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'There's a risk of being penny-wise but pound-foolish': Here's why employers are so concerned about the new wage subsidy scheme

Some businesses could see the money provided to subsidise wages halve.

Image: Shutterstock/Joey Laffort

THE GOVERNMENT HAS been warned that a significant number of businesses could go under due to the switch from the Temporary Wage Subsidy Scheme (TWSS) to the Employment Wage Subsidy Scheme (EWSS) set to take effect from 1 September.

The new scheme differs in a number of ways from its previous incarnation. Perhaps most crucially for businesses, in some cases it will halve the contribution made by government to employees’ wages.

Furthermore, employers availing of the scheme will have to wait up to six weeks to receive the subsidies with businesses fearing it could put a strain on their cash flow.

Speaking to TheJournal.ie, Irish SME Association (ISME) CEO Neil McDonnell said: “It’s almost like the penny has yet to drop [with government] for how serious a situation businesses are in. 

It was 70% [of a worker's wages up to €410] in the TWSS and it’s effectively halved. This will be particularly acute for businesses that can’t afford to top up. I think it’s inevitable we could see thousands going out of business.

Certain sectors that remain heavily hit by Covid-19 – such as hospitality, tourism and the pub industry – are likely to feel the effects of the change worst, while Sinn Féin’s Pearse Doherty has said it will inevitably lead to job cuts.

However, speaking to RTÉ Radio 1′s Morning Ireland on Friday, Minister for Finance Paschal Donohoe said that €410 was the maximum paid out on the initial scheme, but an average of €283 was paid out weekly. 

“When we brought in the current scheme, it was when our economy was in full lockdown,” he said. “Many employers are now open but trading at a lower level. It’s proportionate the rate be changed to reflect this.”

EWSS

Introduced at the start of the pandemic at a time when businesses en masse were being advised to close their doors, the TWSS was aimed at supporting businesses who’d taken a hit due to Covid-19 and support them in keeping workers on their books.

Employers whose turnover had fallen by 25% and over were able to avail of the scheme.

It can refund employers up to a maximum of €410 per week for each qualifying employee.

To date, 69,500 employers have registered with Revenue for the scheme. And 659,500 employees have received at least one wage payment while on it. It’s currently subsidising the wages of 365,000 people.

Given that such a large number of businesses had come to utilise the scheme, the government was under pressure to ensure some form of subsidy was continued beyond the original planned end date.

As part of the July Stimulus, the government said it would continue the wage subsidy scheme under a new name: the EWSS.

Set to last until April next year, the Taoiseach said the package “will protect existing jobs while creating new and sustainable employment options in the months and years ahead”.

There are a few key differences between the schemes.

Under the EWSS, employees will be charged PAYE and PRSI as normal again. To qualify, employers must be able to demonstrate that their business will experience a 30% reduction in turnover or customer orders between 1 July and 31 December 2020 compared to the same period last year.

Companies must also demonstrate this disruption is caused by Covid-19.

Employers will need to provide a tax clearance certificate (confirmation from Revenue that an applicant’s tax affairs are in order) to qualify, and Revenue will publish the names of companies on the scheme early next year.

Where the TWSS was paid to companies 48 hours after submitting payroll data to Revenue, the EWSS could be paid up to six weeks in arrears to businesses.

For employees who receive gross weekly wages of between €151.50 to €202.99, the government will pay €151.50 towards their wages. There is no payment for anyone earning less than €151.50 a week.

For staff earning anything between €203 and €1,462 a week gross, the government will provide €203 towards their wages. For anyone earning over €1,462 a week, the government will provide no payment to companies. 

After initially excluding proprietary directors from the EWSS, the government performed a u-turn and allowed them to be included for payment on the scheme

The scheme is expected to cost the government over €2.25 billion through to April 2021. The TWSS cost an estimated €2.7 billion. 

‘Dead hand of fiscal conservatism’

Sinn Féin’s Pearse Doherty has also raised fears that the cuts to wage supports will lead to permanent lob losses in the near future.

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He said: “From 1 September – while so many businesses remain closed as a result of public health measures – the Temporary Wage Subsidy Scheme will be replaced with a scheme that will cut support by 50% for most employees and remove all support for the lowest paid workers.

This is made worse by the confirmation from Revenue that employers will be waiting up to six weeks to receive payment of payroll subsidies under the revised scheme; placing added pressure on employers and workers. For the most affected sectors and businesses, this will lead to job losses. 

Specific sectors have led the calls for the EWSS to be retained at the same level as the TWSS to try to support those in industries that have been the worst-hit by the crisis. 

Ireland’s Association for Adventure Tourism (IAAT) has said the tourism industry is on its knees in the wake of Covid-19, and needs urgent supports to survive.

Its chairman Maurice Whelan said: “The Association is now supporting the key Ask for the EWSS to be sustained at current levels, rather than be tapered off as planned.

The EWSS will give our industry a fighting chance to survive the winter season, particularly as most members depend on the decimated period from March – September to generate a full year of revenue.

Citing €203 as the same rate that a person in receipt of jobseeker’s allowance receives, ISME’s McDonnell said that it shows the “real dead hand of fiscal conservatism” from the government. He said it is effectively providing what a person would get on jobseeker’s while still keeping them in a job.

McDonnell said: “One thing you have to consider when you’re getting into work supports like this in what is effectively a depression. For every person who exits employment and goes onto social protection, the government loses PAYE, PRSI and USC. Even low-paid workers make their contribution. If they lose their job, they lose their spending power.

There is a risk of being penny-wise but pound-foolish. You could have a much more negative impact on the Exchequer if thousands of businesses go under and thousands lose their jobs… This is almost like a live experiment on what happens to people.

He said that this change for businesses comes at a time of heightened anxiety as cases are rising again and a post-Brexit trade deal looks far from likely. 

In the case of the former, Minister for Health Stephen Donnelly said last week that “localised lockdowns” were the preference but there are concerns that a further rise in cases could prompt another national lockdown in the future. On Thursday, acting chief medical officer Dr Ronan Glynn urged people to “stick with us” and keep to the guidelines to help prevent the possibilities of more lockdowns. 

“I think it would be extremely serious to talk about national lockdowns again,” McDonnell said. “People understand the need for regional or localised lockdowns. But the economy has to survive as well as people’s health. We’ll need an economy when we get out of this.”

In an answer to a parliamentary question prior to the Dáil recess on the matter, Minister for Finance Paschal Donohoe said the new system would ensure support for businesses going forward is “sustainable and affordable”.

He said: “Many of the strictest public health restrictions on the economy have been eased so it is appropriate that the level of State subsidy be moderated, while also recognising that economic outputs are unlikely to return to normal for many businesses for much of the rest of 2020 because of the continued need to observe some requirements such as social distancing. 

Looking forward, the EWSS is an economy-wide scheme that will focus primarily on business eligibility, delivering a per-head subsidy on a flat rate basis.  This adaption from the TWSS will allow employers to rely on the continuation of support over a longer period of 8 months while also ensuring such support is sustainable and affordable.
He also told a press conference on Friday that by keeping the top rate of subsidy to €203 a week, it’s “allowing the scheme to continue for far longer” than initially anticipated. 

About the author:

Sean Murray

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