Out-Law News

Global restructuring – Australia’s JobKeeper Scheme

Patrick Williams explains the scope of Australia’s furlough scheme.

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    As you will be aware, no doubt, the UK's furlough scheme is gradually tapering towards an end and last week the Chancellor, Rishi Sunak, in his summer statement dismissed any speculation that the government scheme would be extended beyond the end of October. For employers, the eye-catching feature of the mini budget was what he called a Job Retention Bonus Scheme - a one-off payment to employers of £1,000 for each employee for whom they claimed a grant under the furlough scheme, and who is retained from June 2020 to January 2021, subject to certain eligibility conditions which are still to be published. The FT reports that as a result of that added cost Britain’s public borrowing will rise to more than £350bn this financial year. The government claims the furlough scheme itself, along with the bonus scheme, represents a package which is one of the most, if not the most, generous in the world. So what about the schemes in other countries? The same newspaper, the FT, reports on Australia’s scheme which has been in the news because Australia has, apparently, slashed the estimated cost of its scheme by A$60bn due to a “reporting error”. Josh Frydenberg, Australia’s treasurer, said the treasury now expected businesses to access government payments on behalf of 3.5m employees, rather than the 6.5m employees it had been forecasting previously. The total cost of the programme, which covers the wages of furloughed employees, is now estimated at A$70bn, rather than A$130bn. The miscalculation in the numbers is, apparently, due to a reporting error by about 1,000 companies, which filled in an application form incorrectly. So what about that Australian scheme? How does it compare with the UK's furlough scheme? With the answers Paddy Williams who joined me by video-link from Perth:

    Patrick Williams: “So like many governments around the world, the Australian Government moved quite quickly to introduce a wage subsidy scheme in order to combat the economic impact of COVID-19. It's known here in Australia as the JobKeeper Scheme. It started in April and it's flagged to run until September, though there have recently been calls for that to be extended. Time will tell whether that does in fact occur. In terms of qualifying for the scheme, generally employers with a turnover of more than a billion dollars will need to show that that turnover has decreased by 50% or more, while those with a turnover of less than A$1 billion generally need to show that it has decreased by 30% or more. So then once you qualify for the scheme what does that actually entail? Well, basically employers will receive A$1,500 as a wage subsidy per fortnight per eligible registered employee and that is payable on the condition that each of those employees is paid at least one A$1,500 for that fortnight. Now one concept to be aware of here that's slightly different than in the UK is that in Australia the concept of a furlough is not so central to the scheme so an employer and an employee will be entitled to the $1,500 per fortnight, regardless of whether that employee has been furloughed, or can otherwise not perform useful work to COVID-19. The other key change under the scheme is that Australia's Fair Work Act has been temporarily amended so employers who qualify under the scheme temporarily are able to make various changes to manage the workforce under the Fair Work Act which would not otherwise be permitted. Finally, the other thing to keep in mind is that those who are on the scheme should look forward to when the scheme eventually finishes and ensure that they have plans, policies and general approaches in place to make sure they can manage it once the scheme in fact ends.”

    Share plans – EMI options and the impact of Covid-19

    There is some good news to report for holders of EMI share options granted before 19 March 2020. A reminder, EMI stands for Enterprise Management Incentive and these are tax-advantaged share option schemes which are very popular. Why popular? Well because, generally speaking, options are more beneficial than shares because no tax is paid when they’re granted – only when they’re exercised – and EMI goes further by offering various appealing tax reliefs on exercised options for both the company and its employees. The good news relates to further amendments and new clauses added to the Finance Bill 2020 which has been published by the government. The modifications to the EMI legislation mean that EMI option holders will not lose the tax relief available as a result of being on furlough, unpaid leave or reduced hours due to Covid-19. To explain, share plans specialist Charlotte Nickel:

    Charlotte Nickel: “So many companies will have granted Enterprise Management Incentive or EMI share options to some of their employees and that's primarily because EMI options are very tax efficient for the option holder and the employer as well, but because of that, there are many qualifying conditions that need to be met, some of the time the option is granted and others throughout the life of the EMI option, which means until it is exercised and if those conditions are not met, then some or all of the tax advantages can be lost. One of those conditions that has been causing a bit of concern recently is what is known as the committed working time requirement. This requires an employee who has been granted an EMI option to spend on average, at least 25 hours a week, or if they do not meet that hours requirement, at least 75% of their total working time, engaged on business for the EMI company, so that's the company who shares the option has been granted over or another member of its corporate group. Now there was a concern that a number of EMI option holders would cease to meet that requirement either as a result of being furloughed through the job retention scheme, or if they'd otherwise seen the hours of work reduced as a result of COVID-19. Now, the government has recently announced an amendment to the EMI legislation and what that now means is that for any EMI option that was granted before the 19th of March 2020, when you are calculating EMI option holder's committed working time, any time between the 19th of March 2020 and 5th April 2021, that the employee would have been required to spend on business of the group but wasn't able to do so due to Coronavirus, will be included in the calculation of committed working time. Now, that amendment has been broadly drafted, which means it will apply not only to furloughed employees but also to employees who have reduced their working hours due to COVID. It would also apply, for example, for employees that are taking a sabbatical provided the reason for that sabbatical was the Coronavirus pandemic. One final point to remember though, is that an employee cannot be granted an EMI option now if they do not meet that working time requirement at the time the option is granted and that's because in order for there to be a valid grant of an EMI option, the employee actually has to sign a declaration that they meet the working time requirement at the date of grant. Now obviously if an employee is furloughed, they will be unable to make that declaration as they will not have any committed working time at the date of grant.”

    Tax – setting up an employee benevolent fund in the UK

    Finally some news on a scheme to help your employees financially which is proving very popular at the moment. UK employers looking to help employees struggling financially due to the Covid-19, are looking at the possible options. One way to help, which has been flagged up in Outlaw by tax specialist, Chris Thomas, is the setting up of an employee benevolent fund or hardship fund designed to help beneficiaries who are facing increased financial hardship. So, as Chris explains, it is possible for commercial companies and other organisations to set up funds of this type to help, for example, employees, former employees, pensioners and their families and dependants. However, if you are going to go down this route he warns there are lots of issues to consider - employment law, consumer credit and, of course, tax. There are around 3,000 benevolent funds currently operating in the UK of which the vast majority are charities, although there are alternatives. To explain, on the line, Chris Thomas:

    Chris Thomas: “At the moment, we've seen a number of clients over sort of recent weeks and months, looking at how they can provide support to employees who perhaps are struggling financially due to the pandemic and the aftermath of it. That might be because they've been on furlough or they've got reduced salary or perhaps their partner has lost their job and therefore they're struggling because they've got reduced household income, so a number of employers are thinking about how they could support employees in that situation. From our point of view, I think that whilst that's a great thing to be doing, there are a number of issues that need to be thought about before you put in place that support so you avoid any unexpected tax implications, but also actually other implications from an employment perspective and even consumer credit issues which can which can arise. So I suppose the first question is what form would, or should, a benevolent or hardship fund take? There are a number of options there. So, on a very simple level, it could just involve making grants on an ad hoc basis. You might want a more formalised scheme, perhaps with some sort of criteria under which employees can apply. You might want to think about loans rather than simple outright grants. If you're looking at something that's perhaps a bit of a longer term proposition, rather than just a sort of a short term response to the pandemic, you could consider setting up a charity which has the benefit of providing benefits more tax efficiently than the other routes do and is particularly suitable, I guess, if this is something you can you want to be doing as a longer term objective You could even think about using an existing Employee Benefit Trust if you've got a surplus cash available in it. So there are a number of ways in which this could be done but the key thing in any case is to think about what the tax consequence will be. So if it's a simple cash grant that's going to be fully taxable, fully NI-able. If it's a loan then usually that will be tax neutral because there's an exemption from the benefit-in-kind-charge if the loan is under £10,000, but you just need to be a little bit careful, particularly if the loan is waived, that could have tax complicated consequences. The other thing about loans is it can get you into consumer credit problems, which is obviously not a tax issue but it is something we're aware of from discussion with colleagues - that can be quite complicated and involve getting authorisations if you don't have them, so it may not be something you want to kind of go with in practice. I mentioned setting up a charity as a possible option if it's a longer term scheme and, as I said, the key advantage to that is it should then be possible to get support to employees without any tax liability, which obviously is good. It can also have optical advantages and it also allows for other employees to be able to contribute to it if that's something that you might want to do as part of your charitable giving proposition. On the other hand, it does involve some additional governance considerations, some extra legal steps, you do have to register with The Charity Commission and there is a process and some additional considerations would have to be thought about, although it might be possible to start providing benefits pending getting the charity actually formally registered, if you wanted to do that, but that's a little bit more complicated, but again it's something that we have looked at with some clients. So as I say, there's a whole menu of things that you could do and it's very much a question of what your priorities are, how simply you want to keep, but it's something, as I say, that we have been helping clients with quite a bit. Just one final point to note is that we are seeing, in some cases, people wanting to make payments to family members of employees who are deceased, whether in relation to the COVID-19 or the other reasons. Just a note of caution that if you're doing that as an ad hoc thing, i.e. not under a tax-approved death in service scheme, and insurance-backed scheme, if you're just doing an ad hoc basis that is likely, unfortunately, to have tax implications so just be aware of that and seek advice before committing or going ahead.”

    For now from me that’s the news. Good bye.

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