NOW scheme adjustment - individual operating entities now also have access to subsidy

May 4, 2020 | Blog

After it was first published on 31 March 2020, the NOW scheme was found wanting in a few areas. Swayed by calls from the Labour Foundation [Stichting van de Arbeid] and a motion in parliament, Social Affairs and Employment Minister Koolmees made an amendment to the NOW scheme. It is now possible for individual operating entities within groups to apply for the wage cost subsidy even if the turnover loss within the entire group does not exceed 20%.

The gap in the scheme related to the situation where a group of companies as a whole may not suffer a turnover loss of at least 20%, yet one or more of the operating companies within the group may see their turnover drop by that percentage, or even a substantially larger percentage. Given those circumstances, it is quite conceivable that jobs will be at stake in those operating companies. This means that the NOW scheme as it applied until now overshot its mark for companies affected in this way, for it failed to meet its very aim of sustaining employment to the extent possible.

This argument persuaded the Ministry of Social Affairs and Employment to remedy the defect in the scheme, as it announced in its letter to Parliament of 22 April 2020. On Friday 1 May 2020, the amended text of the NOW scheme was published. It is evident from the amended text that applications for a subsidy under the NOW scheme by individual operating companies will be granted under strict conditions only:

  • Group turnover loss less than 20% - If the group turnover loss equals or exceeds 20%, no compensation can be applied for on the basis of the turnover loss of a single operating entity. This is possible only if the turnover loss of the entire group is lower than 20%. To answer the question whether group companies can benefit from the NOW scheme amendment, the first thing to do is to determine whether the group turnover loss has reached the 20% mark. The percentage is calculated by the group's auditor. In his opinion, the auditor will have to demonstrate that the group turnover loss does not exceed 20% and that the turnover loss suffered by the operating entity in question equals or exceeds 20%.
  • Corporate capacity - The operating company that wishes to be eligible for the exception must be incorporated.
  • No personnel company - The applying operating entity may not be a personnel company (personeels-bv) or, in any event, not more than 50% of the activities of the operating entity may involve the placement of employees at the disposal of other entities within the group. Personnel companies must always expect the group to suffer a turnover loss because the turnover (or turnover loss) and the deployment of personnel converge at this level. At the level of operating entities within groups with a personnel company, this convergence is absent, because the wage sum is paid by the personnel company, whereas the turnover is generated (or lost) by the other operating entities. For this reason, personnel companies cannot apply for subsidy under the NOW scheme.
  • Agreement employment representatives on sustained employment - Before applying for the subsidy, the operating company (the employer) with 20 or more employees must enter into an agreement with the relevant employee associations, or in the absence thereof with other employee representatives, on sustained employment at the operating company. If there are fewer than 20 employees, a mere agreement with other employee representatives suffices.
  • No bonuses or dividends, no share buybacks - Groups of which one operating company invokes the NOW scheme must, before filing the application, issue a declaration that they will not pay bonuses or dividends over 2020 or buy back shares in their own capital up to and including the date of the shareholders’ meeting in which the annual accounts are adopted in 2021. This declaration must be kept as part of the company's records. Groups are required to honour the substance of the declaration. Bonuses include profit-sharing amounts and other bonus payments. The ban on bonus payments only affects directors and officers of the group and of the operating entity filing the application. It does not affect other staff. If this condition is not met, the NOW subsidy will be nil. According to the Minister, this sweeping measure is justified by the fact that the subsidy is offered by the State to finance staff wages, so there is no need for groups to pay those wages from their own means. The purpose is to avoid that groups use this elbow room in the end to pay bonuses to officers and directors of the group and the applying operating company, and to pay profit-sharing amounts or buy back shares.
  • Monitoring safeguards - To prevent strategic conduct by groups, the minister has implemented some safeguards: (I) The other operating entities in the group are not allowed to carry out assignments or projects at the expense of the entity applying for the subsidy, which are normally carried out by the latter entity and fall outside the scope of normal activities of the other entities, (II) if employees are supplied to other companies, the turnover loss is corrected, (III) the group's transfer pricing mechanism may not be adjusted, (IV) fluctuations in the stocks of finished products will be attributed to the turnover of the operating entity.

With these changes in place, it is now possible, subject to strict conditions, for individual operating companies to apply for a subsidy under the NOW scheme without the necessity of having to prove the entire group has suffered a turnover loss of at least 20%. As will be clear from the conditions listed above, the NOW scheme has become the more complicated for it. If you have any questions regarding the NOW scheme, we will be happy to listen to you and seek the solution best tailored to your problem.

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