Legislation providing for the new JobKeeper Payment was passed at an emergency sitting of Federal Parliament on 8 April 2020. In passing the legislation Australia joins a number of countries including the UK, Denmark and New Zealand which have implemented wage subsidies to support businesses during this period of economic ‘hibernation’.[1] Nicola Nygh, Harley Milano, Johnson Man and Victoria Lowe discuss the new JobKeeper Payment.

The Australian wage subsidy scheme, worth $130 billion, is the amongst the most comprehensive in the world. Unlike the UK wage subsidy model, which only targets employees that have been stood down, the Australian JobKeeper Payment provides a flat rate payment of $1,500 per fortnight per eligible employee for up to 6 months, regardless of whether they have been stood down or remain employed. Furthermore, that flat rate applies regardless of whether the eligible employees usually earn more or less than $1,500 a fortnight, contrasting with the New Zealand scheme where employees cannot receive more than their usual wage. The JobKeeper Payment will allow businesses much more flexibility to reduce staff costs in these difficult times while retaining valuable employees for when the economy recovers.

This article will first examine current arrangements for terminating or standing down employees and will then consider how the JobKeeper Payment intersects with those mechanisms.

Current arrangements for terminating or standing down employees

Currently, the termination or standing down of most employees is governed by the Fair Work Act 2009 (Cth) (the Act). Importantly, termination and ‘standing down’ of employees is distinct.

When an employee is terminated, they would be entitled to notice and redundancy pay pursuant to the Act and their employment contract (unless they are a casual employee). Sections 117-120 of the Act set out requirements for notice and redundancy pay for the termination of an employee in detail.

By contrast, the standing down of an employee means that an employer can deduct money from the employee’s pay for any time the employee cannot be usefully employed due to certain stoppages of work through no fault of the employer. Examples of stoppages of work for which the employer cannot reasonably be held responsible include industrial action, breakdown of machinery or equipment (which is not the employer’s fault), floods, fires and power failures. It is very likely that government shutdowns of non-essential services due to COVID-19 would also fall under this category. Sections 522-527 of the Act set out in detail the provisions for the standing down of employees.

No doubt there will already be many businesses which have had to terminate or stand down their employees, given the COVID-19 situation.

The JobKeeper Payment: A strong incentive to retain staff

The JobKeeper Payment provides a powerful incentive for businesses to retain staff, rather than to terminate them. In short, the wages of employees of most distressed businesses will be either fully or partially subsidised by the Australian Government for the next 6 months.

Under the JobKeeper Payment, the subsidy applies to all eligible employees of an eligible employer, regardless of whether they are actively engaged or stood down. The subsidy operates as follows:

1. if the employee is stood down, the government pays a wage subsidy of $1,500 per fortnight to the employer, and the employer in turn is required by law to pay the stood down employee at least $1,500 per fortnight;
2. if the employee is not stood down (i.e. is actively engaged):
   1. then, if the employee ordinarily earns more than $1500 per fortnight, the employer continues to pay the full amount to the employee, and the government pays $1500 per fortnight to the employer as a partial subsidy for that wage; or
   2. if the employee ordinary earns less than $1500 per fortnight, the government pays a wage subsidy of $1,500 per fortnight to the employer, and the employer must pass on the full amount of $1,500 per fortnight to the employee.

Any amounts that an employee receives because of the JobKeeper Payment are not subject to the requirement to pay a superannuation guarantee.

Additionally, separate to the wage subsidy, under the new law businesses will be allowed to vary the roles, locations and hours of staff retained under the JobKeeper legislation. The temporary roles must be safe, within the employee’s skills, not too far from their current workplace and ‘reasonably within the scope of the business’.

Who is an eligible employee?

An ‘eligible employee’ includes:

1. employees made redundant after 1 March 2020, but who are subsequently rehired by their employer;
2. long-term casuals who are still employed by the business and were employed by the business as at 1 March 2020, and have been employed on a regular basis for longer than 12 months as at 1 March 2020;
3. full-time, part-time, or stood down staff who are still employed by the business and were employed by the business as at 1 March 2020; and
4. self-employed persons as at 1 March 2020.

Additionally, a business is an ‘eligible employer’ if :

1. the business has turnover of less than $1 billion and estimates its revenue has reduced or will likely reduce by 30% or more relative to a comparable period a year ago (of at least a month); or
2. the business has turnover of $1 billion or more and estimates its revenue has reduced or will likely reduce by 50% or more relative to a comparable period a year ago (of at least a month); or
3. the business is a registered charity and estimates its revenue has reduced or will likely reduce by 15% or more relative to a comparable period a year ago (of at least a month) regardless of its turnover; and
4. the business is not subject to the Major Bank Levy.

Accordingly, the eligibility criteria for this scheme is quite broad. Most businesses will find that nearly all of their employees will qualify for the JobKeeper Payment. This means that the employee’s wage will either be entirely subsidised (if the employee usually earns less than $1,500 per fortnight) or partially subsidised (if the employee usually earns more than $1,500 per fortnight). Further, there would be no harm in retaining staff that are stood down, as the government will entirely bear the cost of subsidising their wages.

Conclusion

The JobKeeper Payment perhaps represents the most dramatic expansion of the role of government in living Australian memory. This payment brings the total announced stimulus in excess of $320 billion or 16.4% of annual GDP. Through this scheme, the Australian Government will effectively subsidise much of the Australian economy – indeed, some estimates predict nearly 6 million employees will receive the JobKeeper Payment. This signifies the government’s strong determination to protect the economy from COVID-19. For businesses, it is also a game-changing lifeline that can effectively allow them to reduce costs without having to lose valuable staff.

 

Disclaimer: Please note that this note is a summary only and therefore is general in nature. Specific advice should be obtained in relation to specific problems and issues.

References

[1] Parliament of Australia (Cth), The Hon. Scott Morrison MP Prime Minister, ’National Cabinet Meeting’ (Transcript of Press Conference, 27 March 2020)

Photo by Floriane Vita on Unsplash

Date: 9 April 2020