Government ESS measures to help HR (update)

Updated 8.00 am 22 April 2020

by Helen Colquhoun, Partner, & David Smail, Senior Associate, Hong Kong,  DLA Piper

The Hong Kong Government’s Finance Committee recently met to discuss and approve further details surrounding the Employment Support Scheme (the Scheme). The Committee approved the terms of a government paper published last week which clarifies certain additional details as set out below. However, while the paper provides some clarity around the scope of the undertaking not to make redundancies and payment tranches, several questions remain unanswered e.g. whether an employer can apply only for part of its workforce, whether there will be a limit on the number of applicants, whether other cost-cutting measures falling short of redundancy will be permitted.

The Government has said it is liaising with Mandatory Provident Fund (MPF) trustees and relevant stakeholders to work out the implementation details which will be announced before application for the first tranche is invited.

• All private sector employers who have been making MPF contributions or have set up occupational retirement (ORSO) scheme for their employees are eligible.
• Employers are eligible to claim up to 50% of the actual wages paid to an employee. This is capped at HKD18,000 per month for a period of 6 months. It is not yet clear whether the Government will base the caps and subsidy on 'base salary' only, or on 'wages', with the Government using both terms interchangeably in the guidance thus far.
• Announcements made by the Chief Executive and the Secretary for Labour last week suggest that headcount will be measured against the employer’s MPF/ORSO record in March 2020 (meaning the employer cannot choose the month of headcount), but this has not been confirmed officially.
• Employers can, however, choose any one month from January to March 2020 for the basis of the calculation of 'wages' taking into account the company’s own circumstances. Our interpretation is that only one month can be selected for the purposes of the application and not, e.g. separate months for separate employees. The table below sets out some illustrative examples of the impact of selecting a particular month may have dependant on the wages/salary paid to employees in that month.

• The subsidy will be disbursed in two tranches, with the first disbursement to occur no later than June 2020. The first disbursement will cover wages for the months of June, July and August 2020 (it will not retrospectively cover wages from before June 2020). The second disbursement will be made in September to cover wages for September, October and November 2020.
• The subsidy is conditional upon the employer providing an undertaking that they will not implement any redundancies. It is confirmed that this undertaking applies during the subsidy period (currently assumed to be June 2020 to November 2020).
• Announcements made by the Chief Executive and the Secretary for Labour last week also suggest the subsidy can only be claimed for employees who are in receipt of a salary (i.e. those on furlough/unpaid leave are excluded).
• Finally, the one-off subsidy for self-employed persons will be capped at HKD7,500 and limited to those who have made MPF contributions in the past 15 months.
• It is not yet clear what penalties will be imposed for any deviation from the scheme rules, but the government has made clear that it will consider imposing such penalties, that the names of companies who have applied for and obtained the subsidy may be made publicly available, and that clawbacks of sums paid may be sought.

DLA Piper is continuing to monitor the situation closely and will provide further updates as soon as they become available. Please contact Helen Colquhoun or David Smail if you have any questions.

Also, this Friday 24 April you can put your questions directly to Helen Colquhoun in our Finance Panel and our HR Panel in our next Livestream on 24 April 2020 (click Finance or HR link to register your seat today and we'll send you a link to join the Livestream).

DLA Piper, the global law firm, also earlier released an excellent overview of the HKD137.5 billion package of relief measures to tackle the COVID-19 outbreak announced on 8 April by the Hong Kong Government. The package includes an HKD80 billion Employment Support Scheme (the Scheme) to encourage employers to retain staff through the provision of a wage subsidy (the Employment Support Subsidy) which is expected to benefit 1.5 million employees, as well as one-off grants for the hardest-hit sectors.

The full supplemental paper released by the Chief Executive can be downloaded here. DLA Piper has produced the summary of the key points below which may be of use to HR across different sectors. Unlike other jurisdictions in APAC and globally, Hong Kong has until now been relatively slow to announce relief measures for employers in response to COVID-19. However, it is now important for businesses in Hong Kong (or multinationals with a presence in Hong Kong) to:

• Review the terms of the Scheme/other support measures to determine whether they are eligible to claim relief.
• Assess whether this would impact their ability to claim (or continue to claim) other relief measures that have already been applied for (or have been received).
• Assess whether this impacts any cost-cutting measures being considered or implemented, e.g. employee furloughs, reduced working hours, salary reductions, downsizings and redundancies.
• If such measures are being considered or implemented in other jurisdictions (e.g. APAC), assess the impact and ensure the business takes a consistent approach on a regional basis.
• Upskill HR and business leaders to answer questions from staff about these measures.

Employment support scheme (ESS)

Who is eligible?

All private sector employers who have been making Mandatory Provident Fund (MPF) contributions for employees are eligible. It is not currently clear whether this will be assessed on an individual employee basis or whether it is sufficient that the employer operates an MPF scheme as a whole. For example, expatriates are exempt from MPF enrolment if they have entered Hong Kong on a visa and they are: (a) permitted to stay in Hong Kong for not more than 13 months; or (b) already enrolled in an overseas retirement scheme. Employees are also exempt from enrolment within the first 60 days of employment. It is not clear whether the Employment Support Subsidy will be available for these individuals, but our view is that this would be unlikely. We are pushing the Labour Department to provide clarification on this point.

Employers in the catering, construction and transport sectors - which are not fully covered by the MPF scheme - may also be eligible to apply. Otherwise, eligibility is not dependent on the employer’s sector. A one-off subsidy will also be granted to self-employed persons who have made MPF contributions. This will provide some comfort for employers who rely on contingent workers and who are engaged on a self-employed basis.

How much can we claim?

Employers are eligible to claim up to 50% of the employee’s monthly salary. This is capped at HK$18,000 per month for a period of six months. For example, if an employee earns HKD8,000 per month, then the employer is eligible to claim an Employment Support Subsidy of up to HKD4,000 for up to six months. If an employee earns HKD25,000 per month, however, then the employer can only claim an Employment Support Subsidy of up to HKD9,000 for up to six months.

When will it be paid?

The Employment Support Subsidy will be disbursed in two tranches, with the first disbursement to occur no later than June 2020. Employers will, therefore, need to ensure they have sufficient cash flow to cover the cost of an employee’s monthly wages until such time as they receive each disbursement.

Can we still go ahead with planned cost-cutting measures, e.g. redundancies?

The Employment Support Subsidy is conditional upon the employer undertaking that they will not implement any redundancies. It is currently not clear whether this undertaking will also extend to other cost-cutting measures, e.g. furloughs, reduced working hours, reduced salary, or whether the employer cannot undertake any redundancies or just retain those in respect of whom it is seeking the Employment Support Subsidy – DLA Piper were, at the time of writing, seeking clarification from the Labour Department on these key points. If it is critical for any business that they are able to apply under the Scheme, it may be prudent to put these measures on hold pending a review of whether greater savings could be generated through the Scheme.

Sector relief grants

In addition, the government is making a series of further one-off relief grants to what it considers to be the hardest hit sectors. The government has already made grants available for certain sectors as part of the Anti-epidemic Fund announced on 21 February 2020. These new measures appear to go further and include the following:

Other job creation and individual measures

Finally, the HKSAR Government has announced a series of measures that are expected to create jobs, develop skills and relieve the financial burden on SMEs and Hong Kong residents. These include:

• investing HKD6 billion to create around 30,000 time-limited jobs (i.e. up to 12 months) in the public and private sectors in the coming two years;
• temporarily relaxing asset limits for social security purposes;
• measures to encourage staff in various professions to learn new skills and help enterprises to apply technology;
• increasing rental and fee concessions for government premises;
• temporary 20% fare reduction for MTR travel for six months from 1 July 2019 to 1 January 2021;
• temporarily relaxing the monthly public transport expense threshold for the Public Transport Fare Subsidy Scheme;
• one-off interest-free deferral of loan repayments for two years to self-financing post-secondary institutions under the Start-up Loan Scheme, non-profit-making international schools and students receiving loans from the Working Family and Student Financial Assistance Agency; and
• extending the deadline for payment of tax for the 2018/19 year of assessment by three months.

For more information, visit DLA Piper’s Workforce and Employment Resource Centre or their dedicated Coronavirus Resource Centre.

________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________

Adam Hugill, Partner, Hugill & Ip has also released the following information on the Employer Support Scheme (ESS)

What are the legal obligations under the ESS?

The goal of ESS is to ensure employees are not being laid off during these difficult times. Although the precise terms have not yet been clarified, Dr Law has shed some light on the legal obligations to be complied with if employers want to benefit from ESS. One of these is that the headcount of participating employers will have to remain the same throughout the subsidised period.

Dr. Law stated: “To make the scheme easier to implement, we basically have just two rules for employers,” he said. “The number of employees on payroll in June to August cannot be smaller than the number of employees in March [including those on unpaid leave], and the money received by employers must all go to the employees.”

Dr. Law’s recent statement gives rise to a number of questions. What happens if employees who were employed in March resign of their own choosing in July? Would this be a reduction in headcount? Does it make any difference if the employer chooses to withhold trying to fill the vacancy? The same applies to employees that are dismissed for gross misconduct or “cause”. Surely the scheme is not intended to force employers to keep errant employees on their payroll?

Dr. Law did, however, clarify that the subsidy will cover employees who are on unpaid leave.

Review and Enforcement of ESS

The Government will be introducing a review system. If an employer is found to have received the subsidy and still laid-off employees, they will be punished, and the subsidy withdrawn. It seems the cost and significant workforce required to implement an extensive review system will be difficult to achieve. Therefore, monitoring will likely fall on employees reporting their employers’ (or indeed former employers) offences’ themselves and, save in circumstance of clear fraud, the penalties for breach will be relatively minor. Dr Law used the example of sacking staff but hiring friends or relatives in their place as being an act of fraud.

How does the ESS differ from other emergency schemes?

The measures brought in are unlike any measures brought in during the 2003 SARS outbreak, in that they are focused on employee retention. Dr Law explained that this is because the responses from businesses have been different. During SARS, many companies closed down altogether, whereas with the current crisis, many companies are remaining open and putting their employees on unpaid leave or reducing hours. Furthermore, they differ from other international measures as they focus on keeping employees working rather than supporting those who have lost their jobs.

Is ESS available to workers on commission and the self-employed?

Concern was expressed in certain areas, such as insurance agents, who have questioned whether these measures will apply to employees who mainly rely on commissions. In response to this, Dr Law has stated that these employees will be included in the scheme as long as these businesses have complied with the obligatory MPF schemes. Dr Law’s further clarification that subsidies will be based on January, February or March 2020’s record wages should further alleviate such concerns. The Government will also grant a one-off subsidy for self-employed people who have contributed to MPF.

How do I know if I am eligible for ESS?

You will be an eligible employer if you have been making MPF contributions for employees (except for Government employees and employees of statutory bodies and subvented organisations).

Too little too late?

ESS should be a relief for many employers who have struggled over the past months. However, there are questions over whether these measures are too little too late. Social welfare lawmaker Shiu Ka Chun has acknowledged that these measures are helpful but said that officials have been too slow to act, adding that many employees have already been laid off or asked to take unpaid leave.

Job Creation

The Government plans to invest $6 billion in the public and private sectors with the aim of creating 30,000 jobs in the coming two years. This investment is “for people of different skill sets and academic qualifications, benefitting professionals and technicians, fresh graduates, middle level and grassroots workers”.

New Skills

HK$800 million of the fund will go towards a scheme aiming to let workers learn new skills or allow businesses apply more technology. Included in this are the following:

• “LAWTECH fund”: $40 million so assist SME law firms/ barristers’ chambers to procure/ upgrade their information technology systems and train staff to support the development of remote hearings.
• “COVID-19 Online Dispute Resolution Scheme”: $70 million towards providing Online Dispute Resolution services for disputes related to or arising from COVID-19.
• “Encouraging the deployment of 5G”: $60 million to subsidise the public and private sectors 50% of project costs for projects deploying 5G technologies, subject to a cap of $500,000 for each project.
• “Distance Business Programme”: $500 million towards supporting enterprises to continue business with technology adoption and related training.
• “Training Subsidies for the Construction Sector”: $30 million towards training subsidies to some 600 consulting firms through the Construction Industry Council.
• “Matching Grants for Skills Upgrading”: $100 million towards matching grants for training programmes for staff in the public and private sectors.

Other measures included in the overall fund

The remainder of the fund is made up of the following measures:

• The Chief Executive, the director of her office and principal officials, will have a 10% pay cut for the coming 12 months.
• SME Financing Guarantee Scheme to be enhanced.
• HK$21 billion to go towards an additional 16 types of support for businesses, including tutorial schools and the travel industry.
• Government rental concessions from April – September 2020 to increase from 50% to 75%.
• 20% lower MTR fares from July 1, 2020, for six months.
• HK$2 billion to go to airlines and other aviation operators.

Enrolling in one of the schemes – should I be wary of the legal implications?

As touched upon with the ESS, in its own words, the Government seems unwilling to implement overly stringent controls and, therefore, how the schemes (in particular ESS) will impact and indeed benefit employees in real-life remains to be seen. However, once published, it is essential that employers carefully examine the terms and conditions under which they must abide by if they wish to enrol. For now, the advice is simple, stay informed, plan and seek advice where appropriate.

More details on the Government announcement can be found on the Hong Kong SAR coronavirus link.