Calculating wage subsidies
Dismissal of employees during subsidy period but not through redundancy
What happens if employers hire more employees during subsidy period?
When and where can employers apply?
What documents are required for online applications?
When can employers expect to receive wage subsidies?
Application procedures for second tranche
To tackle the unemployment and loss of income caused by the COVID-19 pandemic, on 8 April 2020 the government introduced an HK$80 billion Employment Support Scheme (ESS) as part of the second round of anti-pandemic relief measures.
The ESS aims to provide time-limited financial support in the form of wage subsidies to eligible employers to allow them to retain employees.
The wage subsidies will be distributed in two tranches:
- The first tranche of subsidies will cover June 2020 until August 2020.
- The second tranche will cover September 2020 until November 2020.
The government will provide wage subsidies to eligible employers for six months. ‘Eligible employers’ are employers that:
- have made Mandatory Provident Fund (MPF) mandatory contributions for ‘regular employees’ (ie, employees who are aged between 18 and 64 and have been employed in any industry for a continuous period of 60 days or more);
- have made MPF mandatory contributions for employees aged 65 or above; and
- have set up MPF-exempt occupational retirement schemes (ORSOs) for their employees.
To qualify for the first tranche, the relevant MPF or ORSO accounts must have been set up on or before 31 March 2020 (ie, they cannot be backdated to that date or an earlier date). Those issued afterwards are not eligible for application.
In general, employers whose wages are fully funded by the government and are not affected by the pandemic are not eligible for the ESS (eg, the government, the Legislative Council, the judiciary, the Liaison Office of the Central People’s Government, specific statutory bodies and specific public organisations).
For regular employees who are aged between 18 and 64 and are members of an ORSO scheme
The amount of wage subsidies will be calculated based on 50% of the actual wages paid to each employee in the specified month (rather than the average over a few months). Employers can choose any one month from December 2019 to March 2020 as the specified month. Wages are capped at HK$18,000 per month. For example, if employees are paid HK$18,000 or more in that specific month, their employer will receive a maximum subsidy of HK$9,000 per month per employee.
For employees aged 65 or above
If an employer has provided information on their employees’ basic salaries when making MPF voluntary contributions, the wage subsidies will be calculated based on 50% of the basic salaries actually paid to the relevant employees in the specified month. Wages are capped at HK$18,000 per month per employee. The maximum wage subsidy per employee is HK$9,000 per month.
If an employer did not provide information on their employees’ basic salaries when making MPF voluntary contributions, the wage subsidies will be calculated on the basis of 10 times the amount of the employer’s voluntary contributions made in the specified month, capped at HK$9,000 per month per employee.
For eligible employers that have made MPF contributions for both regular employees and employees aged 65 or above, they must choose the same specified month for calculating subsidies.
Eligible employers that participate in the ESS must:
- spend all of the wage subsidies on paying employees’ wages; and
- not make redundancies during the subsidy period (ie, from June 2020 until August 2020). Thus, the number of employees on payroll in any one month of the subsidy period cannot be fewer than the number of employees (with or without pay) in March 2020.
What happens if employers fail to comply with these obligations?
If an employer fails to use all of the wage subsidies received for a particular month during the subsidy period to pay employees’ wages in the same month, the government will clawback the unspent subsidy balance.
The clawback will be calculated using the following formula: subsidies received for a particular month minus wages paid to employees in the same month.
If the number of employees on payroll in any one month of the subsidy period is fewer than the number of employees (with or without pay) in March 2020, the government will impose a penalty on the employer.
The penalty will be calculated using the following formula:
subsidies received for a particular month
headcount reduction percentage x penalty percentage.
The headcount reduction percentage is calculated as follows:
total number of paid and unpaid staff as of March 2020
total number of paid staff in a given month
total number of paid and unpaid staff as of March 2020 x 100.
The penalty percentage is calculated according to the following table.
Total number of paid and unpaid staff (as of March 2020)
Fewer than 10
10 to 49
50 to 99
100 to 499
More than 500
Any person who makes a false statement, misinterprets or conceals the facts or furnishes false documents in an attempt to deceive the government or its appointed agencies could be found guilty of a criminal offence and subject to prosecution.
What happens if employees are dismissed during the subsidy period but not by reason of redundancy (eg, an employee resigns voluntarily or a fixed employment contract expires)?
In such cases, employers will likely be in breach of their undertakings because they would have failed to use all of the subsidies received to pay employees’ wages. Therefore, the government will clawback the unspent subsidy balance. In addition, employers must also pay a penalty to the government as the number of employees on their payroll in any one month of the subsidy period will be fewer than the number of staff that they had in March 2020.
The government will focus on monitoring headcount of participating employers as opposed to the employment status or identity of the employees. In order to avoid penalties or clawbacks, employers must rehire individuals to fill the vacancies to maintain the total number of employees that they had in March 2020.
If the number of employees on an employer’s payroll in any one month of the subsidy period is more than the number of staff that the employer had in March 2020, the employer will not be entitled to additional subsidies due to an increase in headcount during the subsidy period.
Eligible employers can submit online applications for the first tranche of subsidies via the ESS portal from 7:00am on 25 May 2020 until 11:59am on 14 June 2020.
Private sector employers participating in MPF schemes must have the following information for the online application:
- their business registration number (or other registration numbers);
- the name of the MPF trustee;
- the name of the MPF schemes that they participated in from 1 December 2019 until 31 March 2020 and the scheme registration or participation number; and
- their bank account number and a scanned copy of a bank statement.
Private sector employers who have set up MPF-exempt ORSO schemes must have the following information for the online application:
- their business registration number (or other registration numbers);
- the name of the MPF-exempt ORSO scheme, its MPF exemption number and the ORSO registration or exemption number;
- their bank account number and a scanned copy of a bank statement; and
- a scanned copy of the exemption certificate issued by the MPF Authority.
Employers need not declare the number of employees employed or their salaries in the application form. They must provide only consent for the government’s central processing agent (ie, Pricewaterhouse Coopers Advisory Services Limited) to obtain their MPF records directly from their MPF trustees, which allows the agent to, among other things:
- process and vet employers’ applications;
- calculate the subsidies, clawback and penalty amounts; and
- conduct pre and post-application verification work.
Payment for the first tranche is expected to be made within three to four weeks after an employer submits an application, but no later than the end of June 2020. For applications involving ORSO schemes, longer processing times may be required. The second tranche of subsidies will be disbursed in September 2020.
Subject to certain exceptions, self-employed persons who have an MPF account that was set up on or before 31 March 2020 and has remained opened as of that day are eligible for a one-off lump-sum subsidy of HK$7,500 under the ESS.
The government has not yet decided on the eligibility and rules for the second tranche and will announce the application details in due course. Secretary for Labour and Welfare Dr Law Chi-kwong has stated that the rules for the second tranche may be modified depending on the effectiveness and result of the first tranche.
Chi-kwong has also suggested that there is a high probability that people may be disqualified from applying for the second tranche if they cannot comply with the commitments that they make in their first tranche application.
For further information on this topic please contact Patricia Yeung at Howse Williams by telephone (+852 2803 3688) or email ([email protected]). The Howse Williams website can be accessed at www.howsewilliams.com.
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