Out-Law Analysis | 16 Apr 2020 | 12:41 pm | 4 min. read
A fresh wave of economic support measures designed to help Hong Kong businesses overcome the challenges posed by the impact of coronavirus will be welcomed by the city's construction industry.
The outbreak of the virus, officially Covid-19, is having major implications for the global construction industry. There has been a ripple effect following the initial outbreak in China, with projects elsewhere in the world now facing labour shortages, supply chain issues and financing pressures. While construction sites can continue to operate in Hong Kong, contractors are not immune to the difficulties arising, with particular challenges emerging around cash and liquidity.
To assist businesses during this period, including those in the construction industry, the Hong Kong government has outlined two rounds of stimulus packages that taken together are worth around HK$167 billion ($21.6bn). The main focus of the measures is on job retention.
The proposed spending package includes, among other measures, a HK$80 billion ($10bn) job security program referred to as the 'Employment Support Scheme' (ESS). Under the ESS, the Hong Kong government will subsidise 50% of wages for affected workers for six months. There are other reliefs the government has announced too that are specifically targeted at assisting the construction industry.
It is important to note that the details of the ESS and other measures included in the second round of measures have not yet been finalised and approved by Hong Kong's Legislative Council. However, the measures as proposed are worth consideration by construction firms.
The Employment Support Scheme (ESS)
Under the ESS, the government will provide a wage subsidy to eligible employers including contractors. The subsidy is calculated at 50% of the employee’s monthly wage, capped at an eligible salary of HK$18,000 ($2,320), for six months – a maximum monthly subsidy of HK$9,000 ($1,160) per employee.
The government's support under the ESS regime is conditional on contractors not making any redundancies. This means that the number of employees on the payroll in the subsidy period cannot be smaller than the number of employees in March 2020. All contractors making MPF (Mandatory Provident Fund) contributions will be eligible.
Contractors would be given the flexibility to designate one of the months between January and April 2020 to be the basis on which the subsidy for that business will be calculated. The subsidy will be made to eligible employers in two tranches, with the first payment being no later than June 2020.
The government, statutory bodies and government-controlled organisations are excluded from benefiting from the ESS. Contractors who do not make MPF contributions are also ineligible for the ESS but they can also resort to sector specific measures including one-off cash subsidies to eligible workers, contractors, specialist contractors and suppliers.
Other relief measures announced
The government has also implemented other relief to enhance flexibility in handling government works and non-works contracts and other development projects. For example, relevant departments will extend the deadline for project completion and/or relax the payment schedules of government works and non-works contracts.
For non-works contracts, the government will encourage procuring departments to provide more frequent payments to contractors, break up milestones in payment schedules into more deliverables to enable more frequent payments, and provide larger sums for upfront/milestone payments. Procuring departments have also been urged to do their best to compress their normal payment cycle from 30 days to around one to two weeks.
The latest round of measures follow on from a raft of other initiatives that the government in Hong Kong previously announced to support businesses through the pandemic. These measures, which are already in force, include:
According to the government's statistics, about 4,000 companies and 200,000 construction workers had applied for the subsidies as of 18 March, of which over 2,200 companies and about 156,000 construction workers received the subsidies.
Initiatives introduced by other governments to promote job retentions have stirred up controversy. In the UK, for example, some Premier League football clubs in England were criticised for furloughing non-playing staff and pursuing public money to pay their wages, with a number of clubs subsequently electing to reverse their decisions. However, the same debate is unlikely to repeat in Hong Kong.
One of the central reasons for this is because, to be entitled to the salary subsidy under the ESS, employers are required to give an undertaking that they cannot implement redundancy. In addition, the entire government subsidy must be put towards paying staff salaries and not any other purposes.
It is in the spirit of the scheme that the benefit of the public money should be made available to as many employers as possible to help Hong Kong people keep their jobs, and for this reasons contractors and other employers in the construction industry should seriously consider taking up the government's relief measures.
Construction has always been seen as a vital part of the Hong Kong economy, and has a big part in play in helping Hong Kong to avoid massive layoffs and prop up the weakened economy.
30 Mar 2020