As businesses all over the world are bracing themselves for what is feared to a global recession triggered by COVID-19, unprecedented levels of relief measures are being rolled out in different countries in a bid to keep businesses afloat and to stave off unemployment.
These relief measures come in different forms, such as wage subsidy schemes, tax relief or deferrals, social security contribution relief or deferrals, interest-free loans to companies, etc.
Wage subsidy schemes are particularly popular. Tried and tested in the wake of the 2008 global financial crisis, they have proven to be an effective tool in encouraging employers to retain their employees.
Hong Kong has now followed in the footsteps of these countries and introduced its own version of a wage subsidy scheme.
New Employment Support Scheme in Hong Kong
The new Employment Support Scheme (ESS) was announced by the government yesterday evening (8 April 2020) as part of its anti-epidemic fund.
The anti-epidemic fund has four overarching aims, namely, to help businesses to stay afloat, retain workers in employment, relieve the financial burdens of individuals and businesses and facilitate the recovery of the economy once the epidemic is contained.
Under these new relief measures, the government will subsidise private sector employers for up to 50 per cent of their salary costs, up to a maximum of HK$9,000 per employee per month. The scheme will launch by June and will run for six months, covering an estimated 1.5 million employees with a cost of around HK$80 billion.
The payments will be made in two tranches – the first tranche is expected to be paid in June but there is no news yet on when the second tranche will be paid. Payments under the ESS are conditional upon the employer undertaking not to implement any redundancies.
In addition to these job subsidies, there will also be specific relief made available to the self-employed and certain sectors.
Consequential questions and issues arising from the ESS
So far, little information has been provided on how the ESS will operate in practice. As a result, there are a number of consequential questions and issues which have not been addressed.
For example, it is not clear how long employers must undertake not to implement redundancies for in order to be eligible for the wage subsidies. While it would make sense for the undertaking to be in respect of the six-month period during which the ESS operates (meaning that any redundancies before and after this period would not disqualify an employer), this has not been specifically spelled out in the government’s press release.
What about employers who have employees on fixed term contracts which expire during the period of the undertaking? Does the employer have to renew their contracts in order to remain eligible for the wage subsidy, and if so, what happens if the employee refuses?
Given that the rules on termination of employment are fairly relaxed in Hong Kong, could an unscrupulous employer disguise a redundancy as termination for other reasons, such as performance? How would the ESS seek to prevent employers from breaching their undertakings this way?
It’s also not clear whether other employer measures which have the effect of reducing employees’ pay and/or benefits may also be taken into consideration. For example, if an employer does not retrench its employees but requests that they take unpaid leave or significantly reduces their working hours (and consequently their salaries), would this disentitle the employer to all or a part of the subsidies?
A global perspective
As we wait for further information on the practical operations of the ESS, it’s interesting to note the developments that have been unfolding in other parts of the world. There is real diversity in how different governments have approached the same issues in terms of the type and level of support offered by different governments, the duration of the support as well as the restrictions and conditions that apply.
For example, in comparison to Hong Kong, the Singaporean government has pledged to pay a higher percentage of employees’ wages (75 per cent) but for a shorter duration (April only). In Malaysia, the government will pay employers a tiered subsidy based on the number of employees in their workforce. The Australian government has also offered wage subsidies for businesses that have suffered sharp drops in turnover.
In contrast, China has adopted relief measures in the form of reduced and deferred payment of social insurance and housing fund, social insurance refund for no or fewer redundancies, subsidies for internship positions, etc., but has not offered a direct wage subsidy programme.
Looking further abroad, a number of European countries such as the UK, Germany, Italy, Spain, France, Belgium, the Netherlands have also adopted wage subsidy programmes. Whilst most of these schemes are conditional upon an employer undertaking not to implement redundancies for a period of time, some of them go further and require the employer to demonstrate that it has suffered an actual loss as a result of COVID-19 before it is eligible for any subsidies. (See our COVID-19 alert hub for more on Europe).
Whatever country (or countries) you operate in, it is important to understand the eligibility criteria, restrictions and conditions that may be applied and to take note of any procedural requirements that must be followed in order to take full advantage of these relief measures.
Watch this space as we will continue to update you on the relief measures in Hong Kong and abroad!