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By Patricia Yeung, partner at law firm Howse Williams

Introduction

To tackle the unemployment and loss of income caused by the COVID-19 pandemic, on 8 April 2020 the government introduced an HK$80 billion Employment Support Scheme (ESS) as part of the second round of anti-pandemic relief measures.

The ESS aims to provide time-limited financial support in the form of wage subsidies to eligible employers to allow them to retain employees.

Calculating wage subsidies

For regular employees who are aged between 18 and 64 and are members of an occupational retirement schemes (ORSOs)
The amount of wage subsidies will be calculated based on 50% of the actual wages paid to each employee in the specified month (rather than the average over a few months). Employers can choose any one month from December 2019 to March 2020 as the specified month. Wages are capped at HK$18,000 per month. For example, if employees are paid HK$18,000 or more in that specific month, their employer will receive a maximum subsidy of HK$9000 per month per employee.

For employees aged 65 or above
If an employer has provided information on their employees' basic salaries when making MPF voluntary contributions, the wage subsidies will be calculated based on 50% of the basic salaries actually paid to the relevant employees in the specified month. Wages are capped at HK$18,000 per month per employee. The maximum wage subsidy per employee is HK$9000 per month.

If an employer did not provide information on their employees' basic salaries when making MPF voluntary contributions, the wage subsidies will be calculated on the basis of 10 times the amount of the employer's voluntary contributions made in the specified month, capped at HK$9000 per month per employee.

For eligible employers that have made MPF contributions for both regular employees and employees aged 65 or above, they must choose the same specified month for calculating subsidies.

Employers' obligations

Eligible employers that participate in the ESS must:

  • spend all of the wage subsidies on paying employees' wages; and
  • not make redundancies during the subsidy period (i.e., from June 2020 until August 2020). Thus, the number of employees on payroll in any one month of the subsidy period cannot be fewer than the number of employees (with or without pay) in March 2020.

What happens if employers fail to comply with these obligations?
Clawback
If an employer fails to use all of the wage subsidies received for a particular month during the subsidy period to pay employees' wages in the same month, the government will clawback the unspent subsidy balance.

The clawback will be calculated using the following formula: subsidies received for a particular month minus wages paid to employees in the same month.

Penalty
If the number of employees on payroll in any one month of the subsidy period is fewer than the number of employees (with or without pay) in March 2020, the government will impose a penalty on the employer.

Criminal liability
Any person who makes a false statement, misinterprets or conceals the facts or furnishes false documents in an attempt to deceive the government or its appointed agencies could be found guilty of a criminal offence and subject to prosecution.

Dismissal of employees during subsidy period but not through redundancy

What happens if employees are dismissed during the subsidy period but not by reason of redundancy (eg, an employee resigns voluntarily or a fixed employment contract expires)?

In such cases, employers will likely be in breach of their undertakings because they would have failed to use all of the subsidies received to pay employees' wages. Therefore, the government will clawback the unspent subsidy balance. In addition, employers must also pay a penalty to the government as the number of employees on their payroll in any one month of the subsidy period will be fewer than the number of staff that they had in March 2020.

The government will focus on monitoring headcount of participating employers as opposed to the employment status or identity of the employees. In order to avoid penalties or clawbacks, employers must rehire individuals to fill the vacancies to maintain the total number of employees that they had in March 2020.

What happens if employers hire more employees during subsidy period?

If the number of employees on an employer's payroll in any one month of the subsidy period is more than the number of staff that the employer had in March 2020, the employer will not be entitled to additional subsidies due to an increase in headcount during the subsidy period.

When can employers expect to receive wage subsidies?

The second tranche of subsidies will be disbursed in September 2020.

Self-employed individuals

Subject to certain exceptions, self-employed persons who have an MPF account that was set up on or before 31 March 2020 and has remained opened as of that day are eligible for a one-off lump-sum subsidy of HK$7500 under the ESS.

Application procedures for second tranche

The government has not yet decided on the eligibility and rules for the second tranche and will announce the application details in due course. Secretary for Labour and Welfare Dr Law Chi-kwong has stated that the rules for the second tranche may be modified depending on the effectiveness and result of the first tranche.

Chi-kwong has also suggested that there is a high probability that people may be disqualified from applying for the second tranche if they cannot comply with the commitments that they make in their first tranche application.

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