COVID 19 Wage subsidy/pay cut

Baby01032012

I’m on a pretty low pay of €22000. I was put on the wage subsidy scheme since April. Mostly Ive received roughly the same net each month. However because 85% of my pay is now coming from the wage subsidy scheme, there is no paye/prsi/usc applied at source. Based on this months payslip I’ve calculated if this scheme was to run for a fully year I’d be liable for about €2.5k at the end of 12 months which is an effective 12% pay cut. That is a lot to take on such a low level of pay.
There was never any notice that we were going on this. I just feel a bit hard done by. Given the hours I put in with the tax that will be due I’m effectively on below minimum wage. I guess I’m lucky to be working as we did let people go. We don’t need to be on it as business is doing well but it was seen as a benefit to the employer so why not.

relax carry on

Baby01032012 wrote: »

I’m on a pretty low pay of €22000. I was put on the wage subsidy scheme since April. Mostly Ive received roughly the same net each month. However because 85% of my pay is now coming from the wage subsidy scheme, there is no paye/prsi/usc applied at source. Based on this months payslip I’ve calculated if this scheme was to run for a fully year I’d be liable for about €2.5k at the end of 12 months which is an effective 12% pay cut. That is a lot to take on such a low level of pay.
There was never any notice that we were going on this. I just feel a bit hard done by. Given the hours I put in with the tax that will be due I’m effectively on below minimum wage. I guess I’m lucky to be working as we did let people go. We don’t need to be on it as business is doing well but it was seen as a benefit to the employer so why not.

How is it a pay cut? You can't be taxed more than you would have been if there was no COVID-19 payment. You should only end up paying whatever you would have paid in normal circumstances.


https://www.revenue.ie/en/corporate/communications/covid19/temporary-covid-19-wage-subsidy-scheme.aspx

Liability of wage subsidy payments to income tax and Universal Social Charge (USC)
The wage subsidy payments to employees are liable to income tax and USC; however, the subsidy is not taxable in real-time through the PAYE system during the period of the Subsidy scheme. Instead the employee will be liable for tax and USC on the subsidy amount paid to them by their employer by way of review at the end of the year.

When an end of the year review takes place, it may be the case that an employee’s unused tax credits will cover any further liability that may arise. Where this is not the case, and should an Income Tax liability arise, it is normal Revenue practice to collect any tax owing in manageable amounts by reducing an individual’s tax credits for a future year(s) in order to minimise any hardship. Additionally, if an individual has any additional tax credits to claim, for example health expenses, this will also reduce any tax that may be owing.

With the continuation of the Scheme to the end of August 2020, to mitigate the possible impact on the employee End of Year review, Revenue will place all employees that received payments under either the TWSS or the PUP on a Week 1 basis. Notifications to employers to operate the Week 1 basis are available in ROS since 21 June 2020. It is important that employers utilise the most up to date Revenue Payroll Notification (RPN) when running payroll so that employees are correctly switched to the Week 1 basis as quickly as possible.

StackSteevens

Baby01032012 wrote: »

I’m on a pretty low pay of €22000. I was put on the wage subsidy scheme since April. Mostly Ive received roughly the same net each month. However because 85% of my pay is now coming from the wage subsidy scheme, there is no paye/prsi/usc applied at source. Based on this months payslip I’ve calculated if this scheme was to run for a fully year I’d be liable for about €2.5k at the end of 12 months which is an effective 12% pay cut. That is a lot to take on such a low level of pay.
There was never any notice that we were going on this. I just feel a bit hard done by. Given the hours I put in with the tax that will be due I’m effectively on below minimum wage. I guess I’m lucky to be working as we did let people go. We don’t need to be on it as business is doing well but it was seen as a benefit to the employer so why not.

I'm sorry to have to say it, but you really don't appear to have a clue about how these things work!

While you may have to pay the arrears of PAYE, PRSI and USC on part of this year's income from your next year's earnings, effectively you're being given an interest-free loan of this amount, until your tax affairs are finalised next year.

So your weekly income should be greater this year, but lower next year until the arrears have worked through. If you can, put something aside to meet your sligtly reduced cash flow next year and you'll be grand!

The overall effect on your income should be zero, the only thing that will change is the timing of the liability. Hence, there is absolutely no way that you will suffer an effective 12% pay cut.

IRtax

You are actually incorrect here. As 85% of the income is not taxed and the scheme pays you at present effectively your average net pay you must pay the taxes out of your net pay therefore you your actual net earnings after accounting for the tax not paid yet is lower by approximately 10% in most cases.

StackSteevens wrote: »

I'm sorry to have to say it, but you really don't appear to have a clue about how these things work!

While you may have to pay the arrears of PAYE, PRSI and USC on part of this year's income from your next year's earnings, effectively you're being given an interest-free loan of this amount, until your tax affairs are finalised next year.

So your weekly income should be greater this year, but lower next year until the arrears have worked through. If you can, put something aside to meet your sligtly reduced cash flow next year and you'll be grand!

The overall effect on your income should be zero, the only thing that will change is the timing of the liability. Hence, there is absolutely no way that you will suffer an effective 12% pay cut.

croker99

OP is right, it is a pay cut in effect, but there's nothing you can do about it and there's no notification requirement from the employer to the employee, though it would be the right thing for them to do (and your payslip is meant to say how much comes from the subsidy).

It's not going to work out below minimum wage at that income, though close to it. Your employer has to have been hit, in terms of turnover, to be eligible. So if they are eligible to it, there's not much you can do only just, I guess, be glad they didn't go bust and you're job hunting again.

That's all I can say really.

StackSteevens

IRtax wrote: »

You are actually incorrect here. As 85% of the income is not taxed and the scheme pays you at present effectively your average net pay you must pay the taxes out of your net pay therefore you your actual net earnings after accounting for the tax not paid yet is lower by approximately 10% in most cases.

Thanks for that clarification and apologies to the OP for my incorrect interpretation of the situation.

PaybackPayroll

My understanding of the scheme is that even if the TWSS net pay is the same on the scheme as it was pre-covid that employees may effectively being taking a pay cut.

This may breach employment law if the pay cut was not agreed with the employee. (I'm not an employment law expert).

I believe that some companies are taking employees back off the scheme for fear of litigation.

Baby01032012

Thank you IRtax, glad to see someone understands the point I was trying to make.

I do appreciate that it is better than loosing my job. In my case, it was a change of career so I had taken a 66% pay drop to retrain which has nothing to do with COVID. My career change involved going back to college for 2 years which is tied into the job as well. So to be honest I was prepared to work for free just to complete another year and get my license which is my ultimate aim to set up my own business once I have the license. We let 20% of staff go completely, those there longer than me. So I am grateful. I’ll put up with the temporary loss of pay given the bigger picture.