The current global pandemic will be the biggest business continuity issue that any of us are likely to experience in our working lives. Global payroll professionals will play a key role in ensuring that pay keeps being delivered and those working continue to receive the incomes that allow the basics of life to carry on.
The delivery of sick pay to those absent from work through illness, and also the position for those put on short time working or even layoff has rapidly changed in the wake of the virus.
In this series of blogs we examine the approach taken in a number of countries, and explain what amendments to standard practice are being introduced.
We start in France, where the country is currently experiencing a comprehensive shut down that allows movement outside for travel to work, exercise, grocery shopping and health appointments only. Restaurants, Bars and Schools have all been closed. For staff falling sick or those following government guidelines and going into self isolation, the usual sick pay arrangements continue to apply, but with the exception that the usual three day waiting period when sick allowances are not paid by the government will not be applied. Employers should continue to report absences as normal and those with derogation make payments to sick employees and claim the allowances back from social security as normal.
The closure of schools and childcare facilities means that parents now have a childcare issue. Where a child is under age 16 (or 18 if disabled) one of the parents may now remain at home to care for the child for the duration of the closure. If it is not possible for that parent to simultaneously work from home (teleworking) then a sick allowance will be payable as though the employee were absent through sickness. The parents may alternate the leave between them, but must complete a declaration confirming that they are the only parent caring for the child. The employer will perform the usual payroll reporting via the ameli.fr website and pay the allowance.
The government has urged employers to allow all employees to telework where possible, but for many employees this will not be possible, particularly for those businesses in the hospitality and leisure sector impacted by the mandatory closure order. The French Labour Law has long anticipated an interruption to business as significant as the current one, and a circular was issued to employers in 2009 which explained what employers could do in terms of employment law obligations in such a crisis. It states that modification or adjustments to work practice and performance will be inevitable. They must be temporary (i.e. for the duration of the crisis only), proportionate (when considering the essential elements of the contract of employment) , in direct relation to the constraints being incurred, and achieving the desired effect of maintaining essential activity within the business. In other words the employer can make changes but must have evaluated each change carefully against these tests.
If a workplace has been temporarily closed or has to reduce working hours what obligations does the employer have? The guiding principle is that the contract of employment remains in place and salary must continue to be paid unless the employer has invoked the Partial Activity (activité partielle) system. Before they reach this stage, an employer may move paid leave that the employee has already booked to cover a period when the business is closed. Ordinarily such a move would not be allowed with notice of less than one month, but the Covid-19 outbreak meets the criteria of exceptional circumstances. However, if an employee has not asked for leave, then the employer cannot impose it being taken on the employee. Many employers in France use RTT days as a method of managing the maximum 35 hour working time rule. Provided the employer has included in their company agreement that they may direct the employee when to take this time it could be used to cover temporary stoppages caused by the virus.
Where the possibility of using vacation or RTT days is not available, the next option for the employer to consider is the activité partielle system. The arrangements cover both a temporary suspension of work and short time working. The employee works fewer hours than those contracted, and subsequently receives a lower salary. The missing pay is replaced with an allowance (which is free of social insurance premiums) equivalent to 70% of the missing salary (but this must meet at least the minimum wage). Ordinarily the employer may then claim a subsidy of €7.23 for each hour of un-worked time allowance paid to an employee. However in the current situation the government have issued a decree pledging to support the employer with 100% of the cost of the allowance for each employee, up to 4.5 times the minimum wage rate. The support is available for up to 1,000 hours of missed work and the employer must make an online declaration and claim – the government have indicated all claims will be dealt with within 5 days.
Employers may of course also be struggling with cash flow currently. President Macron pledged to the nation that “No French company, whatever its size, will be exposed to the risk of collapse”. To this end URSSAF are offering companies up to three months in which to pay payroll contributions rather than the usual monthly deadlines. Use of the facility will not incur interest charges or penalties, but the employer must submit an online request (Une formalité déclarative) before the usual deadline has been reached. Full details of the French government’s response may be viewed here.
A similar position applies in The Netherlands where there is a working time reduction scheme (werktijdverkorting). The employer can apply for short time working for up to 24 weeks, and for the first six weeks pays the employee full pay whilst receiving unemployment benefit equivalent to 70% of pay from the state. After six weeks the state pays the employee directly. The scheme was designed to cope with around 200 applications a year – by the middle of March 78,000 applications for support had been received.
The government has therefore suspended the usual scheme and instead introduced a new scheme for the duration of the Covid-19 emergency known as the temporary Emergency Measure Bridging for Retention of Work (Noodmaatregel Overbrugging voor Werkbehoud known as NOW). The NOW scheme applies to all applications made from 18th March (previous applications under the old scheme remain valid until the permit issued under it has expired). The scheme allows for significant government support to allow salaries to continue to be paid for up to three months. The scheme targets employers who, since 1st March 2020 have seen a reduction in turnover of at least 20% within their business. The support will run for three months, and the new law allows for a further three month extension. The main consequence to the employer of receiving the support is they must commit to not commencing dismissal proceedings on the grounds of redundancy during the period that the support runs for.
There is no requirement for the employee to actually stop working for the employer to receive support under the scheme – so a premises could be fully staffed with employees who suddenly receive very few customers and spend the time cleaning the premises and catching up on other tasks. The level of support provided depends on the impact on turnover of the business at the following levels
- If 25% of turnover has been lost the scheme provides 22.5% of the employee’s salary
- If 50% of turnover has been lost the scheme provides 45% of the employee’s salary
- If 100% of turnover has been lost the scheme provides 90% of the employee’s salary
On application an immediate 80% advance will be made to the company, with the balance payable upon reporting employee and salary details. The exact administration arrangements are currently being worked on, but are a great example of how governments are reacting rapidly to the unique and challenging circumstances companies are experiencing. Details are available here.
The closure of many workplaces because of Covid-19 and the resulting massive increase in home working will also throw up some legislative challenges for payroll departments concerning the taxation status of certain payments, of which the Netherlands provides a very pertinent example. Many employees receive a tax free travel allowance from their employer to compensate them for the costs of travelling to work- what happens to that if the employee suddenly starts to work from home? The allowance may continue to be paid tax free but only for a period of six weeks (this covers any absence from the workplace including holidays, sickness and parental leave), after this time the allowance would no longer be payable. The employer may of course be contractually committed to continuing payment regardless of the length of absence and would therefore have to switch the tax status of the payment.
Further support is also available to Dutch businesses in the form of delays in paying over payroll taxes without penalty or interest charge. Unlike the French system the scheme is still being operated on a case by case basis, and companies need to make a manual application by letter to the Tax and Customs Administration for consideration.