Recent adjustments to the Government’s Temporary Wage Subsidy Scheme (TWSS), while welcome, fail to address a major shortcoming. Such is the contention of experts at Irish company Big Red Cloud, who say that although the Minister has made some necessary and welcome changes to allow lower paid workers get more money and to allow those on higher pay access the scheme, they fail to address the elephant in the room which is that workers will have to pay tax on the subsidy payments at the end of the year.
Marc O’Dwyer, CEO of Big Red Cloud, said the changes most likely reflect Government’s realisation that the scheme in its original form would not be taken up to the extent they had hoped, “It’s interesting to analyse the employer numbers provided in the press release released by the Minister. If you take the numbers of employers that have actually availed of the scheme of 26,000 (as opposed to just having signed up), that’s actually a low percentage of the number of employers in the country (approx. 182,000). At just 14%, I think Government must be disappointed with the take up, and these tweaks to the scheme are very telling in trying to close the gap between the TWSS and the Social Welfare Pandemic Unemployment Benefit (PUP) administered by DEASP.
In effect, the changes mean that all employees earning between €412 and €960 can qualify for a TWSS of €350. That was clearly the objective of this exercise in an attempt to level the TWSS with PUP. Reading between the lines, it seems the Government are bending over backwards to have employers keep these employees on the payroll, and for them to ensure that they get the €350 equivalent of PUP. That will greatly help the issue of employees not wanting to work due to being better paid on PUP”.
Big Red Cloud have provided a summary of the effects of the changes:
* Employees on an average weekly salary of up to €412 (€24.4K pa) have the subsidy raised from 70% to 85% ie €350. That means that at that level, the employees is no better off by going on to PUP. Whilst there is still a gap at the lower levels of this range, there is a change to permit employers to top up the employees pay to €350 without triggering a tapering of the subsidy that currently exists.
* Employees on an average weekly salary between and €412 and €500 (€24.4K to €31K pa) get a flat €350, again matching the PUP. Note the upper limit of €500 gives you the €350 subsidy at the previous 70% rate.
* Employees on an average weekly salary between and €500 and €586 (€31K to €38K pa) remain unchanged at 70%. Note that this is the slice where the relief increased from €350, so they did not want to cause a reduction over the first scheme. The subsidy remains capped at €410 (ie €586*70%)
* For employees on an average weekly salary between €586.01 – €960.00 (€38K – €76K), a tiered approach now applies as follows:
* A subsidy of €350 applies, once any additional payments by the employer do not exceed 60% of the average weekly net salary
* A reduced subsidy of €205 applies, where any additional payments by the employer are between 60% and 80% of the average weekly net salary
* If the additional payment by the employer exceeds 80% of the average weekly net salary, the employee will no longer be entitled to a subsidy
* Employees earning over €960 were previously ineligible for the scheme, but now may become eligible if their salary has fallen below €76K. The level of subsidy is dependent on how much the employer is contributing to the salary, and by what percentage the employee’s salary has fallen, but it is capped at €350.
Mr. O’Dwyer said however, “The big elephant in the room, and one that could potentially be fixed if the Minister was willing to consider changing the tax treatment of the payment, is that whilst the wage subsidy is not taxed through payroll, it will be taxed in the employees end of year return. For many employees, this scheme equates to tax deferment rather than a much-needed financial grant. People are only now becoming more aware of this, and it’s likely to become a political hot potato at the end of the year. Employees on lower pay won’t have a big tax bill at the end of the year, so it seems that the financial pressure, once again, is being placed on the squeezed middle private sector.”
Experts at the software company say that already some employees might have noticed discrepancies in their pay packets, due to the refunds that are triggered by employees on the TWSS. They say that there is a misconception out there that people on the TWSS will get the same net pay into their hands – but that that may not necessarily be the case because Tax and USC refunds are muddying the waters and are, in some cases, increasing people’s net pay.
Mr. O Dwyer concluded “We commend the Government’s approach thus far, and we appreciate how difficult it has been to get financial supports to market so quickly. But employees and employers alike need clarity on future tax liabilities – even if it’s just so there may be just one less thing to worry about in a world which is currently so full of uncertainty”.
