State financial support for employers is about to launch
On 23 March 2020, the Czech government approved a salary support program called “Antivirus” prepared by the Ministry of Labour and Social Affairs. The program is aimed to help companies to mitigate negative consequences of COVID-19 and prevent them from potential workforce reductions.
The legal framework is set forth in Section 120 of the Employment Act (Act No. 435/2004 Coll.), pursuant to which the Czech government can approve a targeted program supporting employment on a national-wide level.
The Antivirus Program should help employers in situations when their operations are affected by COVID-19 and/or related restrictive measures implemented by the Czech government, so that they are not able to allocate work to their employees as usual. In these cases, employers have to pay employees a salary compensation according to the Labour Code (Act 262/2006 Coll.). The Antivirus currently provides for five regimes of the state reimbursement of the salary compensation paid out by employers:
Employer salary compensation (average earnings)
|| Employees are in quarantine ordered by authorities (i.e. on sick-leave)
|| 60% (first 14 days only, then state sick-allowance applies)
|| Operation suspended/closed based on order by authorities
|| More than 30% of employees are out of work due to quarantine or child-care
|| Decrease in input availability (material, products, service)
|| 80% - 100%
|| Decrease in demand in products or services (the so called “partial unemployment”)
|| 60% - 100%
Note: Average earnings is a payroll term with a complex method of calculation, generally corresponding to salary, but can deviate due to holiday taken in the previous calendar quarter, bonuses received, etc.)
It is anticipated that multiple regimes may apply to one employer, so each employer will need to identify individual employees falling under the relevant reimbursement regime. Accordingly, the duration and calculation of the reimbursement will be determined for each employee separately.
The program is planned to run until 30 June 2020. However, at this stage employers can only ask for reimbursement of salary expenses incurred during the period from 1 March until 31 March 2020, provided that the particular reimbursement will depend on the type of the applicable regime and its occurrence.
The reimbursement will be provided by the Czech Labour Office according to the methodology approved by the Czech government. It is expected that each employer will need to file an application to the relevant Labour Office and sign a special reimbursement agreement with this authority specifying the reimbursement payment terms and conditions. The methodology is currently being drafted by the Ministry of Labour and Social Affairs, so details of processing of applications are not known. Accordingly, no official application form or template reimbursement agreement are available now. It is also not clear which documentation will need to be submitted by employers to support their claims.
The reimbursement will be provided retroactively, which means that employers will have to pay out the salary compensation to their employees first, and only after that they will be able to get the reimbursement from the state. This might have a negative impact on employers’ cashflow.
At this stage, there are a lot open questions, including the reimbursement calculation. In particular, it is uncertain whether the reimbursement will also cover “payroll taxes” (called social security and health insurance contributions) paid by employers directly to state authorities at a rate of about 35% above gross salary, or whether the reimbursement will be calculated based on a net salary paid out to employees. The later scenario might be preferable to the Czech government. It is also not clear whether the reimbursement will be capped at certain level.
The Ministry of Labour and Social Affairs plans to finalize the methodology and launch the Antivirus Program on 1 April 2020, so that employers can start applying for the reimbursement. We will be monitoring the situation and will update the above summary as appropriate.