Ireland: Changes to Ireland’s Temporary COVID-19 Wage Subsidy Scheme announced

The Wage Subsidy Scheme was introduced to incentivise employers to retain employees on the payroll where possible. Unfortunately, due to the “gaps” now acknowledged by the Minister, many low-income workers argued they would be financially worse off being kept on payroll by their employer. The changes just announced are therefore arguably necessary to ensure employment links are retained so that businesses can pick up once restrictions are eased or the crisis has passed.

First phase of the scheme

Initially, the Wage Subsidy Scheme was earmarked to be introduced in two phases. First there was the transitional phase, under which employers would receive €410 subsidy per week for each employee they had made a submission for, regardless of the amount of subsidy actually paid to the employee.

This remains the case. In many cases, the €410 exceeds the weekly subsidy the employee is entitled to receive. In those cases, the employer is obliged to hold the excess of the subsidy payment received.

Changes to subsidies in the operational phase

The second phase, the operational phase, was originally slated to commence no later than 20 April 2020. This was pushed back to 4 May 2020, pending the Minister’s announcement of changes to the subsidies.

The operation of the Wage Subsidy Scheme will still ensure that the subsidy paid to an employer will be based on each individual employee’s average net weekly pay, subject to a maximum weekly tax-free amount. The guidelines have now been updated, however, and from the 4 May 2020 the subsidies available will be calculated as follows:

• For employees who earn up to €412 net per week (approx €24,400 gross per year), there will be a maximum subsidy of 85% of the employee’s net weekly wage (capped at €350 per week).
• Foremployees who earn between €412 and €500 net per week (approx €24,440 - €31,000 gross per year), there will be a maximum subsidy of 70% of the employee’s net weekly wage (capped at €350 per week).
• For employees who earn between €500 and €586 net per week (approx €31,000 - €38,000 gross per year), there will be a maximum subsidy of 70% of the employee’s net weekly wage (capped at a maximum of €410 per week).
• For employees who earn between €586 and €960 net per week (approx €38,000-€76,000 gross per year), a tiered arrangement will apply and the maximum subsidy payable will be €350 per week. This tiered approach takes into account both the amount normally paid by the employer and the level of reduction in pay borne by the employee, as follows:

• For employees who earn in excess of €960 net per week (approx €76,000 gross per year), no subsidy is available, unless their gross post-COVID-19 income has fallen below €960 per week. In those cases, the tiered arrangement applicable to incomes in excess of €586 per week (approx €38,000 gross per year) will apply. Accordingly, if an employee’s earnings have been reduced to below €960 net pay a week, and the reduction is more than 20% of their normal pay, a subsidy of up to €205 is available. If the reduction was more than 40%, a subsidy of up to €350 is available. To calculate the level of subsidy payable, current gross pay will be compared with previous average net weekly pay for January/February 2020.

Tapering

The Minister has further clarified that tapering of subsidies will be applied to cases where the gross pay paid by the employer and the subsidy exceed the employee’s previous average net weekly pay. If the employer topped up payments by more than the permitted amount, the subsidy will be tapered – for every €1 extra paid, €1 will be taken from the subsidy. This is to ensure that no employee will be better off under the Wage Subsidy Scheme.

During the operational phase of the scheme, tapering will not be applied to subsidies paid to employees whose earnings are less than €412 net per week (approx €24,400 gross per year), where an employer wishes to pay a greater level of top-up to bring an employee’s pay up to a maximum of €350 net per week.

Implementation

The Revenue Commissioners of Ireland are currently making arrangements to implement these changes and move into the operational phase of the Wage Subsidy Scheme. These will include a reconciliation exercise in respect of any overpayments made during the transitional phase of the scheme. Where an employer receives a subsidy in excess of the cap to which they are entitled during the operational phase of the scheme for any relevant employee, they may decide (or be instructed by Revenue) to repay some or all of the subsidy refund payment. Revenue has provided information on how refunds can be processed in its Frequently Asked Questions.

Conclusion

These further changes to the framework and operation of the Wage Subsidy Scheme from 4 May 2020 are welcome news for many employers and low-income workers. Many such workers argued they were worse off being kept on by their employer under the initial phase of the scheme. As a result, some workers opted to try to obtain the COVID-19 Pandemic Unemployment Payment - a flat-rate payment of €350 per week - despite not being unemployed. This was counterinituitive to the operation of the Wage Subsidy Scheme, which seeks to retain employment links so that businesses can pick up once restrictions are reduced or the pandemic crisis is over.

We will continue to keep our resources updated as further information is published in relation to the Wage Subsidy Scheme.

For further information on COVID-19 related matters, please check out our Coronavirus FAQs for employers which are regularly updated.