As everyone is aware, the COVID-19 crisis has impacted businesses worldwide. The Maltese Government has issued a number of schemes with different types of assistance to businesses to protect employment, one of which is the COVID Wage Supplement scheme (CWS), being administered by Malta Enterprise (more details here).
The Government is providing different levels of COVID Wage Supplements (CWS) dependent on the sector of the employer and various other parameters. These are published on the Malta Enterprise web site. Organisations that fall under the business sectors defined in Annex A of the Malta Enterprise list are subject to an € 800 monthly CWS, while those sectors listed in Annex B are entitled to a € 160 CWS. Other companies will not receive any CWS. These annexes are changing following Government announcements so keep an eye on them.
This document does not enter into the issue of the eligibility of organisations for the CWS but on how, if your organisation benefits under the scheme, this impacts the calculation of your payroll. Click here for the official Notice to Employers from the Commissioner for Revenue.
Below are some important points using Annex A organisations as an example, but they are equally applicable for organisations covered under Annex B:
- The Government will be providing the CWS to the employer not to the employee and employers need to pass this onto the employees.
- Employers will deduct the normal SSC contributions from employees for the payroll period, based on their SSC category and the standard rules. There is no change to this process.
- However, the CWS being paid by the Government includes the employee’s Social Security Contribution (SSC) which is being paid by the Government. The employer therefore will not need to remit the employees’ SSC contributions to Government as part of the monthly FS5 process, even if this is deferred. They will of course still remit the employers’ SSC and the tax deducted from the employees as usual or after the acceptance of a deferral of these payments.
- Since the employer will have already retained the employees’ SSC, the CWS that the employer will receive from Government will have the employees’ SSC contribution subtracted. As a result, the €800 CWS will be received by employers as a result of a €720 contribution directly from the Government and €80 (i.e. 10%) that they would have already deducted from the employee as per standard calculation process.
- The above requires no change whatsoever to the processing of your payroll but only affects the payment to be submitted by the employer.
- As the CWS is a replacement of the wage usually paid by the employer to the employee, the CWS is not tax-exempt. It continues to be taxed as if the €800 had been paid as a part of the basic wage. Of course, there will be instances where the remuneration level of the employee as calculated under FSS rules makes this taxable at 0% (as distinct from non-taxable).
- Because the CWS is required to be identified on the payslip, and possibly also on the FS7, produced either at the end of-year or at the end of an employee’s employment, it will be necessary to separate out the CWS with its own description from the basic salary. The CWS should use the description called COVID Wage Supplement on the employee’s pay slip.
- Please note that the CWS received by the employer is not to be treated as taxable revenue as part of the tax computation at the end of the financial year but nor is the CWS to be treated as a taxable expense. They are BOTH tax neutral.
Please be aware that the regulations, guidance and legal notices are evolving. While these documents provide our understanding of the requirements, as confirmed by the Commissioner for the Revenue as of Friday 3rd April 2020, please ensure that you obtain professional advice where needed and keep up to date with changing guidance.
This information about the COVID Wage Scheme is brought to you by Shireburn Software, the suppliers of the Shireburn Indigo Payroll, Malta’s leading payroll solution. If you are a user of Shireburn Indigo, have a look at the Indigo COVID Wage Supplement step-by-step instructions.