The second tranche (“Second Tranche”) of the Employment Support Scheme (“ESS”) launched under the “Anti-epidemic Fund” is open for online application today, starting from 31 August until 13 September 2020. In June 2020, the Government received over 160,000 applications for the first tranche (“First Tranche”). Please refer to our article on the First Tranche published in May 2020 Issue of our newsletter. This article will set out the overall framework of the Second Tranche and highlight the important changes from the First Tranche.

Second Tranche of the ESS

The Second Tranche will provide financial support to employers and self-employed persons for the three-month period from September to November 2020.

Same as the First Tranche, all employers who apply for the Second Tranche are required to undertake:

1.        not to implement “redundancy” during the subsidy period; and

2.        to spend all the government wage subsidies on paying wages to their employees.

In addition, employers should also provide true, complete and accurate information at all times in order to avoid possible criminal liabilities for deceiving the Government and/or its appointed agencies.

Successful applicants providing accurate and complete information are expected to receive the second tranche of wage subsidies within three to four weeks after application.

Who is eligible to apply for the Second Tranche of the ESS?

Employers

The eligibility for employers who wish to apply under the Second Tranche remains the same as in the First Tranche. In summary, employers will be eligible to apply for the Second Tranche if the employers:

1.        have been making Mandatory Provident Fund (“MPF”) mandatory contributions for employees aged between 18 and 64, who have been employed in any industry for a continuous period of 60 days or more;

2.        have been making MPF voluntary contributions for employees aged 65 or above under the Master Trust Schemes and Industry Schemes; or

3.        have set up MPF-exempted Occupational Retirement Schemes Ordinance (“ORSO”) schemes (including ORSO registered schemes and ORSO exempted schemes) for their employees.

Employers who fall within categories (1) or (2) above, the MPF accounts of employers and employees should have been set up on or before 31 March 2020. Employers who fall within category (3) above, the employees covered in the relevant application should have become members of the relevant ORSO schemes on or before 31 March 2020.

Employers are not eligible for the Second Tranche of the ESS where:

1.        the employers are part of the Government, specified statutory bodies, public organisations or subvented organisations;

2.        the employers are licence holders who have submitted application for the Catering Business (Social Distancing) Subsidy Scheme in respect of the licensed premises covered by the relevant business registration certificate (including applications being processed or approved); or

3.        the employees’ wages are subsidised by the Government.

Employers who have applied for the First Tranche, regardless of whether the previous application succeeded or not, must submit a new application under the Second Tranche in order to be considered this time.

Self-employed persons

Self-employed persons who have set up an MPF account on or before 31 March 2020 which has not been terminated are eligible to apply for the $7,500 one-off subsidy under the Second Tranche.

However, self-employed persons who have successfully received the one-off subsidy in the First Tranche are no longer eligible for that under the Second Tranche and therefore should not apply this time.

Even if eligible self-employed persons have more than one MPF account, they can only apply for the $7,500 one-off lump-sum subsidy once under the ESS.

Amount of wage subsidies

The method of calculation for the wage subsidies to be granted under the Second Tranche remains more or less the same as the First Tranche.

The “specified month”

Employers applying for the Second Tranche can choose any one month among December 2019, January, February and March 2020 as the “specified month”, which may be the same or a different month chosen in the First Tranche application. The amount of wage subsidies will be calculated on the basis of the actual amount of wages paid in the “specified month”. 

For employees aged between 18 and 64

The amount of wage subsidies for employees aged 18 – 64 will be calculated based on 50% of the actual wages paid to each employee in the “specified month”, with a wage cap at $18,000 per month. In other words, the maximum wage subsidy per employee is $9,000 per month.

For employees aged 65 or above

The Second Tranche has improved and covers employees aged 65 or above who have MPF accounts even if employers did not make any voluntary contributions to such accounts. The amount of wage subsidies for this group of employees under the Second Tranche will be calculated as follows:

1.        If information on the wages of employees aged 65 or above is shown on the employer’s MPF record certificate, the amount of wage subsidies will be calculated based on 50% of the wages actually paid to the relevant employees in the “specified month”, with a wage cap at $18,000 per month per employee. The maximum wage subsidy per employee is $9,000 per month.

2.        If information on the voluntary MPF contribution for employees aged 65 or above (but not their wages) is shown on the employer’s MPF record certificate, the amount of wage subsidies will be calculated by multiplying the amount of the employer’s voluntary contributions for the relevant employees in the “specified month” by 10 times, with a cap at $9,000 per month per employee.

3.        If information on the employment of employees aged 65 or above (but not their wages nor MPF contributions made for them by the employers) is shown on the employer’s MPF record certificate, the amount of wage subsidies will be calculated based on the number of such employees aged 65 or above engaged in the “specified month”, with a subsidy of $5,000 per employee per month.

4.        If the amount of wage subsidy for any of the employees aged 65 or above calculated based wages or voluntary contributions on the employer’s MPF record certificate is below $5,000 per month, the employers may receive a wage subsidy of $5,000 for each of such employees per month.

For employers who have made MPF contributions for both employees aged 18 to 64 and those aged 65 or above with MPF accounts, they must choose the same “specified month” for calculation of the amount of wage subsidies in respect of all employees.

Employers who have set up MPF-exempted ORSO Schemes

The amount of wage subsidies will be calculated based on 50% of the actual wages paid to each employee in the “specified month”, with a wage cap at $18,000 per month. The maximum wage subsidy per employee is $9,000 per month.

For self-employed persons

The one-off lump-sum subsidy available for each self-employed person is $7,500, irrespective of the number of MPF account(s) he/she has.

Consequences for breach of the undertakings

Employers should be careful not to breach the undertakings. The claw-back mechanism and penalty payment in the First Tranche remain unchanged (please refer to our earlier article for details), the Government has stated that additional measures will be put in place to tackle improper application of the ESS.

For employers who have breached their undertakings in the First Tranche, in the event that their applications for the Second Tranche are approved, the unspent balance of the subsidy and/or penalty will be directly deducted from the subsidies to be distributed in the Second Tranche. Besides, longer processing time may be required for such employers’ Second Tranche applications.

The Government may reject an employer’s application for the Second Tranche of wage subsidies if the Secretariat considers that the magnitude of “redundancies made” by the employer in its company/organisation during the subsidy period of the First Tranche (i.e. from June to August 2020) was substantial, and the employer concerned fails to prove to the satisfaction of the Secretariat its intention to employ persons to replace those being laid off and/or re-employ those who have been laid off, and/or there is no other reasonable explanations provided for the “redundancies made” by it.

In case there is a breach of the undertaking not to implement “redundancy” during the Second Tranche subsidy period (i.e. from September to November 2020), and that the Government considers that the magnitude of “redundancies” made by the employer was substantial, the Governments has the right to claw back the second tranche of wage subsidies disbursed to the employer concerned (in full or in part) unless the employer can prove to the Government’s satisfaction that it has intention to employ persons to replace those being laid off and/or re-employ those who have been laid off, or that there are other reasonable explanations for making such “redundancies”. 

The Government will also add the following conditions to the Terms and Conditions of the Second Tranche:

1.        For employers who have received the first tranche of subsidies and participate in the second tranche, the Government may reject an employer’s application for the Second Tranche or, if the subsidies have been disbursed, require the employer to return the subsidies received (in full or in part) within a specified period, if the Secretariat considers that the employer has, during the subsidy period of the first tranche (i.e. from June to August 2020), engaged in conduct which directly or indirectly violates the objective of retaining employment under ESS, or is contrary to public interest.

2.        For employers who received subsidies under the Second Tranche, the Government may require an employer to return the Second Tranche of wage subsidies received (in full or in part) within a specified period if the Secretariat considers that the employer has, during the subsidy period of the second tranche (i.e. from September to November 2020), engaged in conduct which directly or indirectly violates the objective of retaining employment under ESS, or is contrary to public interest.

The above conditions serve the purpose of penalising the employers who have directly or indirectly violated the objective of retaining employment or acted contrary to public interest.  As explained by Dr. Law Chi-kwong, the Secretary for Labour and Welfare, in a webinar on 26 August 2020, the meaning of “directly or indirectly violated the objective of retaining employment or acted contrary to public interest” may cover the situation where, for example, employer A conducts in such a way that causes employer B to close down, and thereby dismissing its employees. The Government’s enforcement action and the exact scope in respect of such conditions remain unclear.

Key takeaways

As pointed out by Dr. Law, successful implementation of the ESS will bring a “win-win-win” situation for “employers, employees and Hong Kong as a whole”. In view of the sustained negative impact of the COVID-19 pandemic on Hong Kong’s economy, the Second Tranche of ESS will serve as a relief for many employers following the First Tranche. Successful applicants under the ESS should be reminded to uphold their undertakings at all times, i.e. (1) to use all wage subsidies received on paying wages to their employees, and (2) not to implement “redundancy” during the subsidy period unless with reasonable explanations, so as to ensure that the public funds are applied for the appropriate and intended purposes of the ESS.

We will keep you updated on the latest development regarding the ESS.