On 31 March 2020 the rules governing the Temporary Emergency Fund for Job Retention (“NOW”) were published. Employers can now apply for a subsidy of wage costs. Although some elements were already known, many of the employers’ outstanding questions have now been answered.
Goal of the NOW
As the NOW aims to ensure retention of jobs, each employer is expected to make as much efforts as reasonably possible to maintain the wage costs at the same level. If the employer decides not to extend temporary contracts or not to pay flexible staff this may cause a retroactive downwards adjustment of the NOW subsidy given that such subsidy is calculated on the wage costs during the below-mentioned reference period and not extending temporary contracts and not paying flexible staff will lead to a reduction of the wage costs. Please bear in mind that if you decide to continue to pay flexible staff, that the amount payable may differ from the salary of the flexible staff included in the wage sum (see hereunder).
Contrary to what was announced before, there is no prohibition for employers to make employees redundant whilst receiving the NOW subsidy. However, in case the employer decides to file between 18 March – 31 May 2020 for termination of employment based on economic grounds, a mechanism kicks-in leading to a reduction of the wage sum. The amount of the deduction will be equal to 50% of the salaries of the employees made redundant, which will inevitably lead to a downwards retroactive adjustment of subsidy. Dismissal procedures based on economic grounds that were initiated as of 18 March onwards can be withdrawn until 6 April 2020.
Termination of employment for other reasons, such as:
- based on performance;
- mutual consent;
- immediate dismissal;
- probation period,
remains possible without this triggering the additional deduction from the wage sum. Obviously, also the termination for other reasons will cause a (regular) drop of the wage sum during the reference period and may result in an adjustment of the granted subsidy (but not due to this additional 50% deduction).
How does it work
If an employer expects a loss of turnover during three consecutive months of at least 20%, a subsidy can be obtained of up to 90% of the employer’s wage costs.
In order to determine whether this threshold of 20% is met, the turnover of 2019 (as included in the annual accounts) is divided by four (4). This amount is to be compared with the employer’s expected turnover during a period of three consecutive months. An employer is free to decide what reference period is to be considered in 2020: the three months period starting on 1 March 2020, the three months period starting on 1 April 2020 or the same period starting on 1 May 2020. It is not necessary to provide proof of a direct link between the loss of turnover and the selected three-month period and COVID-19.
The calculation of the subsidy is to be made based on the following formula:
A x B x 3 x 1.3 x 0.9
A – equals the percentage of loss of turnover as expected by the employer
B – equals the wage costs for social insurance purposes in January 2020, in which respect certain adjustments are to be made and a maximum monthly salary cap per employee of € 9,538 gross is to be taken into account.
More specifically: the figure under B is calculated per payroll tax number based on data from the payroll tax return submitted. The wage bill is calculated by the UWV (Uitvoeringsinstituut Werknemersverzekeringen; Employee Insurance Agency) on the basis of the social insurance wage from current employment. The subsidy takes into account a mark-up of 30% to cover employer’s costs (employer contributions, reservation for the payment of holiday pay, pension contributions), hence the 1.3 in the formula. If an employer files pay returns for a period of four weeks, the salary for period twelve of 2019 is assumed, plus 8.33 percent. The outcome is multiplied with 0.9 in order to arrive at the 90% NOW subsidy for qualifying wage costs.
After the end of the subsidy period, the initial wage sum ((B) x 3) that was considered is to be compared with the actual wage sum for the months of March 2020 up to and including May 2020, which period is therefore not linked to the reference period elected to determine the loss of turnover.
If the actual wage amount is lower, the subsidy can be adjusted downwards. If, on the other hand, the wage amount is higher than anticipated, for example because there were more employees on the payroll than in January 2020, there can be no adjustment upwards. Such an upwards adjustment only seems to be possible if the loss of turnover turns out to be higher than initially anticipated at the time of the election (see below).
If a company meets the formal requirements, an advance payment of 80% of the calculated subsidy can be requested. This advance will be paid in three (3) instalments and the first one can be expected within two (2) to four (4) weeks after filing of the request. On 3 April we will know whether the electronic form will be accessible as of Monday 6 April. If not, which we understand may depend on IT issues, then the form should be accessible as of 14 April 2020. The UWV administers the subsidies.
Group of companies/international companies/personnel company
Employers that are part of a group of companies, should calculate the loss in turnover based on the average loss in turnover of the relevant part of the group. Although each employer is to file a separate request for the NOW subsidy, all employers in a group needs to apply the same reference period. The rationale behind this ‘group approach’ is that within a group there is solidarity and losses are borne jointly. In addition, the risk of any abusive shift of turnover between group companies, with a view to increasing the NOW subsidiary, can be mitigated. In view of this group approach it is highly recommended for group companies to have an open conversation based on figures within the group to ensure alignment on the filing process.
If a group also includes entities that reside outside the Netherlands, the turnover of such entities is only to be considered if a foreign entity employs individuals that are covered by the Dutch social security system. Such foreign entities can also elect for the NOW subsidy.
A so-called personnel company, a company that usually only employs staff and seconds personnel intercompany and therefore makes little or no turnover, can also make use of the NOW.
It is relevant to bear in mind the specifics of subsidies in general as the grant of a subsidy leads to obligations that employers are usually not familiar with. It is possible that the grant includes specific conditions. If so, it is important to meet and administer these conditions carefully. One of the conditions that are explicitly included in the NOW is that the subsidy is to be used only for paying wage costs. It is not permitted to use the subsidy for any other purpose. This will be carefully reviewed afterwards.
The employer to whom a subsidy has been granted, is obliged to inform the works council and in case there is no works council, the employer should inform the employees about the granting of the subsidy. From the detailed explanation that is part of the NOW, it follows that by sharing the fact that a subsidy has been granted, the employer provides insight in the measures taken to continue the business and according to the explanation this also allows the employer to discuss possible other additional measures with the employees or works council.
If during the period for which the subsidy was requested and granted, changes occur that can be relevant for the subsidy, the employer is obliged to notify the UWV immediately. This may lead to the decision of the UWV to cancel the remaining instalments or, afterwards, demand repayment of (part of) the subsidy.
The application for subsidy will be refused if at the time of application, the employer is granted suspension of payment (surseance). From the details of the NOW, we derive that if the company is granted suspension of payment after the subsidy was granted, the company is expected to inform the UWV.
Final establishment of subsidy
The employer must, within 24 weeks after the last day of the period for which the subsidy was granted, file for the definite determination of the subsidy. In principle, an accountant’s report will suffice, provided that from this report the UWV can derive the final loss figures and wage sum. The UWV will make its final statement within 22 weeks. The employer should be aware that the authorities can request for copies of the administration regarding the subsidy during a period of five years after the granting of the subsidy.
Based on the final figures, the UWV determines whether the payments made were either too high or too low. As explained before, the payment is adjusted upwards only if the loss of turnover was higher than envisaged by the employer when applying for the initial, advance, payment. There is no upwards adjustment if the wage sum turns out to be higher than anticipated. If the wage sum is lower, then the UWV can order for a refund.
- Turnover of 2019 as follows from the annual accounts divided by four (4);
- Determine which three consecutive months are taken to calculate the loss of turnover (either starting 1 March 2020 or 1 April 2020 or 1 May 2020);
- Determine the wage sum for January 2020 (or in some cases November 2019);
- Part of a group make sure that you fill in the average loss of turnover of the group and determine to what extent the turnover of non-resident entities is to be taken into account);
- Calculate the subsidy based on: A x B x 3 x 1.3 x 0.9;
- Determine whether redundancies are inevitable and if so, calculate the financial impact on the subsidy if these redundancies are initiated between 18 March 2020 – 31 May 2020;
- Apply for the advance payment of 80% of the calculated subsidy;
- Inform the works council, personnel representation or employees when the subsidy is granted;
- Ensure an accurate bookkeeping which will enable you, afterwards, to prove that the subsidy was only used for the payment of wages;
- Determine whether flexible contracts should be continued or paid even if no work is done. The decision may depend on the outcome of the overall calculations taking into account that by not paying these employees the wage sum will be lower which can lead to an adjustment of subsidy afterwards;
- Despite the surcharge of 30%, you may not be able to pay the pension premiums in time. In such case ensure that you timely notify the pension fund of the inability to pay these premiums;
- Timely file the request for the final establishment of the subsidy;
- Throughout the process, make sure that you verify whether a formal or timely response to authorities is required to avoid discussions about the claimed subsidy and therefore make sure that the authorities are timely informed in case of relevant changes.
We know that for many employers the publication of the details of the NOW are a relief as this allows these employers to determine whether the subsidy will indeed enable them to bridge this period. Whether that is the case will in part also depend on your strategy for the coming period and the costs related thereto. We are available to help you shape this strategy, share market practice and support you with assessing costs and possible impact.