Ireland's Employment Wage Subsidy Scheme

The EWSS replaces the Temporary Wage Subsidy Scheme (TWSS), which ended on 31 August. Under the EWSS, eligible employers will receive a flat rate subsidy payment from Revenue and it will apply a reduced PRSI rate in respect of eligible employees. The EWSS is intended to be in place until 31 March 2021.

Co-written by Jason McMenamin of Pinsent Masons, the law firm behind Out-Law.

The subsidy is intended to support employers continuing to experience reduced turnover or reduced orders due to the ongoing economic impact of the Covid-19 pandemic.

Employers should keep up to date with the most recent guidance issued by Revenue and the Irish government in relation to the scheme, and should seek specific legal advice where necessary. Employers should ensure that if they plan on making any changes to an employee's terms and conditions of employment, such as a reduction to pay or hours, they only do so following consultation and with the agreement of the employees.

What is the Employment Wage Subsidy Scheme?

Eligible employers who were claiming TWSS in respect of eligible employees may continue to claim TWSS in respect of these employees for pay dates up to 31 August 2020. For pay dates from 1 September 2020, EWSS can be claimed in respect of these employees provided the EWSS eligibility conditions are met.

A separate registration process needs to be followed for EWSS as different eligibility criteria apply. Revenue has published useful guidelines on the operation of the EWSS (21-page / 841KB PDF).

Although the EWSS is expected to continue until 31 March 2021, the guidelines have highlighted that the finance minister will continue to monitor the economy and may amend the terms of the EWSS - specifically the end date, the rate of subsidy payable and the turnover test to determine employer eligibility.

The EWSS is open to employers who file their payroll submissions electronically though Revenue Online Service (ROS). It consists of two elements:

• a flat-rate subsidy to qualifying employers based on the numbers of paid and eligible employees on the employer's payroll; and
• a reduced rate of employer PRSI of 0.5% on wages paid which are eligible for the subsidy payment.

According to the guidance, the scheme "does not affect any legal obligations that the employer may have to their employee as regards any terms, conditions or entitlements of their employment, including pay". Failure to consult on changes in relation to pay or hours before implementation, or to agree these with employees, may expose an employer to a number of employment claims before the Workplace Relations Commission (WRC) or the civil courts.

How can employers register for the scheme?

Eligible employers or their payroll agents will be able to register for the EWSS through ROS from 18 August 2020. The date of registration cannot be backdated to before the date of application, and does not need to be backdated if a claim will be submitted in respect of payments in July or August.

What are the employer eligibility criteria for the scheme?

Much like the TWSS, the EWSS will be administered by Revenue on a 'self-assessment' basis. While Revenue will not be looking for proof of eligibility at the registration stage, it will undertake assurance checks. Employers should therefore retain evidence of their basis for entering and remaining in the EWSS.

Employers must possess a valid tax clearance certificate to enter the EWSS, and must continue to maintain tax clearance for the duration of the scheme in order to receive the applicable payments. Employers can check their current tax clearance status through ROS. If an employer does not currently hold tax clearance, an application can be made online and assessed in real time through the ROS e-Tax clearance service.

Tax clearance will be refused where the employer or any of their connected parties, have any outstanding returns or liabilities.

In addition to having tax clearance, an employer must also be able to demonstrate that:

• their business is expected to experience a 30% reduction in turnover or orders between 1 July and 31 December 2020, looking at the period as a whole rather than on a per-month basis; and
• this disruption is caused by Covid-19.

  The 30% reduction in turnover or orders is relative to:

• the same period in 2019, where the business was in existence prior to 1 July 2019;
• the date of commencement to 31 December 2019, where the business commenced trading between 1 July and 1 November 2019; or
• the projected turnover or orders for 1 July to 31 December 2020, where the business commenced trading after 1 November 2019.

According to the guidelines, employers should include all sources of trade income when reviewing the potential drop in turnover, specifically including sales, donations and state funding. This is likely to result in employers in the public, community and voluntary sectors being ineligible, as state funding has mainly remained static and has even increased in some sectors. Appendix 1 of the guidelines provides additional guidance on determining the reduction in turnover or customer orders.

Childcare businesses registered in accordance with section 58C of the 1991 Child Care Act do not need to meet a turnover test to participate in the EWSS.

The 30% reduction in turnover or customer orders may be applied at the level of the entity as a whole or, if the entity is formally structured into individual business divisions and has been since the Covid-19 pandemic restrictions began in March 2020, at the level of the individual business division. In these cases, each individual business division which meets the eligibility criteria may be eligible for the subsidy. The decline in turnover or customer orders in each business division must be capable of being separately identified, otherwise the entity as a whole must be assessed. Each business division must have a clearly defined and distinct management structure in place separate to the other business divisions, and these structures must be formalised and have been well-established before the Covid-19 pandemic.

Revenue may need to examine closely the basis for entering the EWSS of certain applications that are made in respect of one or more business divisions rather than in respect of the entity as a whole.

Alternative 'other reasonable basis'

An alternative 'reasonable basis' can be applied where the application of the turnover and customer orders tests do not adequately demonstrate the disruption to a business caused by the Covid-19 pandemic.

According to the guidelines, it is not possible to be prescriptive as to what will satisfy this test. However, it must be the case that neither the turnover nor customer orders tests is capable of being applied to the business in question. It is not sufficient that the business does not meet either of these tests. In all such cases, guidance from Revenue should be sought through the division or branch responsible for the tax affairs of the employer concerned.

Monthly review

Employers must carry out a review on the last day of every month to ensure that they continue to meet the eligibility criteria, although no review needs to be carried out in July 2020 and the final month of the EWSS. If the employer no longer qualifies, it should deregister for EWSS through ROS with effect from the following day and cease claiming the subsidy. If the employer becomes aware that it will not meet the eligibility criteria before the end of the month - for example, because it receives an unexpected donation or grant - it should deregister immediately and cease to claim subsidies.

If circumstances change in a later month and the employer is again eligible, it can re-register and claim from the date of re-registration. It is not possible to backdate the claim to include the period of deregistration.

Which employees can an employer claim for?

A subsidy can be claimed in respect of employees on the payroll of an eligible business who are in receipt of gross weekly wages of between €151.50 and €1,462 during the period of the EWSS.

Certain categories of employee are specifically excluded from the scheme, including:

• proprietary directors – however, the finance minister announced on 31 July that the EWSS could be claimed in respect of certain proprietary directors. Revenue has now confirmed that the EWSS can be claimed if the employer meets the eligibility criteria, the proprietary director is on the payroll of the eligible employer, and the proprietary director has been paid wages which were reported to Revenue on the payroll of the eligible employer at any point between 1 July 2019 and 30 June 2020.

Where a person is a proprietary director of two or more eligible companies, a claim for EWSS can only be submitted in respect of a single company. In this scenario, the proprietary director will be required to elect one company for the purposes of making EWSS claims for the duration of the scheme. The election will be deemed to be made on the first submission of an EWSS claim in respect of the proprietary director. Once the election is made, it cannot be changed for the period of the scheme.

• connected parties - who were not on the payroll and paid at any time between 1 July 2019 and 30 June 2020. This term is quite broad and includes brothers, sisters, linear ancestors and descendants, aunts, uncles, nieces and nephews of an individual or their spouse. A person will also be treaded as 'connected' to a company if they alone, or together with their connected parties, exercise or control more than 50% of the issued share capital or voting rights, the greater part of distributions or the greater parts of assets distributed on winding up.

In addition, the EWSS should not be claimed for employees working in a business division not expected to suffer a 30% reduction, or employees employed otherwise than as part of a business such as housekeepers, gardeners and other domestic employees.

Safeguards will be put in place to minimise abuse of the scheme. These safeguards are to ensure that employers do not lay off an employee only to replace them with two or more employees each of whom work less hours with a lower wage, other than for bona fide commercial reasons; and to prevent the manipulation of payroll including deferring, suspending, accruing, increasing or decreasing gross wages that would normally be payable with a view to securing a wage subsidy payment or an increase in the amount of a wage subsidy payment.

Employees excluded from the TWSS

According to the Revenue guidelines, as seasonal employees and new hires were excluded from the TWSS, EWSS eligible employers can backdate a claim for EWSS to 1 July 2020 in certain limited circumstances:

• the employer was not eligible for TWSS; or
• the employer had employees not eligible for TWSS. However, this does not extend to employees whose net wages exceeded the TWSS threshold due to tapering.

Revenue expects to pay these claims in mid-September as part of a 'sweepback' exercise. Future EWSS payments will be made monthly in arrears thereafter, and as soon as practicable after the payroll return filing date.

What is the rate of subsidy payable?

The rate of weekly wage subsidy the employer will receive per paid eligible employee is as follows:

For pay periods other than weekly, gross weekly wage will be calculated by dividing the returned gross wage by the number of insurable weeks included, subject to maximum divisors set by the system.

Gross wage as reporting on the payroll submission includes notional pay – for example, a company car or medical insurance – and is before deduction of items such as pensions and salary sacrifice. It excludes any Department of Employment Affairs and Social Protection benefits which employees may have mandated to be paid to the employer, such as illness, maternity or adoptive. These monies are not included when calculating the amount of subsidy to be paid, if any; but should continue to be included in non-taxable pay as normal.

The subsidy will be paid directly into the eligible employer's designated bank account once a month in arrears, as soon as practicable after the return due date - the 14th of the following month. Subsidies received are taxed as part of the employer's trading income, but are disregarded in the calculation of the 30% reduction in turnover.

Some employees may have more than one employment with more than one eligible employer. Where this is the case, each employer should make its own claim where appropriate, disregarding any other employments that the employee may have.

Where employees are included in more than one payroll with a single employer – for example, a weekly payroll for wages and monthly payroll for bonuses – subsidy entitlement must be calculated by aggregating money paid under both payrolls.

What are the tax implications of the scheme?

Under the EWSS, the normal requirements to operate PAYE and PRSI will be restored. This includes the regular deduction and remittance of income tax, USC and PRSI at the normal rates. However, on receipt of payroll submissions, Revenue will apply a reduced rate of 0.5% employer PRSI in respect of eligible employees for whom a subsidy is payable.

Monthly employer PRSI liabilities will be revised accordingly by Revenue. Revenue will do this by calculating a PRSI 'credit' due to the employer, and will post the credit due for that month to the employer's monthly payroll return to reduce the overall payroll tax balance due. This reduced liability is what becomes due and payable for the relevant month.

There are currently no PRSI classes in existence which apply this combination of employee and employer PRSI rates.