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    The Hong Kong Government yesterday (18 May) provided additional information on the ESS and, particularly, on the penalties that the government will impose if an applicant breaches either of the undertakings required to be given.  The additional information provided will encourage more employers in Hong Kong to apply for the ESS.

    Our update from last week (which is available at https://covid19.mayerbrown.com/employment-covid-19-hong-kong-government-announces-further-update-and-improvement-measures-on-the-employment-support-scheme/) set out the major elements of the ESS.

    The clarifications made by the government yesterday (see https://gia.info.gov.hk/general/202005/18/P2020051800697_341485_1_1589802881819.pdf) provided additional information on the nature of the undertakings and the “penalties” for breaching the undertakings.

    What are the undertakings?

    Every employer applying for the ESS needs to undertake:-

    • Not to implement redundancy during the subsidy period.  In respect of the first tranche of the subsidy, the number of employees on payroll during the months of June to August 2020 cannot be fewer than the number of employees (paid or unpaid) in March 2020 (Note: It has evolved into an undertaking looking at the absolute number of employees)
    • To use the subsidy to pay wages of the employees.

    What are the penalties for breaching the undertakings?

    In prior notifications the government has consistently warned that penalties will apply if either of these undertakings are breached. Yesterday the government described such penalties.

    Where the number of employees on payroll is less that the number in March 2020

    If an employer breaches the first undertaking such that the headcount of employees in any of the six months of the subsidy is less than the March 2020 headcount, the employer will need to repay to the government an amount calculated by the following formula:-

    (the full ESS in that month x the proportionate shortfall in headcount) x a “percentage” (not the entirety)

    The “percentage” varies from a low of just 10% (for employers with fewer than 10 employees in March 2020) up to a maximum of 80% (for employers with 500 employees or more in March 2020).

    So, if an employer’s ESS in a month is HK$500,000 and the shortfall in employees in that month is 10% (e.g. there has been a reduction  from 50 to 45) then the employer will need to pay back to the Government:-

    (HK$500,000 x 10%) x 40%* = HK$20,000

    *the “percentage” for employers with 50 employees in March 2020 is 40%

    Where the wage bill for employees in a month is less than the ESS in that month

    If an employer breaches the second undertaking so that the employer’s total wage bill in any month is less than the amount of ESS received for that month then the penalty is that the employer must repay the balance of the subsidy.

    Comment 

    The confirmation that the feared penalties are not punitive in any manner is the largest indication yet that the government is keen for every employer in Hong Kong to apply for the ESS. In effect the ESS is a large quantitative easing exercise

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