IPA concerned JobMaker may shun small employers

In its submission to government, the Institute of Public Accountants is concerned that the eligibility criteria for the JobMaker credit may immediately eliminate a large number of small businesses, while also disincentivising others to take on more staff.

As part of its jobs-focused budget, the government announced it would be implementing a JobMaker Hiring Credit to assist 450,000 young people into work from now until 2022-23, with an investment of $4 billion.

JobMaker is currently being looked into by the Senate economics legislation committee, with a report expected on 6 November.

At the moment, the scheme does appear to have strict criteria, requiring an employee to work a minimum 20 hours per week. Businesses, too, need to meet certain criteria such as hold an ABN, be up to date with their tax lodgement obligations, be registered for PAYG withholding, and report through single touch payroll.

It is this strict eligibility that has troubled the IPA, having found that the scheme may in fact be limiting in nature.

According to general manager of technical policy Tony Greco, there are a number of issues, including: 

- The factsheet indicates that payments are paid in arrears. While this process is similar to JobKeeper whereby it adds integrity to the system in that it ensures the wages have been paid before reimbursement eligibility has been satisfied, it does not help the entity with cash flow, said Mr Greco. In addition, the first entitlement has been stated as available from 1 February 2021, which further exacerbates the cash flow concern, he said.

"You are asking businesses to start employing as from 7 October and the earliest they will receive a jobmaker hiring payment will be after 1 February 2021," said Mr Greco. 

"Small businesses who are cash strapped may not be attracted to this feature whereas larger businesses may have the resources to fund additional employees and can afford to wait for the wage subsidy."

- The factsheet indicates that for a business with no employees, the minimum baseline headcount is one, so employers who had no employees as at 30 September 2020 will not be eligible for the first employee hired but will be eligible for the second and subsequent eligible hires.

"We interpret this to mean that a sole trader needs to employ two additional employees in order to qualify for one jobmaker hiring payment. More than 60 per cent of all small businesses are non-employing entities. The jobmaker hiring credit would have incentivised such entities to consider hiring someone for the first time," said Mr Greco. 

"Even if less than half of all these entities put on one additional employee it would represent a significant number as there are over 1.2 million small business entities that are non-employing."

- As part of the proposed eligibility criteria for employees, it is mandated that employers report through STP.

"Whilst we understand from an administration perspective why the ATO prefers to deal with an employer who is STP compliant, this is highly discriminative towards smaller employers. It is not mandatory for all employers to be STP complaint. Micro employers defined as those with one to four employees, are allowed to report quarterly through their intermediary such as a tax agent until 30 June 2021," said Mr Greco. 

"By excluding such entities, this does not accord with the policy objective of incentivising all employers to take on additional employees. Similarly, there are closely held entities which are also exempted from STP until 30 June 2021. There are some large closely held entities that may want to avail themselves of this incentive so excluding them appears overly restrictive."

- The eligibility criteria refers to an increase in total employee headcount initially from the reference date 30 September 2020. Seasonal businesses who would normally start to recruit new employees would be beneficiaries of this hiring payment without necessarily doing anything different from what they would be doing ordinarily. "We assume this might be an unintended outcome to maintain simplicity of the scheme," Mr Greco noted. 

- Some businesses have received lodgment deferrals, such as those businesses impacted by the bushfires.

"With respect to employer eligibility that the entity is up to date with its tax lodgement obligations, we would like to see that the Tax Commissioner has some discretion to deal with special circumstances around the obligation to have up to date lodgement obligations," said Mr Greco. 

- Ineligible employers includes those that are claiming JobKeeper. Given that the JobKeeper payment ceases on 28 March, the IPA assumes that such employers will not be excluded from taking advantage of JobMaker thereafter. While it is not clear in the factsheet whether this will be reflected in the JobMaker rules, the IPA believes that if it is left out, then JobMaker will not assist entities in necessary recovery phase. 

- The flat nature of the payment for a minimum of 20 hours of work does not incentivise the employer to engage the employee for any more hours. There is no tapering of the amount in reference to hours worked with an upper limit.

- The IPA's final point is around the ‘additional criteria’, which refers to the ‘total employee headcount on 30 September 2020’ and the employee eligibility refers to ‘employees may be employed on a permanent, casual or fixed term basis’.

"An administratively sensible approach to the process of calculating ‘total employee headcount’ is required particularly for small business entities attempting to determine eligibility. Ideally, we do not want the registration process overly cumbersome and time consuming," concluded Mr Greco. 

The IPA did, however, express its approval of the government’s announcement that the ATO will be administering the payment, noting that “it is best placed to undertake compliance to ensure the integrity checks are working and that the only eligible employers are accessing the scheme”.