On 31 March 2020, the Dutch government published the details of new regulations on short-time working (‘NOW-regulations’), through which employers which experience a loss in turnover of at least 20% during a consecutive period of 3 months may receive government subsidy for their salary costs. See our previous alert here. The scheme has now been updated and also extended for a further 3 month period so that it will cover salary costs up to 31 August 2020 - detailed information on the updates to the original scheme and on the scheme extension are below.
NOW-regulations (NOW 1.0) – 6 April - 5 June 2020
- Employers experiencing a loss in turnover of at least 20% during a consecutive period of 3 months in the period from 1 March to 31 July 2020, may receive government subsidy for their salary costs. Loss in turnover is calculated at group/concern level if the employer is part of a group of legal entities (see below).
- If there is a loss of turnover during that period, employers will receive government subsidy for up to 90% of their salary costs over 1 March to 31 May 2020 (up to a certain maximum, see below).
- The amount of the subsidy (compensation amount) grant is the result of: A x B x 3 x 1.3 x 0.9.
- A stands for the percentage of the loss in turnover expected by the employer (see also below).
- B stands for the salary costs based on the salary costs of employees for which the employer has paid the wages, but the wages to be taken into account per employee do not exceed a maximum amount of EUR 9,538. The government has decided that the compensation amount to be provided to a company will be based on the company’s official social security wages over the month of January 2020 (if no data from that month is available, November 2019 will be used). Additional charges and costs such as the employer’s part of the pension contributions, the employees’ pension contributions and accrued holiday allowance are not part of these official social security wages. Therefore, a fixed surcharge of 30% on top of the official social security wages will be taken into account with regard to these additional charges and costs. Please note that these additional charges and costs may actually be higher than the fixed surcharge of 30%.
- The government may grant a compensation for the salary costs of the employer in the period from 1 March to 31 May 2020, to an employer which, during a consecutive period of three calendar months in the period from 1 March to 31 July 2020, is confronted with a loss in turnover of at least 20%.
- The compensation amount is maximum 90% of the salary costs, which is linked to the actual decline in revenue (see the formula above). So, roughly speaking, if there is a 100% decrease in revenue, the compensation amount will in principle be 90% of the salary costs. If there is a 50% decrease in revenue, the compensation amount will be 45% of the salary costs. If there is a 25% decrease in revenue, the compensation amount will be 22,5% of the salary costs, etc.
Alternative calculation method
An alternative calculation method has been included for seasonal employers that have far less employees during the winter period. An increase of the salary costs from March to May can be included in the amount of the subsidy when the subsidy is determined, provided that the salary costs in the period 1 March to 31 May 2020 are higher than three times the salary costs in January. Further, with regard to the calculation, the amount of the salary costs in the months April 2020 and May 2020 are always capped at the level of the amount of salary costs of March.
This alternative calculation method will also be of relevance for employers that had no salary costs in January 2020 and/or November 2019, but do have a salary costs in the period of March to May 2020. These employers may still be eligible for the NOW. If these employers have previously received a negative decision, they will by approached by the UWV.
Loss in Revenue
- The loss in turnover of 20% must be calculated by comparing the annual turnover for 2019 divided by 4 with the expected turnover for the period measurement period (in principle March-April-May 2020, but please see below).
- Loss in turnover is calculated at group/concern level if the employer is part of a group of legal entities. In this calculation Dutch legal entities and companies, as well as foreign legal entities that are paying salary in the Netherlands are taken into account. The NOW emergency measure follows the Dutch Civil Code definition of “group”. This definition as such is not a clear cut well defined term, but subject to interpretation of the circumstances at hand. Decisive for the question whether entities form part of the same “group” is whether these entities are connected from an organizational perspective. Entities are organizationally connected if they are centrally managed.
- Employers can choose whether to calculate the decrease in turnover over the measurement period starting on 1 March, 1 April or 1 May 2020. This must always be a continuous period of three months. Employers must make this choice for the measurement period when applying; the measurement period can no longer be adjusted during the final settlement. Regardless of the choice for one of these three-month periods (measurement period) during which the drop in turnover is determined, the subsidy for/reimbursement of the salary costs will in any event relate to the salary costs between 1 March and 31 May 2020.
Exception calculation of loss in turnover for starting companies also in the event of an acquisition of another company
The NOW-scheme includes a provision for start-ups that derogates from the standard rule for determining the loss in turnover, as mentioned above. As of now, is it also possible to apply this provision in the event that a company has taken over another company. For the measurement period of the turnover, the whole calendar months from the first calendar month after the day of transfer of the company in 2019 until 29 February 2020 shall be taken into account, converted into 3 months. In order to make use of this provision, the acquisition must has taken place at least one calendar month before 29 February 2020. Further, the alternative calculation method as mentioned above, will also apply in the case of a takeover of another company.
Obligations for the Employer
In order to receive the subsidy, employers must make every effort to continue the employment of their employees and to pay their salaries. This means that employers cannot submit a request for dismissal with the Dutch labour office (UWV) based on business economic reasons during the period of 18 March 2020 up to and including 31 May 2020. If an employer nevertheless submits a dismissal request (regardless of whether or not permission is granted by the UWV), the employer will be given a fine of 150% of the salary of the employee who is affected. The subsidy will be reduced accordingly. The exact amount with which the subsidy will be reduced, is the result of: D x 1.5 x 3 x 1.3 x 0.9. D stands for the salary that the affected employee received in January 2020 (if no data from that month is available, November 2019 will be used).
Also, employers that submit a request for dismissal based on business economic reasons during the period of 2 April up to and including 31 May 2020, will have to substantiate that the redundancy could not have been prevented by applying for subsidy under the NOW regulations and if so, why not. In principle, subsidy under the NOW regulations aims to ensure that all employees are maintained and not just a part of the employees.
Furthermore, if a Works Council is in place, it needs to be informed in advance of any application. The same applies for informing other representative bodies or the employees in absence of any representative body.
The application period for the NOW started on 6 April and is extended to 5 June 2020, due to the new changes. Once the application has been filed, the UWV has 13 weeks to take a decision. An advance payment of 80% of the subsidy will be paid if the UWV decides that the employer is eligible for government subsidy. The UWV will strive to provide employers with this advance payment within 2 to 4 weeks after receipt of the complete application, but this is not guaranteed. The advance payment will be paid in no more than three instalments.
Information required to fill in the Request Form
In order to fill in the request for the NOW, the employer will need the following information:
- The wage tax number for which the employer is making an application;
- If the employer already applied for short-time working: the case number of the application (this is stated in the confirmation of receipt from the Ministry of Social Affairs and Employment);
- The 3 months for which the employers expects at least 20% loss in turnover (starting on 1 March, 1 April or 1 May 2020);
- The expected percentage of loss in turnover in that period;
- The employer’s bank account number known to the Dutch tax authorities.
Request for Exact Subsidy
Step 2 in the application process is that the employer will need to request determination of the exact subsidy within 24 weeks after the measurement period. For NOW 1.0, this can be requested as per 7 September 2020. This application period will be extended to 38 weeks for employers who are required to submit an auditor’s report. The final subsidy amount will be determined on inter alia the actual decrease in turnover and the employer must in principle submit an official accountant’s report. The UWV will take a decision on the exact subsidy amount within 52 weeks after receipt of the employer’s request. As part of this decision, the employer will receive a supplement or a part of the (advance) payment must be repaid.
Operating companies of groups
For groups with less than 20% loss in turnover, it will be possible for the individual operating companies to apply for a subsidy for their salary costs on the basis of the decrease in turnover of the individual operating company. Groups with personnel companies (personeels-BVs) still have to take into account the loss in turnover at the group level. Additional conditions are required to this possibility:
- Groups of companies whose operating company applies for the NOW-scheme, must declare that they will not pay any dividend or bonuses over the year 2020 or repurchase their own shares, until and including the date of the shareholders’ meeting at which the annual accounts for 2020 are adopted. This obligation also applies to the group or the parent company. In addition, an agreement on job retention is required with a relevant trade union (or if there is none e.g. the Works Council) or with an employee representation if the operating company has less than twenty employees.
- In order to limit strategic behavior, a number of conditions and safeguards are proposed, which need to be verified by the auditor. These conditions are focused on preventing strategic behavior aimed at increasing the loss in turnover of the operating company requesting the salary costs subsidy by for example moving work, transferring contracts to other group companies, shifting personnel and stocks etc. The transfer pricing system used in the 2019 financial statements or the most recently adopted financial statements are leading for the 2020 measurement period, and may not be adjusted.
This amendment does not change the main operation of the NOW-regulations. The NOW will for these operating companies continue to be based on the loss in turnover in 2019 and the salary costs for January 2020 or November 2019 (if no data from January 2020 is available).
The NOW-scheme requires employers to submit a final statement of the loss in turnover at the end of the period for which the subsidy has been granted accompanied by an auditor’s report. On 20 May 2020 the Dutch Ministry of Social Affairs and Employment clarified that there are three situations in which an auditor’s report is required:
- An auditor’s report is required for employers that have received an advance payment of (80% of the subsidy amount granted) of EUR 100,000 or more;
- An auditor’s report is required for a to be determined subsidy grant of EUR 125,000 or more;
- Employers that have received an advance payment of less than EUR 100,000 are responsible themselves in estimating whether the subsidy amount will be set at EUR 125,000 or more.
- In order to make a reasonable estimate of whether or not an auditor’s report is required, an online tool will be made available to calculate this.
- Employers that make use of the possibility to determine the loss in turnover at operating company level are always required to submit an auditor’s report.
If no auditor’s report is submitted while an employer was required to do so, the employer will have 14 days to still submit a (correct) auditor’s report. If this is not done within this period, the subsidy amount will be set at nihil.
Please note that if no auditor’s report is required based on the above three mentioned situations, the request for a subsidy with an advance payment above EUR 20,000 or final determined subsidy grant above EUR 25,000, the request must be accompanied by statement from a third party (e.g. a financial service provider, administrative office etc.) confirming the loss in turnover.
Extension of NOW regulations (NOW 2.0) – Application period: 6 July – 31 August 2020
The NOW regulations will be extended with 4 months. Please find an overview of the amendments of the extended regulations below:
- As of 6 July 2020 until 31 August 2020, employers will be able to apply for compensation for their salary costs over the months June, July, August and September 2020;
- Employers suffering a loss in turnover of at least 20% during a consecutive period of 4 months in the period from 1 June to 31 October 2020 (measurement period), may receive government subsidy for their salary costs;
- If employers apply for a subsidy under the NOW 2.0, the measurement period should (as a subsequent period) follow the measurement period that was used when the company applied for subsidy NOW 1.0;
- Contrary to the NOW 1.0, which referred to advance payment in three instalments, advance payment under NOW 2.0 takes place in two instalments;
- Unlike the NOW 1.0, the NOW 2.0 does not include a separate scheme for seasonal employers or other employers with low salary costs in the period that is used to calculate the subsidy, such as newly started companies and companies that have grown through acquisition;
- The compensation amount to be provided to a company will be based on the company’s official social security wages over the month of March 2020. A fixed surcharge of 40% (instead of 30% under the NOW 1.0) on top of the official social security wages will be taken into account with regard to these additional charges and costs;
- Any subsidies that employers have received in light of the Covid-19 crisis, will be taken into account when calculating the turnover of a company;
- In order to receive the subsidy, employers must make every effort to continue the employment of their employees and to pay their salaries. This means that employers are discouraged to submit a request for dismissal with the Dutch labour office (UWV) based on business economic reasons during the period of 1 June 2020 up to and including 30 September 2020. If an employer nevertheless submits a dismissal request (regardless of whether or not permission is granted by the UWV), the employer will be given a fine of 100% of the salary of the employee who is affected. The subsidy will be reduced accordingly;
- Companies who apply for the extension of the NOW-scheme, must declare that they will not pay any dividend or bonuses over the year 2020 or repurchase their own shares, until the date of the shareholder’s meeting at which the annual accounts are adopted in 2021;
- The obligation not to provide bonuses will be limited to the bonuses and profit sharing paid to the board and management. The obligation not to distribute dividends or profit, bonuses or purchase own shares only applies if the employer or the group collectively receives a subsidy advance of EUR 100,000 or more or if the subsidy is set at EUR 125,000 or more .
- If companies make use of the possibility to determine the loss in turnover at the level of the operating company, this obligation, irrespective of the amount of subsidy, also applies to the whole group/group or the parent company. Within the group, the prohibition on the payment of bonuses only applies to the Board of Directors, management and senior management of the head of the group or the parent company and the legal entity applying for it.
- In case of collective dismissal applications (dismissal of 20 or more persons) within the period of 31 May until 30 September 2020, employers will need to declare that they will discuss the proposed dismissals with the unions involved during 4 weeks before the request for dismissal is submitted. A penalty of 5% on the company’s total NOW subsidy will be imposed with which the total subsidy will be reduced, unless an agreement on the dismissal application has been reached between the company and the relevant trade unions (or, in the absence thereof, another employee representative body). If employers fail to reach an agreement with the trade unions or an employee representative body, a request for mediation must be submitted to (a to be established committee) the Dutch Labour Foundation. If employers fail to do so, the 5% fine on the final NOW subsidy amount will be imposed.
- The reduction of 5% is applied to the total of all subsidies received by a company under this scheme. The reduction is applied before all subsidies received by the company are determined. The fine will be deducted from the total subsidy amount only once, regardless of the total number of collective dismissal notifications.
- Employers have a best efforts obligation to stimulate their employees to follow further training or to re-train themselves so they can adapt to the changing labour market. The Works Council or other employee representative body needs to be informed on this obligation.
- Employers have an obligation to inform the Works Council, employee representative body or if not in place, the employees on the government subsidy.
- Employers may apply for the determination of the exact amount of subsidy as per 15 November 2020. From this date, employers have to submit their application within 24 weeks. Employers that apply for subsidies under both NOW 1.0 and 2.0 will have to wait until this date to submit a request for determination of the exact subsidy.
These amendments do not change the main operation of the NOW-regulations and all other conditions of the NOW-regulations will remain unchanged.