On Wednesday the 15th of April the government amended the Wage Subsidy Scheme with affect from 4th May 2020. Revenue officials are suspect as to whether the 4th of May is achievable so we will be continuing under the existing scheme up until at least then.
There are 2 points to note on the existing scheme which need to be clarified:
Re-grossing of the top up payment
Revenue have now clarified that an employer cannot re-gross the top up payment. While this may make sense to people working in payroll it probably doesn’t make sense to everyone else. The easiest way of describing this is by way of a worked example.
- Average Net wage is €550 for employee for January/February
- Subsidy amount is 70% of that - €385
- Employer can top up a gross amount of €165 – This is taxable
- Employee will have pay before tax of €550 of which €165 will be taxable
- If the employer tops up by more than €165 then the subsidy is reduced accordingly
- For example, if the employer tops up by €200 then the subsidy will reduce by €35 (difference between €200 and €165.
- In this scenario the employees pay before tax will still be €550 however €200 will be taxable and the employer will only receive €350 from the Revenue
It is now clear that an employee cannot have their current pay (being the gross top up plus the subsidy) being more than their average net pay for January and February. I suspect many employers will have re-grossed their initial payroll submissions under this scheme and so will need to review accordingly to see if a portion of the subsidy needs to be returned to Revenue.
Salaries over €76k
Revenue have confirmed that from Thursday the 16th of April any person whose average salary was above €76,000 before the pandemic can now qualify for the scheme where their salary has now reduced to below €76,000. The subsidy will be as follows:
- Where the reduction in salary is less than 20% the subsidy will be nil
- Where the reduction in salary is over 20%, the subsidy will be €205 per week
- Where the reduction in salary is over 40%, the subsidy will be €350 per week. This 40% rate is as per government publications – Revenue guidance suggests its 60%. As of yet we haven’t received clarification as to which figure is correct
New Scheme from 4th of May
The following 4 changes are due to be implemented on the 4th of May (but may be later than that).
- Subsidy rate increases to 85% from 70% for employees on less than a net average weekly wage of €412
- A flat €350 subsidy rate for anyone on an average weekly rate of between €412 and €500
No change to the subsidy rate for someone on an average weekly salary of between €500 and €586 – the subsidy is 70% of the salary up to a maximum of €410
- Average weekly net pay of between €586 and €960
For individuals whose average weekly salary is between €586 and €960 then there are some complicated changes that haven’t been spoken about in the media, probably because of how difficult it is to understand. The changes ultimately are not drastic, but employers should be aware of them none the less.
The purpose of the below changes is to ensure that employees are not coming out with a greater net salary now during the pandemic than in January and February of this year. The new rules are as follows:
- Where an employer pays a gross top up of up to 60% of the employee’s average net salary then the subsidy rate is €350
- Where an employer pays a gross top up of between 60% and 80% of the employee’s average net salary the subsidy rate is €205
- Where an employer pays a gross top of over 80% of the employee’s average net salary the subsidy is Nil.
Again, examples are the only way of trying to explain the above:
Employee’s average net salary in January/February of 2020 is €800. The employee qualifies for €350 subsidy. If no top up is paid by employer, the €350 subsidy rate stands
In the same example the employer decides to top up their pay by 60% of their average net salary. The top up is 60% of €800 which equals €480. The employee will receive €480 plus the €350 subsidy which is equal to €830. However, as this €830 is greater than the employees average net weekly pay of €800 the Revenue will decrease the allowable subsidy by €30 to €320. This means their before tax income is €800. Of this €800 only €480 is currently taxable. In this scenario the employee qualifies for the subsidy amount of €320
If the employer wants to top up the employee wages by 80% of their average net salary the subsidy amount reduces to €205. In this scenario the top up is €640 (800*80%). The subsidy is €205 and therefore the total payment before tax to the employee is €845. This is €45 more than their average net weekly amount and therefore the subsidy must be reduced by another €45. Therefore, the employees pay before tax is €800 and of this amount €640 is currently taxable. The subsidy amount is €160.
- The final example is where the employer tops up the employee by 90% of their average net salary. In this instance the subsidy rate is zero. The employer would pay €720 to the employee and the employee would pay tax on this full €720. There would be no subsidy available.
While the above looks quite complicated we should try to keep it as simple as possible and remember it only applies to average weekly net salaries of between €586 and €960. Where an employer is trying to top up someone’s salary to ensure that the employee is on the same take home pay now as before the pandemic then the employer should top up their salary by at most 60% of the employees average net salary. If this results in the employee receiving slightly more than their normal take home pay, then the employer can decrease the 60% accordingly to ensure the full subsidy is allowed.
Some employees could receive slightly less than their usual take home pay and in this instance the employee must accept this or alternatively the employer tops up by more, but the subsidy rate would decrease. We wouldn’t expect any reduction to be substantial.
For employers only partially topping up salaries or not topping up at all then there will be no change. The subsidy rate will remain at €350 for employees with an average net salary of between €586 and €960 per week.
As ever the rules are constantly changing so by the time the new phase comes in a lot of the above could be tweaked further. We will be keeping an eye on any developments and issuing bulletins when needed.
We hope the below table gives you a good understanding of the changes announced
Average Net Pay (Jan-Feb 2020)
Subsidy to 4th May
Subsidy after 4th May
70% of average net pay Jan-Feb
85% of average net pay Jan-Feb capped at €350
€413 - €500
€70% of average net pay Jan-Feb
€501 - €586
70% of average net pay Jan-Feb
70% of average net pay Jan-Feb capped at €410
€587 - €960
Subsidy depends on the gross top up as a % of average net pay Jan-Feb 2020
Top Up <60% = €350 subsidy
Top Up 60%-80% = €205 subsidy
Top Up > 80% = €0 subsidy
Subsidy available if salary is now below €75,000 and was reduced by at least 20% from Jan-Feb 2020
Salary reduced by >20% = €205 subsidy
Salary reduced by > 40% = €350 subsidy
Same as pre 4th of May however with the added top up restrictions as per category D above
Please do not hesitate to contact any of the undersigned if you have questions about any COVID-19 related issues or concerns.
Mark Ryan – firstname.lastname@example.org – 087 2996356
Paul O’Connell – email@example.com – 086 6048938
Dave O’Brien – firstname.lastname@example.org – 086 0490717