Australia’s JobKeeper Payment will be a saviour for many businesses and their employees, but draft rules implementing the initiative contain a fatal flaw that will likely mean thousands of employees of small businesses miss out on the $1500 payment.
For many businesses, the JobKeeper Payment will provide a financial safety net that enables them to retain their employees even where their trading is highly disrupted or reduced. But for smaller businesses, this may not be the outcome.
The JobKeeper Payment is made to ‘eligible employers’ rather than directly to the employees.
The JobKeeper Payment is described by the Government as a subsidy for employers. However, the scheme should more properly be described as a ‘reimbursement scheme’ as the business is required to make the payments to the employees before the ATO will make a payment to the business. This has the potential to create a serious cash flow issue for many businesses and may even cause many businesses to decide not to participate for all or some of its eligible employees.
Businesses will need to satisfy the ‘wage condition’ requirement for their eligible employees in respect of each 14-day period covered by the scheme. The ‘wage condition’ requirement is that business has already paid their eligible employees a minimum of $1,500 per fortnight in the scheme payment period.
The JobKeeper Payment is aimed at supporting businesses to keep employees over the coming months, even if the employee needs to be stood down. The requirement for businesses to pay employees before the JobKeeper Payment is received may jeopardise the intent of the scheme as it means:
- The business faces the cash flow issue of having to fund the payment to the employee (of at least $1,500 per fortnight, even if this exceeds the usual payment that would have been made) and then wait to receive the JobKeeper Payment from the ATO. This ‘waiting period’ may be more than 30 days; and
- The business faces the commercial risk of, having paid the employee, being exposed to the possibility that the ATO decides that they are not eligible to receive the JobKeeper
There are numerous ways that a business might not be eligible to receive the JobKeeper Payment, including by not meeting regular ATO reporting requirements.
These risks (cash flow and commercial) have the potential to discourage employers from nominating all or some of their employees as being ‘eligible employees’, or even participating the initiative at all.
Frank and Mary operate a café and employ 10 people. Due to the social distancing measures Frank and Mary can now only serve takeaway. Custom has dropped significantly and they need to stand down their employees. Cash is tight and they are struggling to make enough sales to cover the costs of opening the doors. To access the JobKeeper Payment Frank and Mary will need to pay $30,000 to their employees over April (10 employees x $1500 x 2 fortnights) before receiving their first JobKeeper Payment in early May.
If instead Frank and Mary could be paid the JobKeeper Payment and then pass on the payment to their employees, the cash flow burden would be removed and it is much more likely that the 10 employees will keep their jobs.
Theoretically Frank and Mary could try and obtain short term funding from their bank or other lenders to cover the cash flow gaps. This will take time, involve further cost to Frank and Mary and depending on their circumstances, banks may not be prepared to make further loans to them. Why would you make the success of a Government initiative contingent on individual small businesses getting additional finance?
Note: Final rules for the Jobkeeper Payment Scheme are yet to be released by Treasury. We will provide an update if these differ from the draft.