JobKeeper – the Devil in the Detail

Author: Tony Rule, Partner, TAG Financial Services

Updated 21 April 2020

 The legislation behind the JobKeeper payment was published on Good Friday eve and the key question is – will the mechanics of the payment promised by the Prime Minister and Treasurer prove to be a Godsend or is there some Devil in the detail?

Firstly – What are the main concepts?

 The JobKeeper payment scheme is almost counter-intuitive – so be careful.

You need to pay an Employee a gross amount of at least $1,500 in a fortnight in order to qualify for the JobKeeper payment of $1,500 from the Government.  If you only pay an Employee $1,400 for that fortnight, then you will not receive any payment from the Government for that Employee.  If you usually only pay an Employee $500 per fortnight, you will need to take their pay up to $1,500 a fortnight to receive a payment of $1,500 from the Government.  If you have two Employees, and one receives $2,000 for a fortnight and the other receives $1,000 for the fortnight, you will only receive a JobKeeper Payment for the higher paid Employee (i.e. it is not based on an average).

If an Employer is going to qualify for the 30% decline in income, then it makes economic sense for them to increase payments to an Employee from (say) $500 per fortnight up to $1,500 per fortnight, because the Employer will be fully reimbursed for that payment.  The Employee will be $1,000 better off for that fortnight (i.e. an increase from $500 to $1,500) and the Employer will be $500 better off (i.e. the $500 wage they would normally pay has been reimbursed).

But, if you pay an Employee $1,500 in a fortnight and your income does not drop by more than 30%, you will not receive a JobKeeper payment for that (or any) Employee.

The payment to the Employee occurs on a fortnightly basis during a month, the measurement of whether income dropped by 30% or more occurs at the end of the month (or quarter) and the payment by the Government to reimburse the business occurs 14 days after the end of the month.  So, the business needs to be sure that its income will drop by 30% or more, particularly if they need to increase payments to Employees up to $1,500 per fortnight in anticipation of qualifying for the JobKeeper payment.

OK – now for the detail…

What is the period that gets measured to determine the 30% drop in turnover?

The initial announcements suggested that the period of measurement for the decline in income would be a month or a quarter, leading a number of analysts to suggest that it would depend on GST reporting period of the business.

The legislation provides that the turnover test period must be either a calendar month from 1 March to 30 September 2020 or a quarter commencing 1 April or 1 July chosen by the business.  The revenue in that test period is then compared to the month or quarter in 2019 that corresponds to the turnover test period in the current year (i.e. April 2020 is compared to April 2019).

To qualify for JobKeeper payments for wages paid in the two fortnights ending in April 2020, the business will need to show a 30% decline in revenue:

  • Has occurred in March 2020 compared to March 2019,
  • Is expected to occur in April 2020 compared to April 2019, or
  • Is expected to occur in the June 2020 quarter compared to 2019.

If you work out that you qualify for the JobKeeper payments for the first fortnight because your turnover has declined by the relevant amount, you remain eligible and do not need to keep testing turnover in following months.  However, you will have ongoing monthly reporting requirements.


What is GST Turnover?

The GST Turnover of a business will be calculated in the same way as you report GST Income on your BAS except the concept of GST Groups is ignored (i.e. your income is your income).


What are the business requirements for the JobKeeper Scheme?

A business will qualify for the JobKeeper Scheme if:

  • It was conducting an Australian business on 1 March 2020,
  • It notifies the Commissioner that it elects to participate in the scheme,
  • It meets the decline in turnover test for a month or a quarter,
  • It makes a gross payment of $1,500 or more to one or more Employees in the form of salary, wages, commission, bonuses, allowances or other salary sacrifice amounts or benefits in a fortnight,
  • It reports GST turnover within 7 days of the end of each month to 30 September 2020 and
  • A liquidator or provisional liquidator has not been appointed to the business.

Which Employees will the business be paid for?

Employee eligibility is measured on a fortnightly basis (pro rata if Employees are paid monthly) and for the business to receive $1,500 per fortnight for an individual, that individual must:

  • Be employed by the business in that fortnight,
  • At 1 March 2020;
    – Be over 16 years of age.
    – Be an Employee (other than a casual Employee for less than 12 months).
    – Be an Australian Resident or a resident of Australia for tax purposes with a Special Category visa.
  • The Employee has provided a nomination notice stating that they agree to be nominated,
  • The Employee has not nominated with another Employer,
  • That parental leave pay is not payable to the individual in that fortnight,
  • The individual is not paid dad or partner pay in that fortnight, and
  • The individual is not incapacitated for work and being paid under a Workcover entitlement in that fortnight.

A business owner who is not an Employee of the business may also be eligible for the JobKeeper payment of $1,500 per fortnight where they actively engaged in operating the business.


Who Notifies What?

There are a number of administrative notifications required to be made under the JobKeeper payment rules.  These administrative notifications include:

  • Employer notifies Commissioner that it elects to participate in the JobKeeper scheme by the end of the current fortnight,
  • Individual notifies Employer that it is eligible for JobKeeper payments and agrees to be nominated by the Employer as an eligible Employee,
  • Employer gives payment information for each individual for each fortnight to the Commissioner, and
  • Employer notifies Individual with 7 days of providing payment information to Commissioner.

Cash Flow Requirements

The Commissioner will make JobKeeper payments to Employers 14 days after the end of the month in which the payments were made to each Employee.  This essentially means that Employers will need to fund up to 6 weeks of wages to Employees before they will be reimbursed.

We expect that there will be some businesses that will not be able to fund the delay and this will ultimately mean that Employees that would otherwise receive the payments will miss out.


Revenue Recognition

Where a business prepares its activity statements on a cash basis, it may choose to measure its current and projected turnover on a cash (ie. cash received) or accruals (ie. invoices raised) basis, but must use the same method for its comparative amount.  Where the business uses an accruals basis of accounting to prepare its activity statements, it must use the accruals method to measure its turnover.

The importance of recognising revenue in the correct month or quarter will be particularly relevant for Employers utilising the JobKeeper payment scheme.  In particular, work performed in March 2020 should be invoiced in that month (and not April 2020) so as not to overstate your April to September income.

We expect there will be significant audit activity around ensuring that a business is not “manipulating” its reported revenue in order to qualify for the scheme – in the event that this is found it is likely that the Commissioner will see this as a Contrived Scheme which would result in the repayment of the JobKeeper payment and significant penalties.


Key Issues for Business

The key issues for businesses are therefore:

  • Ensure you are making gross payments to Employees of at least $1,500 per fortnight,
  • Determine whether you will be meeting the decline in turnover test for either a month or quarter compared with the same period from last year,
  • Ensure the proper notifications are occurring from;
    – The business to Employees,
    – The Employees to the business, and
    – The business to the Commissioner within the appropriate deadlines
  • In situations where you have not yet met the decline in revenue test for a given month, you will not receive the JobKeeper payment for any fortnights that ended in that month
  • As the business owner, determine if you are eligible for the JobKeeper payment where you do not receive a wage from the business
  • Be aware that you will need to set Employee expectations if they are going to receive more than normal for the next six months (and then return to their usual pay after that).

Other Matters

Business owners are able to buy, sell or re-structure their businesses and the nexus of employment for JobKeeper payments will transfer from the previous owner/entity to the new owner/entity.  This will continue to ensure that Employees will be covered where consolidation or acquisitions are necessary for the business to survive.


Conclusion

To conclude, there is a lot that the business owner needs to get their head around quickly in order to be eligible for their full entitlement under the JobKeeper payment scheme.

Whilst there are a number of positive outcomes for Employers and their Employees through this difficult period, there are considerable reporting and election deadlines that need to be met.

As has been acknowledged from the initial announcement, Employers will still need to outlay up to six weeks of wages before they can receive the JobKeeper payments and so the maintenance of a cash flow budget is more important now than ever before.

So yes, it is a Godsend on the eve of Easter, but the detail will trip up a number of Employers (resulting in reduced wage reimbursements) if they are not careful.  The time to act is now.

If you have any questions, please contact us on 03 9886 0800 or via email.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright ã 2020. Please do not reproduce without the expressed written consent of the author.