By Cilla Robinson Partner, Clayton Utz; Amanda Lyras, Senior Associate, Clayton Utz; Heloise Ormandy, Lawyer, Clayton Utz
For many directors and executives, this necessitates navigating complex and relatively untested areas of employment law, such as “stand down” of staff, requesting staff to reduce hours and pay, and exploring leave arrangements. All of this is unfolding whilst the human impact of the pandemic and the stress of isolation and new ways of working takes a toll on all workers.
The Australian Government’s $130 billion dollar “JobKeeper” scheme, passed by both houses of parliament on 8 April 2020, will provide a much needed lifeline for Australian businesses who qualify for the scheme. 1 In addition to providing a wage subsidy for eligible employees, the scheme also creates additional flexibility for employers’ management of staff in response to COVID-19. We look at some key features of the JobKeeper scheme and answer some frequently asked questions posed by directors in the current market.
“JobKeeper” scheme - snapshot overview
Eligible employers must elect to participate in the “JobKeeper” scheme - that is, participation is not obligatory. At a high level, businesses with:
- an annual turnover of $1 billion or less, who have a projected turnover reduction of 30% or more; or
- an annual turnover of over $1 billion, who have a projected turnover reduction of 50% or more;
will be eligible for a payment of $1,500 per fortnight from 30 March 2020 until 27 September 2020 for each permanent full time and part time employee, and long-term casual employee, who was on their books on 1 March 2020. Payments will only be made in respect of fortnights in which there was a requisite projected turnover reduction and where the business had already paid the eligible employee. Registered charities and non-for-profits (excluding schools and universities) are also eligible where they suffer a turnover reduction of 15% or more. Some particular businesses are excluded (such as those subject to the Major Bank Levy or in liquidation).
There are a host of necessary administrative requirements for eligible employers and employees to qualify to receive the $1,500 payments, set out in the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020, which are not detailed in this article. The Commissioner of Taxation (ATO) will have the administration of the program and employers can register their interest in applying for the scheme online through the ATO website.
Flexibility for eligible employers
In support of the wage subsidy, the JobKeeper scheme makes a number of amendments to the Fair Work Act 2009, creating additional flexibility for employers. 2 The legislation allows for a pragmatic approach to managing staff during COVID-19, and encapsulates many of the “on the ground” arrangements that we have already seen businesses’ deploying.
The scheme provides for three broad directions that an eligible employer may give to an eligible employee as a result of the effects of the COVID-19 pandemic. Importantly, to give these directions, an employer must be entitled to receive JobKeeper payments (including having applied to participate in the scheme).
The most significant direction is what is described as the ”JobKeeper enabling stand down", which allows an eligible employer (subject to certain conditions) to direct an eligible employee, who cannot be usefully employed for their normal days or hours because of business changes due to COVID-19 or government initiatives to slow the pandemic, to either:
- not work on certain days they would normally work;
- work for shorter hours on the days they would normally work; or
- work a reduced number of hours in total.
During any such period of stand down, an employee's period of service and statutory leave entitlements will continue to accrue as usual. Similarly, where their employment is subsequently terminated, any payment in lieu of notice and redundancy payment are to be calculated as if the employee were working their usual days and hours.
As a fall-back (noting a stand down direction can only be issued where an employee is not able to be usefully employed for their normal days and hours because of business changes attributable to COVID-19 or a government initiative to slow the transmission of COVID-19), eligible employers will also have the power to otherwise direct eligible employees to change the nature of the job they are performing, subject to certain conditions, by:
- undertaking different duties for a period of time that are within their skill and competency; and
- undertaking their normal or different duties within their skill and competency at a different location.
In order to issue the directions immediately above, an employer must be in possession of information that leads them to reasonably believe the direction is necessary to continue the employment of one or more employees (which need not strictly be the specific employee to whom the direction is issued). Practically speaking, businesses should keep a clear record of any decision to issue such a direction, and the matters which informed the view that such a direction was necessary.
Prior to any of the above directions becoming enforceable, an employer must give the employee at least three days' written notice, unless the employee provides genuine agreement to reduce this period. In addition, employers must consult with an employee or their representative prior to giving the direction, including to give consideration to any comments or concerns raised by them. A written record of consultation must also be kept.
All of the above directions will cease to have effect on 28 September 2020.
Additionally, eligible employers may also request eligible employees to:
- change the days or times at which their normal hours are worked, and
- take a period of accrued annual leave at either full or half pay that does not result in the employee's annual leave balance being less than two weeks. During this period, employees will continue to accrue leave entitlements on the basis of their full pay and, where their employment is subsequently terminated, any payment in lieu of notice and redundancy pay are also payable at their full pay.
An employee must not unreasonably refuse either of these requests when made. In circumstances where an agreement cannot be made, it is open to the employer to approach the Fair Work Commission to have the matter resolved, including by arbitration. These provisions will be particularly useful in industries where Enterprise Agreements and Awards provide prohibitive conditions around when employers can direct employees to take leave.
Not a “carte blanche” for eligible employers
Whilst the JobKeeper scheme provides a host of additional flexibilities, it is important that businesses proceed carefully, and do not rush into making broad scale employment changes before considering the fine print. JobKeeper directions are subject to a number of requirements in order to be valid. For example, a direction must not be “unreasonable” in all of the circumstances (for example, having regard to any impact on carer responsibilities).
Similarly, businesses should avoid being overzealous with cost saving measures such as standing down staff. The Job-Keeper scheme is clear that in order to validly stand down an employee, it is essential that the employee cannot be usefully employed for their normal days or hours of work, because of changes to business attributable to the COVID-19 pandemic, or a government initiative to slow the transmission of COVID-19. In other words, it is not possible to stand staff down for other business reasons that are not directly attributable to the pandemic.
Directors should also be aware of the JobKeeper scheme’s integrity provisions. If an employer structures their arrangements, including their turnover, and enters into the scheme for the sole or dominant purpose of obtaining a Coronavirus economic response payment, the Commissioner of Taxation will have the power to determine that the entity was never entitled to a payment, or to reduce the amount of the entitlement, and to do so retrospectively. The Commissioner will be able to recover any overpayments and will have the power to impose significant penalties and interest.
Finally, it is crucial that directors are aware that the JobKeeper scheme only applies to eligible employers and employees. That means that until such time as a business is entitled to receive JobKeeper payments (which includes applying for the scheme), regular employment laws will continue to apply.
Your frequently asked questions
Can we reduce an employee’s salary to the “JobKeeper” payment amount?
Given the current cash flow pressures facing many businesses, it may be tempting to consider reducing the wages of employees who ordinary receive a higher salary than the JobKeeper payment ($1,500 a fortnight), so as to avoid paying any additional salary above the subsidy. Businesses should be wary of falling into this trap.
The JobKeeper scheme provides for a "minimum payment guarantee", which means that an employee is entitled to receive the greater of the $1,500 payment and amounts payable to them for work ordinarily performed by them (including any incentive-based payments and bonuses, loadings, allowances, overtime or penalty rates). The JobKeeper scheme also makes clear that employers cannot reduce the hourly base rate of pay for employees during any period of stand down or where they perform different duties.
An employer can only pay a reduced amount to an employee if they are authorised to issue a stand down direction as set out above, or the parties otherwise agree to this.
Where an eligible employee usually earns less than the fortnightly JobKeeper payment, they must be paid the entire $1,500 per fortnight, regardless of their usual salary or how many hours they work in that fortnight. Superannuation payments are not mandatory on any 'top up' amount that the JobKeeper payment provides.
What can the JobKeeper payment reimburse a business for?
The $1500 payment can be made up of various components, including salary, wages, commission, bonuses, allowances, PAYG withholding, superannuation contributions made under a salary sacrifice arrangement, and other amounts forming part of salary sacrifice arrangements.
Our business is struggling with cash flow. When can we expect to receive the first JobKeeper subsidy?
Whilst the JobKeeper payment will provide much needed financial relief for businesses, unfortunately it is not an immediate solution to cash flow problems.
For eligible employers who qualify for the JobKeeper scheme, entitlement to the payment may begin from the fortnight commencing 30 March 2020. The first actual payment, however, is currently scheduled to commence in the first week of May at the earliest with respect to the two prior fortnights in April. From that point onwards, payments will be made to employers within 14 days after the relevant calendar month in which an entitlement arises.
This will create obvious cash flow pressures for many businesses, as wages will need to be outlaid by the employer each month, with the government subsidy made in arrears. Considering the practical implications of that arrangement, this means that if a business has already stood down employees from 30 March 2020 and as a result, has not paid those employees, it will be required to now provide them with appropriate payment, prior to receiving the JobKeeper reimbursement. Some businesses are sadly not in a position to do so and their staff will miss out on the benefit of JobKeeper whilst other businesses are looking for lines of credit to make these payments.
Can casual staff receive the JobKeeper payment?
Only “long term” casuals will be eligible for the JobKeeper payment, meaning those employed on a regular and systematic basis for 12 months or longer.
For any long-term casuals who are nominated to receive the JobKeeper payment, businesses should be careful to clarify with the employee the casual nature of their employment relationship. There is a risk that nominating 'long term' casuals for the JobKeeper Payment may be later construed as evidence of a permanent relationship, with associated risks of litigious claims for misclassification and underpayment.
How does our business demonstrate the required reduction in turnover?
An entity needs to demonstrate that their projected GST turnover for a relevant month (March to September 2020 inclusive) or quarter (the June or September 2020 quarter) is reduced by at least the relevant applicable percentage, having regard to the entity's current GST turnover for the same month or quarter in 2019. It is up to the entity whether they rely on a month or quarter as the relevant test period - provided they demonstrate the requisite reduction in turnover in the test period, they will be eligible to claim JobKeeper payments in respect of that period. For clarity, once an entity has demonstrated that it has met the turnover test in respect of a relevant test period, it is not required re-test its turnover on an ongoing basis.
Update: Alternative tests for decline in turnover
On 23 April 2020, the ATO released several alternative tests to assess decline in turnover, having regard to the relevant test period. The detail surrounding the alternative tests can be found here.
The alternative tests apply in the following circumstances:
- Commencement of a business prior to 1 March 2020 but after the relevant comparison turnover period in 2019;
- Acquisition, disposal or restructure of a business that changed the entity’s turnover after the relevant turnover comparison period in 2019 and before the applicable turnover test period;
- Substantial increases in turnover of:
- 50% or more in the 12 months immediately before the applicable turnover test period; or
- 25% or more in the 6 months immediately before the applicable turnover test period, or
- 12.5% or more in the 3 months immediately before the applicable turnover test period;
- Drought or natural disasters;
- Irregular turnover quarters that are not cyclical; or
- Sickness, injury or leave of a sole trader or a partner of a small partnership that has no employees, where turnover is affected by the sole trader or partner not working for all or part of the relevant comparison period.
Obviously, if an entity satisfies the basic test, it does not need to consider an alternative test.
1 Coronavirus Economic Response Package Omnibus (Measures No 2) Bill 2020
2 The JobKeeper scheme inserts a new Part 6-4C to the Fair Work Act 2009.