The coronavirus pandemic has struck an unprecedented blow to Hong Kong’s economy. The Hong Kong Government (“Government”) has launched a HK$137.5 billion Anti-epidemic Fund to alleviate the financial burdens of individuals and businesses. As one of the measures to keep people in their jobs, the long-awaited Employment Support Scheme (“ESS”) was finally open for application on 25 May 2020. This article will discuss the overall framework and mechanism of the ESS. We will also highlight some important points that every employer should know about the ESS.
What is the ESS?
The ESS is a financial support provided to employers to retain employees who may otherwise be made redundant amid the coronavirus pandemic. Subsidies under the ESS will be disbursed in two tranches, covering the periods of (1) June to August 2020 (“First Tranche”) and (2) September to November 2020 (“Second Tranche”) respectively.
In gist, the employers who apply for ESS shall undertake:
- not to implement “redundancy” during the subsidy period; and
- to spend all the government wage subsidies on paying wages to their employees.
Details of the undertakings will be further examined below.
The First Tranche is open for online application from 25 May to 14 June 2020. The wage subsidies are expected to be distributed to successful applicants within three to four weeks after application.
Who is eligible to apply for the ESS?
Employers will be eligible to apply for the First Tranche under the ESS if the employers:
- have been making Mandatory Provident Fund (“MPF”) mandatory contributions for employees aged between 18 and 64, who have been employed in any industry for a continuous period of 60 days or more;
- have been making MPF voluntary contributions for employees aged 65 or above under the Master Trust Schemes and Industry Schemes; or
- have set up MPF-exempted Occupational Retirement Schemes Ordinance (“ORSO”) schemes (including ORSO registered schemes and ORSO exempted schemes) for their employees.
Employers who fall within categories 1 or 2 above, the MPF accounts of employers and employees should have been set up on or before 31 March 2020. Employers who fall within category 3 above, the employees covered in the relevant application should have become members of the relevant ORSO schemes on or before 31 March 2020.
Employers are not eligible for the ESS where:
- the employers are part of the Government, specified statutory bodies, public organisations or subvented organisations;
- the employers are licence holders who have submitted application for the Catering Business (Social Distancing) Subsidy Scheme in respect of the licensed premises covered by the relevant business registration certificate (including applications being processed or approved); or
- the employees’ wages are subsidised by the Government.
How about self-employed persons?
Self-employed persons who have set up an MPF account on or before 31 March 2020 which has not been terminated as of 31 March 2020 are eligible for the ESS.
Amount of wage subsidies
The “specified month”
Employers applying for the First Tranche can choose any one month among December 2019, January, February and March 2020 as the “specified month”. The amount of wage subsidies will be calculated on the basis of the actual amount of wages paid in the “specified month”.
For employees aged between 18 and 64
The amount of wage subsidies for employees aged 18 – 64 will be calculated based on 50% of the actual wages paid to each employee in the “specified month”, with a wage cap at $18,000 per month. In other words, the maximum wage subsidy per employee is $9,000 per month.
For employees aged 65 or above
What about the amount of subsidies for employees aged 65 or above? It depends on whether the employers have provided information on the basic salaries of such employees when making MPF voluntary contributions for them:
- If yes, the amount of wage subsidies will be calculated based on 50% of the basic salaries actually paid to the relevant employees in the “specified month”, with a wage cap at $18,000 per month per employee. The maximum wage subsidy per employee is $9,000 per month.
- If no, the amount of wage subsidies will be calculated by multiplying the amount of employers’ voluntary contribution for the relevant employees in the “specified month” by 10 times, with a cap at $9,000 per month per employee.
Employers who have set up MPF-exempted ORSO Schemes
The amount of wage subsidies will be calculated based on 50% of the actual wages paid to each employee in the “specified month”, with a wage cap at $18,000 per month. The maximum wage subsidy per employee is $9,000 per month.
For self-employed persons
If a self-employed person has more than one MPF account, he/she may only apply once for a one-off lump-sum subsidy of $7,500 under the ESS.
In the online application form, applicants for the ESS are required to confirm as follows:
“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.” (emphasis added)
First part of the undertakings: Number of headcount
The applicants shall not implement any “redundancy” scheme(s) during the subsidy period. The concept of “redundancy” in the ESS undertakings is not the same as the Employment Ordinance. Under the Employment Ordinance, redundancy connotes the situations where the employers closes his/her business or the requirement of the business for employees to carry out work of a particular kind ceases or diminishes.
Here, the number of employees in March 2020 is taken as the reference point. The undertakings expressly provide that the number of employees during the subsidy period must not be less than the number in March 2020.
The ESS Secretariat and/or the appointed Processing Agent will compare the total number of paid employees as shown in the MPF record certificate for each month during the subsidy period provided by MPF trustees with the total number of employees (regardless of whether they were paid not) as shown in the MPF record certificate of March 2020 to verify whether an employer has implemented any “redundancy”. Employers who have set up ORSO schemes for employees would need to submit information of the wages and the number of employees during the subsidy period for the purpose of auditing.
Second part of the undertakings: Usage of the wage subsidies
The second part of the undertakings stipulates that the applicants must spend all the wage subsidies on paying wages to employees.
Consequences for breach of the undertakings
Whilst the online application form does not exhaustively spell out what kind(s) of “other penalties” will be imposed if the applicant is found to be in breach of the undertakings, the Government had illustrated the calculation of (1) claw back and (2) penalty in its publication.
- Claw back
If an employer fails to use all the wage subsidies received for a particular month during the three-month subsidy period (June to August 2020) to pay the wages of employees in the same month, the Government will claw back the unspent balance of the subsidy.
Claw back for a particular month (i.e. June / July / August 2020) = (Subsidies received – Total actual wages paid to employees)
If the number of employees on the payroll in any one month of the subsidy period (June to August 2020) is less than the number of paid or unpaid staff in March 2020, the employer will have to pay a penalty to the Government. We can see from the calculation that the “penalty” is not designed to be punitive in nature.
Penalty of making redundancies in June / July / August 2020
= Subsidies received x Headcount reduction percentage* x Penalty percentage#
*Headcount reduction percentage
= [(Total number of paid and unpaid staff (as of March 2020) – Total number of paid staff in June / July / August 2020)] / Total number of paid and unpaid staff (as of March 2020) x 100%
# The penalty percentage, ranging from 10% to 80%, is positively correlated with the total number of paid and unpaid staff (as of March 2020). In other words, the “penalty” will be higher for larger employers which had higher number of staff as of March 2020.
Please refer to the Government’s publication on 18 May 2020 for the scale of penalty percentage and examples of penalty calculations.
Can the wages of the employees be reduced during the subsidy period?
The ESS itself does not forbid employers from reducing employees’ wages during the subsidy period. That said, employers should pay attention to the legal implications of wages reduction under the Employment Ordinance and/or the employment contracts.
Is it necessary for same employee(s) to be employed during the subsidy period?
The ESS focuses on the absolute number of employees. The employers will not be subject to the penalty so long as the number of employees on the payroll during the subsidy period (June to August 2020) is not less than the number of paid or unpaid staff in March 2020. If employers expect reduction in the number of employees during the subsidy period, they must fill the vacancies to maintain the total number of employees as of March 2020.
Provision of true, complete and accurate information
Employers are reminded to provide true, complete and accurate information when making the applications. It is a criminal offence to make false statement, misinterpret or conceal the facts, or furnish false documents in an attempt to deceive the Government and/or its appointed agencies.
The Government has been publishing information and press releases to explain the details of the ESS and the implementation of the First Tranche. As explained by Dr. Law Chi-kwong, the Secretary for Labour and Welfare, in a public seminar on 28 May 2020, after the launch of the First Tranche, the Government will conduct evaluations and further fine-tune the implementation of the Second Tranche subject to actual circumstances.
Employers’ major concern about the ESS is the “penalty” imposed by the Government if they are found to have breached the undertakings. As explained by Dr. Law, the “penalty” under the ESS is not punitive in nature so long as the employers provide true, complete and accurate information when making the applications. In any event, the “penalty” under the ESS will not outweigh the subsidies.
Employers who apply for ESS shall undertake not to implement “redundancy” during the subsidy period and to spend all the government wage subsidies on paying wages to their employees. The term “redundancy” used in the undertakings in the ESS application form is different from the concept of redundancy in the Employment Ordinance. The Government will look at the absolute number of employees during the subsidy period.