On March 10th, 2021, the Workplace Relations Commission ("WRC") issued one of its first decisions on the operation of the Temporary Wage Subsidy Scheme ("TWSS") with a welcome ruling for the many employers who availed of the scheme. The TWSS was in place from 26 March to 31 August 2020 pursuant to Part 7 of the Emergency Measures in the Public Interest (Covid-19) Act 2020 ("the 2020 Act"). Over the course of that time 66,500 employers availed of TWSS support payments of €2.9 billion in respect of 664,000 employees.
Ronan Daly Jermyn ("RDJ") acted in the successful defence of the claim, taken by a former Financial Controller of a Hotel, who challenged the fact that his earnings as subsidised by the TWSS were topped up to net rather than gross pay.
Like many employers in the last year, the Hotel in this case availed of the TWSS to enable them to retain their employees on payroll during forced closures arising from the Covid-19 pandemic.
In availing of the TWSS the Hotel also "topped up" its employees' wages to their typical net pay. This had the effect of the Financial Controller's gross pay in this case being adjusted to bring it in line with what his net pay had been up to that point. The TWSS was exempt from PAYE, USC and employee PRSI for its duration however, as confirmed by Revenue, the exempted tax would be taxable on the employee at the end of the 2020 tax year instead. To further protect the business's finances, the hotel introduced a 10% pay cut for all its employees and notified effected employees that bonus payments, otherwise payable in 2020, would not be payable that year.
The Financial Controller's challenge before the WRC was brought on foot of his argument that as tax was not being deducted at source from his wages during the period of operation of the TWSS, he would face a large tax bill at the end of 2020 tax year. He argued that as he had not consented to the hotel reducing his gross pay, he was entitled to recoup the shortfall in order to have the means to pay his tax liability that would arise at the end of the 2020 tax year. The Financial Controller submitted that he had voiced his opposition to the method by which the hotel was applying the TWSS but that in response, the Hotel confirmed that they were applying the TWSS correctly.
The Financial Controller ultimately lodged his claim before the WRC pursuant to section 6 of the Payment of Wages Act, 1991 (the "1991 Act") alleging that he had been paid less than the amount due to him contrary to section 5 the 1991 Act.
In defending the Financial Controller's claim that our client had applied the TWSS incorrectly, the Hotel relied on section 28(5) of the 2020 Act which confirms that payments made under the TWSS to employees were taxable in the hands of the employee, but were not subject to payroll tax deductions by the employer. The subsidy was also liable to USC as part of the full year reckoning for employees. Section 28(6) confirms that the subsidy was available to supplement net weekly pay, not gross weekly pay.
In line with section 28(18), the provisions of the 2020 Act were supplemented by guidance published by the Revenue Commissioners. Such Guidance Notes confirmed that the aggregate of the subsidy and any top-up payment by the employer could not exceed 100% of the employee's typical weekly net pay received prior to the pandemic. As such, the top-up amount paid to the Financial Controller by the hotel was, in addition to the TWSS payment, equal to the employee's average net pay following the pay deduction to which the Financial Controller had consented.
The position as set out in the 2020 Act was confirmed by guidance issued by the Revenue Commissioners confirming that the tax liability for payments received under the TWSS fell on the employee and would be payable by them from January 2021 onwards. In this case, the Financial Controller failed to produce his 2020 income tax return at the hearing of this matter.
The Hotel argued that the pay reduction of 10% was not one that could have given rise to a valid complaint under the 1991 Act as the Financial Controller had consented to the deduction in writing in accordance with s5(1)(c) of the 1991 Act. It was submitted that any further deduction by way of "net-down" of the Financial Controller's pay was a requirement put in place by the Revenue Commissioners in order for the hotel to avail of the necessary financial supports to protect the business in the form of the TWSS. Availing of these supports was critical for the Hotel to maintain the Financial Controller's, as well as other staff's, position on the payroll and avoid the need to resort to measures such as redundancy or lay-off.
In those circumstances, it was submitted on behalf of the Hotel that there no deduction of wages properly payable to the Financial Controller that could give rise to a valid complaint under the 1991 Act and, as such, that there had been no breach of the 1991 Act by the Hotel. The application of the TWSS and calculation thereof was in accordance with Revenue's rules and Guidance Notes and its application was prescribed by the rules of the 2020 Act.
Decision of the WRC
Adjudication Officer O'Shea found that the Financial Controller's complaint was not well-founded and dismissed his claim.
She noted that the Financial Controller had failed to "produce evidence of a deduction having been made in circumstances where the Respondent ensured through the top up payment that there was no deficit in net pay to the claimant." She accepted that pay-reduction implemented by the hotel was in line with the provisions of the 1991 Act. She further accepted that the Financial Controller's argument that he was entitled to retain his typical gross pay, or that less 10%, to make up for the tax liability that he would face at the end of the 2020 tax year was not sustainable as that would have resulted in an increase in his net pay which could not be deemed to be "wages properly payable".
This is a welcome decision by the WRC which serves to clarify the operation of the TWSS and will no doubt act as a comfort to employers who had been applying the TWSS in the manner that our client in this case had been. The full decision is available on the WRC's website, "a Financial Controller vs Hotel (2021) ADJ-0003054".
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