28 May 2020
Introduction
This article is the third in a series of publications on the Scheme (view here for our previous article on the overview of the second round of relief fund, and here for a summary of the Scheme as previously announced).
Overview of the Scheme
The government will provide wage subsidies to eligible employers who undertake not to implement redundancy during the subsidy period; and to spend all the government wage subsidies on paying wages to their employees.
The Scheme will support salary payment for 6 months in two tranches, with the first tranche of subsidies supporting payment of wages in June, July and August 2020 and the second tranche covering September, October and November 2020.
Applications for the first tranche of wage subsidies opened on 25 May 2020, with the deadline being 14 June 2020. The subsidies will be disbursed within 3 to 4 weeks after the closing date. The second tranche of subsidies will be disbursed in September 2020 and the application details will be announced in due course.
In addition to supporting employers, self-employed persons may also apply for a one-off grant of HK$7,500 if they have set up an active MPF account on or before 31 March 2020 and if that account remains open.
Details of the Scheme
1. Eligible employers and employees
All employers who have made Mandatory Provident Fund ("MPF") contributions or have set up Occupational Retirement Schemes ("ORSO schemes") for employees are eligible (except for government employees and employees of statutory bodies and subvented organisations). The relevant MPF and ORSO schemes accounts must have been set up on or before 31 March 2020.
Employers can apply for wage subsidies in respect of:
-
Regular employees" (i.e. employees who are at least 18 but under 65 years of age and have been employed for a continuous period of 60 days or more) under the Master Trust Schemes and Industry Schemes, for whom MPF mandatory contributions have been made by their employers;
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Employees aged 65 or above under the Master Trust Schemes and Industry Schemes; and
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Employees who are members of the ORSO schemes.
Required undertakings
According to the Scheme online portal, applicants are required to make the following undertakings:
"I undertake and warrant that I must not “make redundancies” during the subsidy period (i.e. the number of employees on the payroll in any one month of the subsidy period must not be less than the number of paid and unpaid staff in March 2020); and must spend all the wage subsidies on paying wages to employees in the relevant months during the subsidy period. I understand that if I am found to have breached the above undertakings, the Government reserves the right to claw back all or part of the wage subsidies and/or impose other penalties".
In other words, in receiving the first tranche of subsidies for June to August 2020, an employer must undertake that:
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The number of employees on the payroll (i.e. with pay in each of June, July and August 2020) cannot be smaller than the total number of employees (with or without pay) in March 2020; and
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All wage subsidies should be spent on paying wages to employees.
3. Calculation of monthly subsidy
For regular employees aged between 18 and 64, the subsidy will be based on 50% of the actual wages paid to each regular employee in the "specified month", with the wage capped at HK$18,000 per month.
For employees aged 65 or above, if employers have provided employees' basic salaries when making MPF voluntary contributions, the wage subsidies will be calculated based on 50% of the basic salaries actually paid in the "specified month", with the wage capped at HK$18,000 per month. If employers have not provided employees' basic salaries when making MPF voluntary contributions, the wage subsidies will be calculated by multiplying the amount of employers' voluntary contributions in the "specified month" by 10 times, with a cap at HK$9,000 per month per employee.
A "specified month" is any month between December 2019 and March 2020 as selected by the employer. The monthly subsidy will be calculated based on the number of employees (including employees on no-pay or half-pay leave) and their respective wages in the "specified month".
There is no upper limit on the total amount of subsidies that each employer can receive. However, only 50% of the actual wage can be claimed for each employee at a maximum subsidy of HK$9,000 per month.
4. Application method and information required
Eligible employers may submit online applications for the first tranche of subsidies via the Scheme online portal (on www.ess.gov.hk) from 25 May to 14 June.
When making online applications, the applicant shall authorise the Scheme processing agent to receive MPF records from their MPF trustees. Upon the applicant's authorisation, MPF trustees will send the MPF record certificates to the agent directly to facilitate processing and calculation of subsidy amount. Applicants may request their MPF trustees to provide a copy of the certificates for reference.
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For employers with MPF schemes
Information required includes:
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Business Registration Number or other registration numbers;
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Name of the MPF Trustee;
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Name of MPF Scheme (to include all MPF schemes participated from 1 December 2019 to 31 March 2020) and Scheme Registration / Participation Number; and
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Bank account number of the employer.
Documentation required includes:
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Scanned copy of the bank statement.
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For employers with MPF-exempted ORSO schemes
Information required includes:
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Business Registration Number or other registration numbers;
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Name of the MPF-exempted ORSO Scheme, MPF Exemption Number and ORSO Registration / Exemption Number;
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Bank account number of the employer; and
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Number of eligible employees in March 2020 and use the designated form to provide information on eligible employees, including the wage of each employee in the “specified month”.
Documentation required includes:
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Scanned copy of the exemption certificate issued by the MPF Schemes Authority;
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Scanned copy of the bank statement; and
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Completed designated form.
5. Consequences for breaching the undertakings
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CLAW BACK
If an employer fails to use all the wage subsidies received for a particular month during the subsidy period (June to August) to pay the wages of the employees in the same month, the government will claw back the unspent balance of the subsidy.
Calculation:
Claw back for a particular month in June, July or August 2020 = Subsidies received – Total wages paid to employees
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PENALTY
If the number of employees on the payroll in any one month of the subsidy period (June, July and August 2020) is less than the number of staff (whether paid or unpaid) in March 2020, the employer will have to pay a cash penalty to the government based on the size/headcount of the company.
Calculation:
Penalty for a mismatch in headcount between March 2020 and any particular month in June, July or August 2020 = Subsidies received x Headcount reduction percentage* x Penalty percentage**
*Headcount reduction percentage = (Total no. of paid and unpaid staff (as of March 2020) – Total no. of paid staff in June / July / August 2020) / Total no. of paid and unpaid staff (as of March 2020) x 100%
** Penalty percentage varies depending on the total number of paid and unpaid staff as of March 2020 as follow:
TOTAL NUMBER OF PAID AND UNPAID STAFF AS OF MARCH 2020 |
PENALTY PERCENTAGE |
|
<10 |
10% |
|
10-49 |
20% |
|
50-99 |
40% |
|
100-499 |
60% |
|
≥ 500 |
80% |
Example:
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Number of employees in March 2020: 1,000
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Total wage subsidy (June to August): HK$15,000,000 (i.e. monthly subsidy: HK$5,000,000)
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Applicable penalty percentage: 80%
MONTH |
NO. OF PAID EMPLOYEES |
TOTAL WAGES PAID |
AMOUNT TO BE CLAWED BACK BY THE GOVERNMENT |
PENALTY FOR REDUCTION IN HEADCOUNT |
|
June |
900 |
HK$6,000,000 |
HK$0 |
HK$5,000,000 x 10% (headcount reduction percentage) x 80% (penalty percentage) =HK$400,000 |
|
July |
1,000 |
HK$4,800,000 |
HK$5,000,000-HK$4,800,000 =HK$200,000 |
HK$0 |
|
August |
1,200 |
HK$10,800,000 |
HK$0 |
HK$0 |
Total amount of penalty and claw back will be the sum of HK$400,000 and HK$200,000, which equals to HK$600,000.
As demonstrated above, the total penalty, including claw back, for a large-sized company is only 4% of the amount of subsidies received for the subsidy period. The Secretary for Labour and Welfare Dr. Law Chi-kwong (the "Secretary for Labour and Welfare") said that the claw back and penalty are relatively minor breaches of the Scheme, but the current penalty percentages should be sufficient to deter abuse of the Scheme. According to him, if the penalty percentages are set too high, this may discourage employers from making an application.
Having said that, not maintaining headcount/breaching the undertaking not to make redundancies are important obligations and legally binding commitments given to the government by employers. That is particularly the case for regulated entities/employers. The decision to apply for the Scheme is therefore one which should be carefully considered to avoid any inadvertent breach, and related penalty.
6. Auditing and monitoring mechanisms
During and after the vetting of applications, the Scheme processing agent will vet and conduct sample verification of the information submitted by employers, and conduct on-site checking at selected employers' organisations.
The government will adopt a transparent approach, including announcing the list of employers who have received subsidies, the total number of employees benefited and the amount of subsidies received, to enable monitoring by employees concerned and the public. Should an employer be found to have abused or violated the conditions of the Scheme, the employees concerned or members of the public may report to the relevant authorities.
Applicants must provide true, complete and accurate information when making the applications. Any person who makes a false statement, misinterprets or conceals the facts, or furnishes false documents in an attempt to deceive the government will be guilty of a criminal offence and subject to prosecution. According to the Secretary for Labour and Welfare, this includes the situation where companies deceive the government by sacking staff and replacing them with friends or relatives, which would be regarded as fraud.
Sources
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Employment Support Scheme (ESS) Frequently Asked Questions
For employment-related advice in light of COVID-19 and the implementation of the Scheme, please contact your usual Clyde & Co contact.
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For further information, please contact:
Joyce Chan, Partner, Clyde & Co
joyce.chan@clydeco.com
