Calls for a Row Back on the Taxation of the Temporary Wage Subsidy Scheme Payments

Thousands of workers could be needlessly laid off if adjustments are not made to the Government’s Temporary Wage Subsidy Scheme (TWSS). Such is the contention of experts at Irish company Big Red Cloud, who say that anecdotal evidence suggests that many workers are telling their SME employers that they would be financially better off if they were off the payroll.

This would then enable these workers to avail of the Pandemic Unemployment Payment (PUP) – which would be of more value to them than the payment they could receive from the Wage Subsidy Scheme. The accountancy and payroll experts say the differential between both payments is also being compounded by the fact that TWSS payments will also be liable for tax at the end of the year.

Marc O’Dwyer, CEO of Big Red Cloud spoke of the feedback he’s been receiving from customers nationwide who are owner/managers of thousands of different small to medium-sized businesses:

“From speaking with our business customers throughout the country, the fact that the PUP is more valuable to some employees than the TWSS is causing many workers to tell employers that they would prefer to be laid off, rather than being retained on the payroll – which, although understandable, flies in the face of exactly what the scheme is trying to achieve. It’s a flaw in the scheme which we believe will limit the numbers taking it up.

The other big elephant in the room, and one that could potentially be fixed if the Minister was willing to consider changing the tax treatment of the payment, is that whilst the wage subsidy is not taxed through the payroll, it will be taxed in the employees’ end of year return. For many employees, this scheme equates to tax deferment rather than a much-needed financial grant. People are only now becoming more aware of this, and it’s likely to become a political hot potato at the end of the year.

Employees on lower pay won’t have a big tax bill at the end of the year, so it seems that the financial pressure, once again, is being placed on the squeezed middle private sector.”

Experts at the software company say that already some employees might have noticed discrepancies in their pay packets, due to the refunds that are triggered by employees on the TWSS. They say that there is a misconception out there that people on the TWSS will get the same net pay into their hands – but that that may not necessarily be the case because Tax and USC refunds are muddying the waters and are, in some cases, increasing people’s net pay.

Big Red Cloud says that running the numbers show how the tax might impact workers and employees alike:

E.g. The relief tapers at a net average weekly pay of €586. So, a worker on an annual income of €37,000 would receive €405.30 per week for 12 weeks totalling €4,863.60. Their employer may top this up but either way the employee’s income during this will be equal or lower to what it was before.

Mr O Dwyer explained:

“Unfortunately, the way the scheme is being applied that same employee will be deemed by the rules of this scheme to have underpaid €2,359 in tax (Income tax €1,945, USC €219, PRSI €195), which will have to be repaid to the Revenue at the end of the year or over an agreed timeframe.

We commend the Government’s approach thus far, and we appreciate how difficult it has been to get financial supports to market so quickly. But employees and employers alike need clarity on issues like these – even if it’s just so there may be just one less thing to worry about in a world which is currently so full of uncertainty”.