COVID-19 Hong Kong: HK$80 billion Employment Support Scheme approved by the Finance Committee

The second round of anti-epidemic relief fund of HK137.5 billion received approval by the Finance Committee of the Legislative Council of Hong Kong on 18 April 2020. This includes a HK$80 billion Employment Support Scheme (the "Scheme") which will provide time-limited financial support to employers in exchange for undertaking to retain employees.

This article outlines the content and operation of the Scheme. Our previous article on the overview of the second round of relief fund can be viewed here.  

Summary of the Scheme

• The government will provide wage subsidies to eligible employers who undertake to have no redundancy or layoffs during the subsidy period, and to spend 100% of the subsidy on paying wages for their employees.
• All employers who have been making Mandatory Provident Fund ("MPF") contributions or have set up Occupational Retirement Schemes ("ORSO schemes") for employees are eligible (except for government employees and employees of statutory bodies and subvented organisations). 1.5 million employees are expected to benefit.
• Wage subsidies for each employer are calculated on 50% of salary at a “specified month”, with a wage cap at HK$18,000 per month (i.e. maximum subsidy is HK$9,000 per month per employee) for six months. A "specified month" is any month between January and March 2020 selected by an employer.
• Subsidy will be made in two tranches. Applications for the first tranche will start before the end of May till the first week of June 2020, with the aim of making the first payout to employers within June to pay wages for June to August 2020. Application dates for the second tranche will be announced in due course, with payment to be made in September 2020 for paying the wages of September to November 2020. The detailed application and payment mechanisms are being worked out.
• One-off lump-sum subsidy of HK$7,500 will be granted to 215,000 self-employed persons who have made MPF contributions in the past 15 months.
• About 800,000 persons in three sectors, i.e. construction, catering and passenger transport, who are not sufficiently covered by the provident fund systems, will be taken care of by sector-specific schemes.

Details of the Scheme

• Undertakings

In receiving the payment of wage subsidy, employers must give two formal undertakings to the government and the actual wording of the undertakings is yet to be released:

• the subsidy must be wholly used to pay employees' wages; and
• the March headcount must be maintained until at least August – and potentially November – when the second payment will be made by the Hong Kong government.

The emphasis of the Scheme is on headcount rather than identities of the employees. The Secretary for Labour and Welfare Law Chi-kwong (the "Secretary for Labour and Welfare") emphasised in the Finance Committee meeting that the maintenance of headcount is an undertaking to be taken for June, July and August. It is not a condition for application – the condition is met if employers have made MPF contributions or set up ORSO for the relevant employees. Therefore, if an employer had 30 employees in March but only 20 in June due to redundancy, it must further hire 10 employees in June to fulfil the undertaking. 

• Determination of wage subsidy amount and headcount

An employer shall pay the entire subsidy to its employees. The subsidy amount shall be determined based on the payroll of a specified month between January and March 2020, whereas the number of subsidised employees will be the number of employees in March 2020. In other words, the number of employees on the payroll in the subsidy period must not be lower than that in March. 

The above calculations will be for June to August. For the second subsidy payment covering September to November, the specified months for calculation of subsidy amount will be further determined.

• Penalties

If there is any reduction in headcount during the subsidy period compared to March or if the subsidy is not wholly used to pay employees' wages, the subsidy will be adjusted with claw back in whole or in part and the employer may be subject to penalties. If fraud is involved, this may amount to a criminal offence.

• Loopholes

The Secretary for Labour and Welfare acknowledged loopholes to the Scheme – employers might make redundant higher cost staff and replace them with the same number of lower cost employees in order to pocket the extra subsidy. Further, employees may continue to be pressured to take unpaid leave or have a salary cut despite the subsidy. The government will not monitor the circumstances to each application but will disclose information of the companies under the Scheme (including name, subsidy amount and number of employees) for monitoring by public.  

• Further illustration of the Scheme

As the details of the Scheme are being worked out, we summarise the Secretary for Labour and Welfare's answers to questions regarding the operation of the Scheme: 

• Can an employer request its employees to take unpaid leave after it has applied for wage subsidy and pay them salary not exceeding HK$9,000?

Yes. 

• There were 100 employees in March. 20 of them took unpaid leave. Can the employees take unpaid leave in June?

This depends. If there were 100 employees in March, 100 employees must be paid in June. If employees are only taking a few days or half a month of unpaid leave, the government will not monitor that. The requirement is that employees must be paid salary, whether that is 50% pay or reduced salary.

• An employer's business is not struggling but applies for subsidy. Is this allowed?

The subsidy must be wholly used to pay wages. The government has the right to claw back the subsidy if it is spent unreasonably. If a company saves and uses the subsidy for business expansion, it is hiring more staff. In this case, the money is spent on employees and does not deviate from the purpose of the Scheme.

• Redundancy takes place in April. The employer hires staff in June but fails to meet the headcount in March. Will the employer be penalised?

Yes. However, it is not difficult to hire given the current economic environment.

• Where the employer did not directly make redundant any employees but indirectly asked them to resign, will it qualify for subsidy?

If an employer is hiring less people, that is redundancy. The requirement is that an employer cannot reduce the number of employees. The employer needs to come up with solutions to retain employees or hire new staff.

For advice on employment-related issues in light of COVID-19 and the relief measures as implemented, please contact your usual Clyde & Co contact.