Hereby update nr 6 of our Q&A Coronavirus.
Elaboration of the Temporary Emergency Relief Measure for the Preservation of Work (NOW)
When are employers able to apply for compensation under the NOW?
The Dutch Minister of the Ministry of Social Affairs and Employment announced on March 31st, 2020 that the Employee Insurance Agency (‘UWV’) strives for employers to be able to apply for compensation under the NOW as of Monday 6 April 2020. The application period runs up to and including 31 May 2020.
For what period will the NOW be applicable?
The NOW will initially provide for compensation of wages costs from March up to and including May 2020. The option to extend the NOW with three months is explicitly kept open by the Dutch government. The government will make a decision in this regard before 1 June 2020, so a possible second tranche will directly follow the first application period that ends on 31 May 2020.
When could employers expect an advance payment of the compensation under the Now?
Employers submit their expected drop in turnover in the application. If the UWV decides to grant compensation, the UWV pays an advance of 80% of the wage costs in three instalments. A decision-making period of 13 weeks applies, however employers that meet the conditions in the NOW in practice could most likely expect an advance within two to four weeks from the application.
How much is the compensation employers could be eligible for?
Employers that expect a drop in turnover of at least 20% during three consecutive months in the period from 1 March up to and including 31 July 2020, are eligible for a compensation in proportion to their drop in turnover as of 1 March 2020 of up to 90% of their wage costs in relation to employees who are employed by the employer and are compulsory insured for the employee insurance schemes (unemployment benefits (WW), sickness benefits (ZW) and WIA-benefits).
The formula is:
A x B x 3 x 1,3 x 0,9, for which purpose:
A = % of the drop in turnover; and
B = the wage costs taking into account the total wage costs of employees for whom the employer paid the wage provided that the wage to be taken into account per employee is not higher than EUR 9,538.00 gross.
In case of a drop in turnover of 100% the compensation is 90% of the wage costs. In case of a drop in turnover of 50% the compensation will be 45% of the total wage costs.
The compensation is conditional upon the employer continuing to fully pay the employees’ wages and that employers commit themselves to not apply for a dismissal permit for business economic reasons during the period compensation under the NOW is being received. Therefore it is expected of employers that they do not apply for a dismissal permit from the UWV to terminate any employment agreement for business economic reasons in the period from 18 March 2020 up to and including 31 May 2020.
What are the consequences if an employer does apply for a dismissal permit for business economic reasons at the UWV in the period from 18 March 2020 up to and including 31 March 2020?
If an employer does apply for a dismissal permit in this period and the application is not (or not in time, meaning being withdrawn within five working days from the NOW entering into force) withdrawn, the UWV will adjust the compensation under the NOW. When determining the compensation, the UWV determines the wages of the employees for whom a dismissal permit has been requested. These wages are being increased with 50% (penalty). The wages of these employees plus the 50% penalty are being deducted from the total wage costs, on which basis the compensation is being set. The purpose of this measure is to express that deviating from the condition to not dismiss employees has consequences for the compensation. It is not relevant whether or not the UWV will grant a dismissal permit.
What does ‘turnover’ mean?
Turnover means the ‘net-turnover’, which concerns the proceeds from the supply of goods and services from the business of the legal entity, minus discounts and such, of tax levied on turnover. Proceeds are income from the normal activities of a business. This means that turnover is recognised as the activities relating to the supply of goods or services for a specific customer with whom a (sales) contract has been concluded.
NB: for some employers, the “normal” concept of turnover from proceeds from goods and services in practice cannot be applied. For that reason, income, proceeds and other benefits, such as benefits, subsidies, interest income and contributions from a government institution or other income, such as gifts, or claims from health insurers are also regarded as turnover under the NOW. If there is a (multi-) annual subsidy (or other benefits) or longer period than the application period, this income must be spread pro rata over those months, insofar as the accounting principles used in the annual accounts do not already provide for this. The changes in work in progress for this scheme also count as turnover.
In what way should a drop in turnover be determined?
To determine the drop in turnover, employers must first divide their total revenue from 2019 by four. If an employer did not yet exist on 1 January 2019, a different turnover provision applies. The 25% turnover from 2019 (reference turnover) must be compared with the turnover in the months of March-April-May 2020. Some employers may not see a decline per 1 March 2020. For this reason, employers can also opt for a reference period for the turnover comparison that starts one or two months later, thus as of 1 April or 1 May 2020. The wage costs that are used as a basis for the compensation will also be the wage costs in March, April, May 2020 (i.e. over the period from 1 March up to and including 31 May 2020).
If a company consists of a number of business units (legal entities) that together form a group, the drop in turnover of the entire group is taken into account. Otherwise, the structure of the group can have a major influence on the amount of the compensation. The further explanation on the application form contains instructions for the correct calculation of the loss of turnover of a group.
NB 1: for groups with Dutch and foreign subsidiaries, the loss in turnover of the legal entities in the group that do not have a Dutch maximum daily wage (SV-loon) must not be taken into account.
NB 2: legal entities or natural persons who are registered abroad and that employ employees who are covered by the Dutch social security scheme can also apply for compensation under the NOW. Foreign employers are therefore also eligible for compensation insofar as they employ employees who are covered by the Dutch social security scheme.
What does ‘wage costs’ mean?
For determining the wage costs, data from the payroll tax return to the Dutch tax authorities is used. The UWV will automatically take this into account. The UWV uses the so-called wage for social insurance purposes from current employment as the basis in this regard. Additional expenses and costs such as employer pension contributions and employee pension contributions and the accrual of holiday allowance are also compensated. To speed up the application process, a surcharge for employers’ contributions of 30% applies for all cases (which is reflected in the factor 1.3 in the formula for calculating the amount of compensation as set out above).
The wage costs in the compensation period are compared with the wage costs in January 2020, as known to the Dutch tax authorities. If this information is not available, the wages costs of November 2019 will be taken into account. If this information is also not available, no compensation can be granted. To avoid calculating behavior, changes in the January 2020 wage return that were passed after 15 March are not taken into account for the purpose of the NOW. Because of the importance of the wage costs for the compensation, it is important that employers continue to submit payroll tax forms to the Dutch tax authorities on time.
If the wage costs for the months of March-April-May 2020 are lower than in January 2020, the compensation will be reduced by 90% of the amount by which the wage costs dropped.
Are the wage costs eligible for compensation under the NOW subject to a maximum?
Yes, the wage costs are capped at twice the maximum daily wages per month per individual employee of EUR 9,538.00 gross per month. Wages above this amount are not compensated. Only 1.5% of employees in the Netherlands receive wages above this maximum daily wage.
Are the wages costs of employees with a flexible employment agreement being compensated?
Employers could also be eligible for compensation for employees with a flexible employment agreement, as far as they remain employed and receive wages from the employer during the compensation period. The NOW explicitly applies to the wage costs of employees for whom the employers has no obligation to continue to pay wages, such as employees with a zero hours-contract.
Therefore, the NOW provides for compensation of the wage costs of employers if they pay more wages than required by law. This works as follows.
The advance being granted under the NOW is (save exceptional situations) based on the wage costs in the tax period January 2020. If the wage costs in the period of March-April-May 2020 are lower, the compensation is being reduced with 90% of the amount with which the wage costs has dropped. If the employer chooses to continue to pay the employees with a flexible employment agreement an amount equal to their average wages in January 2020 (or such data is not available, November 2019), these wages are taken into account when determining the compensation.
Please note that the employer (even with compensation under the NOW) always bears part of the wage costs itself. Hence, in our opinion there still remains an incentive for employers to take a critical look at the level of wages paid to employees with a flexible employment agreement (also with a view to the medium/long term, in which case perhaps an offer has to be made after 12 months for an employment contract with a fixed number of working hours equal to the average number of working hours in the preceding 12 months).
The same conditions that apply to ‘regular’ employers apply to the payroll- and temporary agency employers. The could also apply for compensation under the NOW and be compensated for the wage costs for the employee they continue to employ.
What if an employer has multiple withholding tax numbers?
Employers must include their company name and withholding tax number in the application. If employers have multiple withholding tax numbers and want to be eligible for compensation for their total wage costs, those employers will have to submit several applications, namely per withholding tax number. The employer must, however, report the drop in turnover that he expects for the entire company; he therefore submits the same drop in turnover and the same measurement period for each application.
When and how is the final compensation being determined?
Within 24 weeks after the end of the period for which the compensation has been granted, employers must apply for determination of the final compensation. In principle, an auditor’s report is required for this. The aim is to clarify the limit under which an auditor’s report is not required within four weeks after publication of the NOW. The UWV will then make a final statement within 22 weeks. This may turn out to be higher or lower than was expected.
Which anti-abuse provisions are included in the NOW?
The basic principle is that the employer is responsible for the information he provides with his application. The employer must keep such verifiable records that it can be verified afterwards whether a compensation has been rightly granted. Upon request, the employer will provide access to this administration up to five years after the compensation has been determined. The employer is also obliged to report immediately if it is clear that he no longer meets the requirements for receiving compensation.
The UWV also has the option to suspend payment of the advance if there is a serious suspicion that the compensation conditions are not being met and can fully or partially reclaim a compensation that has already been granted. If during compensation period or when determining the compensation there is a reasonable suspicion of a criminal offense, then UWV has the option to report this to the Public Prosecution Service (OM). Risk-oriented checks will also be carried out afterwards, both on the basis of data checks and through the use of random checks.
How is the concurrence with working time reduction (WTV) handled?
Applications submitted for WTV that have not yet been decided on will be considered an application under the NOW. In this context, employers will be requested to provide additional information.
Employers who already use the WTV scheme cannot extend their WTV application. They can, however, apply for compensation under the NOW. If there is an accumulation convergence the NOW subsidy and the payment of unemployment benefits under the WTV scheme, the latter payment will be deducted from the wage costs for the period from March to May inclusive. This prevents double financing.
For information you could consult the following documents:
- Temporary Emergency Relief Measure for the Preservation of Work (NOW) with corresponding explanation (https://www.rijksoverheid.nl/documenten/regelingen/2020/03/31/regeling-now); and
- Letter to the House of Representatives regarding the Temporary Emergency Relief Measure for the Preservation of Work (NOW) dated 31 March 2020 (https://www.rijksoverheid.nl/documenten/kamerstukken/2020/03/31/tijdelijke-noodmaatregel-overbrugging-voor-behoud-van-werkgelegenheid).
Please do not hesitate to contact us if you have any further questions.
Arlette Putker-Blees & Irene Francken-van der Ven
Tel.: + 31 (0)20 7608814
Mobile: + 31 (0)6 31000115
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