieving the employer of some of their cash flow difficulties at this time while enabling employers to retain employees on the payroll.
The scheme is split between two “phases”. Phase 1 runs from 26 March until 3 May 2020. Phase 2 will take effect on 4 May 2020. Many of the conditions attached to qualifying for the Scheme apply to both Phase 1 and Phase 2. For more detailed consideration on the operation of each phase, click here for Covid-19 Payroll Supports Phase 1 and click here for Covid-19 Payroll Supports Phase 2.
If you have a question on the COVID-19 Temporary Wage Subsidy Scheme that is not covered below, please contact us, and our experienced tax team will be happy to help.
Question 1: Will I have to pay tax on the Wage Subsidy payment?
Income tax, USC, Employee PRSI and Employer PRSI will not apply at the date of payment of the COVID-19 wage subsidy; however employees will be liable to Income Tax and USC on the subsidy received on review at the end of the year.
Question 2: I’ve heard Revenue will publish my company’s name and address on the Revenue website if I avail of this scheme. Is that true?
Revenue will publish the names and addresses of employers availing of the COVID-19 wage subsidy payment on its website after the scheme has expired. This is in line with legislative requirements and international practice.
Question 3: How do I (the employer) qualify?
To qualify for the wage subsidy scheme, an employer must experience significant negative disruption due to the pandemic. One of the key indicators of significant negative disruption is that the business turnover is likely to decrease by 25% in quarter 2, 2020 and that the business is unable to meet wages and other costs. The employer will need to declare that the business is experiencing significant negative disruption.
Question 4: What if I make additional payments to my employees, on top of the Wages Subsidy amount? Is this taxable pay?
Any payroll top-up payments to the wage subsidy would be taxed as normal for income tax and USC. Employee PRSI would not apply to any top-up payments. Employer PRSI (normally 11.05% of gross wages) is reduced to 0.5%.
Question 5: Who decides if my company qualifies for the Wage Subsidy?
Wage subsidy eligibility will be on a self-assessment basis by the employer initially. Revenue will follow up on that assessment later, based on the risk profile of the employer.
Question 6: Do I need to submit something to Revenue to prove my turnover has declined before I can qualify?
Employers don’t need to produce proof of qualification now. However, Revenue may follow up on the claim. Therefore, employers should retain their evidence/basis for entering the scheme.
Question 7: What if my business turnover didn’t decline by 25% (despite all indicators to the contrary)? Will Revenue make me repay the wage subsidy?
If for some reason the decline in turnover was less than 25% the business should retain documentation supporting its rationale for believing that it would suffer such a decline.
Question 8: I usually keep a cash reserve in the bank to cover three months of normal expenses. Will I have to eat into my business reserves before my business qualifies for the wage subsidy?
Where an employer’s trade declined because of COVID-19 but the employer has strong cash reserves, the employer will still qualify for the Wage subsidy scheme. However, the Government would expect the employer to pay a significant proportion of the employees’ wages.
Question 9: I’m a company director, but I’m included on my company’s payroll. Do I qualify for the wage subsidy? How do I know which employees will qualify?
Provided the employee was included on a payroll submission between 1 Feb and 15 March 2020, they qualify for the subsidy scheme. Company directors, included on their company’s payroll should also qualify. If you have a temporary employee who is only paid every now and then and they were not paid during the above period, they won’t qualify.
Question 10: I have three employees on my payroll but I’m a sole trader. I’m not included on my business’s payroll. Can I get any relief through the Wage Subsidy?
If you are not included on your business’s payroll, you do not qualify for the Wage Subsidy Scheme. Sole traders and self-employed persons should apply for the COVID-19 Pandemic Unemployment Payment (PUP). You can however still apply for the Wage Subsidy Scheme for your three employees who are included on your business’s payroll.
Question 11: I’m reading a lot on Social Media and the news that the Law Society have come out and said that under the Emergency Legislation I effectively have to declare myself insolvent to qualify for the Wage Subsidy scheme. Is this true?
Revenue have clarified that an employer does not need to be insolvent to qualify for the Wage subsidy scheme and that the declaration that their business has suffered an adverse impact is not a declaration of insolvency.
Question 12: My employees are concerned that if they receive payments that include the Wage Subsidy scheme that this will affect their contribution record for PRSI. Is this the case?
No, Revenue have confirmed that, where employees’ wages include the wage subsidy, entitlements will not be broken, and employees will get insurable weeks or credited contributions. Employers availing of the Wage Subsidy Scheme must apply PRSI class J9 to the payroll of all qualifying employees.
Question 13: Before the Covid-19 lockdown, I was earning more than €960 Average Revenue Net Weekly Pay per week. However, most of that was commission from sales and since the lockdown commenced my Average Revenue Net Weekly Pay has dropped to €550. Can I qualify for the Wage Subsidy payment?
From 16 April 2020, the wage subsidy is available to support employees where their pre-Covid salary was greater than €76,000, and their post-Covid salary has fallen below €76,000, subject to the tiered arrangements and tapering to ensure that the net pay does not exceed €960 per week.
This concession is only effective for payroll payments made after 16 April 2020. It is not possible to revise previously submitted payroll notification.
Question 14: I am the CEO and principal shareholder of several companies, connected in a group company structure. One of my companies has been severally affected by the Covid-19 lockdown, with turnover dropping by 50% and cashflow drying up. The other companies have been able to carry on as normal and are not experiencing a downturn in revenue. Can I claim the Wage Subsidy payment for employees in my affected company?
Revenue have confirmed that they will take into account the different corporate group structures and companies with clearly defined and separate business divisions when reviewing eligibility for the Wage Subsidy Scheme.
As an example, where there are clearly 2 or more separate and distinct Business Divisions within the one company carrying on distinct businesses in their own right, an employer can apply the eligibility tests to each Business Division of the company separately. To the extent that one or other of the Business Divisions qualify for the subsidy, then the subsidy will be available to the employees wholly or mainly engaged in the business of that Division only. “Wholly or mainly” implies that greater than 50% of the employee’s working time is spent performing functions that relate to that Business Division.
Each Business Division in a company must have a clearly defined and separate management structure to the other Business Divisions in the company, and those structures must have been well established before the advent of the Covid-19 Pandemic.
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