Government Announces Penalty Formula of the Employment Support Scheme
The government has rolled out a series of measures to relieve the economic impact brought about by the COVID-19 pandemic. Introduced under the second round Anti-epidemic Fund, the Employment Support Scheme (ESS) has come under the spotlight as it aims to provide wage subsidies to employers against their undertaking to spend all subsidies on paying wages to their employees and not to implement redundancy during the subsidy period. The ESS is a scheme that relies on the historical record of the number and wages of employees in the Mandatory Provident Fund (MPF) system.
Subsequent to our client alert dated 14 May 2020 on the implementation details of the ESS, the government announced the penalty formula and additional information of the ESS on 18 and 19 May 2020. Employers should take note of these further details when making an application for subsidies under the ESS:
- To join the ESS, employers are required to provide an undertaking (i) to spend all wage subsidies on paying wages to their employees; and (ii) not to implement redundancies during the subsidy period.
- Regarding the first part of the required undertaking, if in any particular month the employer fails to pay all wage subsidies received for that month to its employees, the government will claw back the unspent balance of the subsidies (Clawback).
Clawback = Total subsidy received in that particular month - Wages paid to the employees in the same month
- Wages paid to the employees in that month will be the aggregate of the “relevant income” submitted to the MPF trustees in that month.
- As for the second part of the required undertaking, if the number of paid employees in any one month of the subsidy period is less than the total number of employees (including both paid and unpaid) in March 2020, the employer will have to pay a penalty (Penalty) to the government calculated according to the Penalty formula:
Penalty = Total subsidy received in that month ? Headcount Reduction % ? Applicable Penalty %
- The number of employees in a particular month is based on the information shown in the MPF record certificates. If the employer has made MPF contributions for new employees in that month and the relevant information is shown in their MPF record certificates, those employees will be counted towards the total number of employees for that month. An employee shown in the MPF record certificate of March 2020 who had ceased or going to cease employment is still counted towards the total number of employees in March 2020.
- The Headcount Reduction % is calculated by dividing the difference in number of employees as stated above by the total number of employees in March 2020. The Applicable Penalty %, on the other hand, varies according to the employer’s total number of employees in March 2020 (which includes both paid and unpaid) and set out as follows:
|Total number of employees||Applicable Penalty %|
|Less than 10||10%|
|10 to 49||20%|
|50 to 99||40%|
|100 to 499||60%|
|Equal or more than 500||80%|
- The Clawback and Penalty for each month during the subsidy period will be calculated separately. There may be situations where the employer is liable for a Penalty (i.e., decrease in headcount) but not for a Clawback (i.e., the requirement that all subsidies to be spent on paying wages is met).
- The government has appointed PwC HK as auditors of the ESS to conduct vetting procedures for every application and onsite verification for selected employer organisations. High risk applicants will be identified based on a number of factors, such as whether there is a change of MPF trustee, and the category of MPF schemes the applicant has enrolled into.
- Employers should complete their applications and submit the required supporting documents online. Employers participating in MPF schemes are required to authorise their respective MPF trustees to provide the ESS processing agent with MPF record certificates to verify the information related to their MPF contributions.
- In the online application, employers are required to provide:
- basic information and Business Registration Number (or other registration numbers);
- name of the MPF trustee;
- name and Scheme Registration/Participation Number of all MPF scheme(s) participated during 1 December 2019 to 31 March 2020; and
- bank account number and a scanned copy of the bank statement.
Employees aged 65 or above
- Employees aged 65 or above are not required to join an MPF Scheme. Employers can apply for wage subsidies in respect of such employees only if they have an MPF account set up on or before 31 March 2020.
- If employers have provided information regarding the basic salaries of these employees when making MPF voluntary contributions for them, the amount of wage subsidies will be calculated based on 50% of the basic salary paid to the employees in the “specified month”, and capped at HK$9,000 per month per employee.
- If, on the other hand, information regarding salaries has not been provided, the amount of wage subsidies will be calculated by multiplying the amount of employers’ voluntary contribution in the “specified month” by 10 times, with a cap at HK$9,000 per month per employee.
- Employers who have received subsidies in relation to employees aged 65 or above should provide the MPF trustees with information on such employees’ basic salaries in their return of remittance statements for MPF contributions for June to August 2020, in order to show that the subsidies are spent on paying wages to such employees. If information is not provided for a particular month, the relevant employees will not be counted towards the total number of paid employees in that month in calculating the Penalty.
The first tranche of subsidy will be open for application from 7 a.m. of 25 May to 11:59 p.m. of 14 June 2020, and will be paid out to employers in three to four weeks’ time. We understand that employers may still have questions regarding the ESS, especially regarding the monitoring mechanisms and the required undertaking. In light of the complexity of the ESS, employers are advised to seek professional advice if they have any concerns. Employers should also pay attention to the details and comply with the requirements of the ESS so both employers and employees could benefit from the scheme.
 Employers who have set up Occupational Retirement Schemes Ordinance schemes are required to provide more information/documents in their application, such as number of eligible employees in March 2020, the wage of each employee in the “specified month” and a scanned copy of the exemption certificate issued by the Mandatory Provident Fund Schemes Authority.
 If employers have both eligible and ineligible employees (i.e., employees whose salaries are fully funded by the government and thus ineligible), they are required to provide the number of eligible employees in March 2020 in the online application as well.
 Any one month between December 2019 and March 2020 as nominated by the employer.
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