On March 30, the federal government provided the details of its largest effort yet to keep the economy moving during the coronavirus epidemic – the JobKeeper Payment.
In response to the already massive job losses as businesses are forced to close their doors or downsize, employers who have had significant drops in revenue will be eligible for $1500 per fortnight per employee to help keep staff engaged. These payments must be passed on in full to the employees, ensuring those in the workforce who are suffering due to the downturn receive some relief.
Subscribers to wealthdigital can keep up to date with the rules governing the JobKeeper Payment, and the application process, by logging in to wealthdigital and then clicking here for the COVID-19 financial support hub.
It is an unusual structure for the Australian government to use to provide social security – but will Australian employers do their part? Beyond this, what advice should planners be giving to clients who run businesses regarding the JobKeeper Payment? We examine these issues and more in this month’s Industry Insights.
Why pay social security through businesses
As is often the case, there are a range of reasons why the federal government would use businesses to distribute unemployment benefits. The meltdown of mygov in late March, and the sight of long lines outside Services Australia Service Centres last week would no doubt have prompted the government to look at other means of benefit distribution – but this is not the whole story.
According to the small business ombudsman’s 2019 report, there are over 2.3 million businesses in Australia, 99.8 per cent of which are small to medium businesses. A large percentage of these businesses would have had their operations severely impacted by the social distancing rules brought in to combat the spread of COVID-19.
One way to ensure these businesses are ready to spring back into action when the threat of the virus drops is to ensure they still have staff engaged, and their administrative processes, such as payroll management, are kept active. The JobKeeper Payment aims to ensure this is the case – but is receiving and paying out the payment worth it for employers?
The case against
The main reason businesses would not register to receive (and ultimately pay out) the JobKeeper Payment is pretty simple – none of the money stays in the business. Essentially, the business operates as a distributor of the government’s payments and all the money that comes in must be paid out to the eligible employees. Additionally, the business has to pay staff to manage the administration of the payment (albeit those staff can probably be compensated through the JobKeeper Payment).
That said, the reasons a business would register for the JobKeeper Payment would massively outweigh the drawbacks in the vast majority of situations. So why would a business sign-up to manage these payments?
The case for
It subsidises retained employees
The simplest argument for those businesses that have retained staff is that the JobKeeper Payment will help the employer pay salary and wages. At least part of the burden of keeping staff on the books of a struggling business can be taken up by the JobKeeper Payment.
When social distancing is relaxed and the economy starts to fire up again, there will be a mass of businesses looking to kick-start their operations. If the majority of these businesses have previously laid off staff, this will result in a rush to re-hire staff, or hire new staff, and may come with costly training obligations.
By keeping employees on the books (or rehiring them) and paying them the JobKeeper Payment, businesses can build goodwill with their staff and ensure they are staffed up and ready to go when the restrictions are freed up. Goodwill will be multiplied where casual, or part-time staff, get a temporary pay increase due to the set level of the JobKeeper Payment ($1500 per fortnight). Being a good employer now is likely to pay off in the future.
There will be a significant number of casual employees who will be paid more under the JobKeeper scheme than they were before the crisis. Many of these employees will be younger, such as students and recent school-leavers. Their income will become more and more important to their families (including parents and siblings) as the main breadwinners suffer significant income drops. Employers should not underestimate the value of JobKeeper Payments to younger employees and their families.
Staff who have been hired elsewhere
It should be noted that even staff who have taken up a role elsewhere may appreciate their pre-crisis employer administrating and paying them the JobKeeper Payment. Many such casual staff will have taken up positions in businesses that are ineligible for JobKeeper Payment as they have experienced no revenue drop (think the major grocery chains). This means those staff could get paid by both their pre-crisis employer, as well as their in-crisis employer.
When the choice comes to stay with their new work or go back to their old roles, how employees feel about their potential employers will be a major factor. Being the employer who paid them a top up at a tough time will be viewed well.
Business owners themselves may benefit
From the information provided thus far, it seems the JobKeeper Payment is available to sole traders, and will also be paid by companies to shareholders who are also employees (a common situation in many small to medium businesses). Frankly, many small to medium businesses should register for the payment because many owners will directly benefit.
This is multiplied for family businesses. Administrating JobKeeper Payments may keep many family members who are regularly employed by the business financially afloat. It should be said that many small to medium businesses would view their staff as being as close as family anyway, and would want to help them any way they could.
Keeping the admin running
As any small business owner would know, half the challenge in running a business is managing the back office operations. Administering the JobKeeper Payment for employees will ensure the back office of many small businesses keeps ticking along, ready to ramp up when operations resume.
In many cases, the cost of managing this scheme can likely be spread over at most a few employees whose wages can be paid, at least in large part, by the JobKeeper Payment. In effect, any loss to the business for administrating the JobKeeper Payment should be minimal if managed well.
Advice for business owners
The overwhelming logic is that almost every employer in Australia who is eligible should register for, and administer, the JobKeeper Payment. It would be an exceedingly rare situation where a business could not generate value from looking after their employees during these tough times.
Employers should register their interest with the ATO now and be ready to apply as soon as more information is available. At the time of writing, there are reports that 270,000 businesses have already registered. While this may sound like a lot, it is less than 13 per cent of all the businesses in Australia, which means there are likely still hundreds of thousands of eligible businesses that have yet to register.