Since the onset of the COVID-19 pandemic, the Slovak government has approved several proposed measures to support the economy. In the following article, we provide you with all the important information regarding subsidies for employers and self-employed individuals.
To assist companies, self-employed individuals, and employees, the Government of the Slovak Republic, at its meeting on February 5, 2021, adopted a proposal amending measures to support the economy, employees, employers, self-employed individuals, and selected groups of natural persons, thereby expanding the scope of beneficiaries as follows:
- The state will provide subsidies to employers whose operations are mandatorily closed as a result of measures adopted by the Public Health Authority of the Slovak Republic, in the amount of 100% of the total labor cost of an employee to whom work cannot be assigned (hereinafter referred to as the “first subsidy”), (note: 100% of the total labor cost is calculated based on the wage compensation paid to the employee for obstacles to work on the employer’s part, in the minimum amount specified by the Labor Code),
- the state will provide contributions to self-employed persons whose businesses are mandatorily closed as a result of measures adopted by the Public Health Authority of the Slovak Republic, or who have experienced a decline in revenue, based on the extent of their revenue loss (hereinafter referred to as the “second contribution”),
- the state will provide a subsidy to employers who, during the declared state of emergency, maintain jobs even in the event of an interruption or restriction of their business operations, in the amount of 100% of the total labor cost of an employee to whom work cannot be assigned, or in the amount of 100% of the total labor cost of each employee, but not exceeding the applicable maximum amount depending on the decline in revenue (hereinafter referred to as the “third contribution”) (note: 100% of the total labor cost is calculated from the wage compensation paid to the employee for obstacles to work on the employer’s part, in the minimum amount specified by the Labor Code),
- the state will provide a contribution to selected groups of individuals who, at the time of the declaration of a state of emergency, have no other income (hereinafter referred to as the “fourth contribution”).
The aforementioned measures are implemented in the form of support to employers through the provision of non-repayable grants pursuant to Section 54(1)(e) of Act No. 5/2004 Coll. on Employment Services, as amended. The grants will be provided to employers by the locally competent offices of labor, social affairs, and family in whose territorial jurisdiction the employer maintains jobs or in which it conducts its business. The period for implementing the aid will last until June 30, 2021.
I. In the case of the first subsidy to support employers who were required to close their operations as a result of measures by the Public Health Authority of the Slovak Republic (hereinafter referred to as the “Measures”), the following applies:
An eligible applicant is an employer, including a self-employed person who is an employer (excluding public administration entities), who, at the time of a declared state of emergency, state of emergency, or state of exception, maintains jobs despite the obligation to close their operations based on the Measures.
An eligible applicant for the subsidy for January and subsequent months may only be an entity that was established and began operating no later than February 1, 2021.
The target group for the subsidy for January and subsequent months consists of employees who were hired no later than February 1, 2021, and to whom the employer cannot assign work due to an obstacle on the employer’s part (Section 142 of the Labor Code). This means that the allowance does not apply to employees who are not performing work for reasons other than an obstacle to work under Section 142 of the Labor Code (e.g., employees on parental leave, sick leave, etc.).
For the purposes of granting both of the aforementioned allowances, an employee is considered to be only an employee in an employment relationship (i.e., not, for example, a “contract worker”).
The amount of the contribution per employee (applies to applications submitted for February 2021 and subsequent months) is the amount of the employee’s wage compensation equal to 100% of the employee’s total labor cost, but not exceeding 1,100 euros, calculated based on the wage compensation paid to the employee for work disruptions caused by the employer, at the minimum amount specified in the Labor Code. The maximum total amount of the subsidy is 1,600,000 euros per business, regardless of the number of employees; once this limit is exceeded, a subsidy of 80% of the employee’s total labor cost may be received.
II. In the case of the second subsidy to support self-employed individuals whose operations are mandatorily closed as a result of the adopted Measures, or who have experienced a decline in revenue, the following applies:
An eligible applicant is a self-employed person who, at the time the state of emergency was declared, suspended or restricted the performance or operation of their self-employment activities based on the Measures, or whose revenue has declined.
Only an entity that was established and began operating no later than February 1, 2021 is eligible to apply for the grant for January and subsequent months.
Self-employed individuals who also have a concurrent employment contract are eligible for the grant, provided that the amount of net income from this employment contract is deducted from the grant amount. Self-employed individuals whose business license has been revoked or suspended are not eligible for the grant.
The amount of the second grant is determined by a flat-rate grant amount based on the eligible applicant’s decline in revenue as follows:
Grant for February 2021 and subsequent months
III. In the case of the third grant to support employers affected by the emergency situation, the following applies:
An eligible applicant is an employer (excluding public administration entities) who, at the time the emergency situation is declared, maintains jobs even in the event of an interruption or restriction of their business operations.
Only an entity that was established and began operating no later than February 1, 2021 is eligible to apply for the grant for January and subsequent months.
The target group for the January and subsequent months’ grants consists of employees who were hired no later than February 1, 2021. The grant cannot be provided for employees who are receiving social security benefits (sick leave, parental leave) or are on vacation.
The employer has a choice of two options, and may change their decision for the following month and select the other type of subsidy. In such a case, however, they are required to submit a new application and notify the relevant labor office of the termination of the original agreement. In the event that the employer has multiple business locations, they may draw both contributions simultaneously within a single month by drawing the first option of the third contribution for some locations and the second option of the third contribution for others. The employer may choose from the following options:
3A) payment of wage compensation to an employee to whom the employer cannot assign work due to an obstacle on the employer’s part (Section 142(4) of the Labor Code), up to a maximum of 100% of the employee’s total labor cost, up to a maximum of 1,100 euros (note: 100% of the total labor cost is calculated based on the wage compensation paid to the employee for obstacles to work on the employer’s side, at the minimum amount specified in the Labor Code).
3B) a contribution equal to 100% of the total labor cost of each employee (note: 100% of the total labor cost is calculated based on the wage compensation paid to the employee for work disruptions caused by the employer, at the minimum amount specified in the Labor Code), but not exceeding the applicable maximum amount depending on the decline in sales according to the following table:
The maximum total amount of the contribution is 1,600,000 euros per company, regardless of the number of employees; if this amount is exceeded, a contribution equal to 80% of the employee’s total labor cost may be received.
For the purposes of the second and third grants, it is important to clarify the questions “what constitutes a decline in revenue in a given month” and “how this decline in revenue is determined”.
The comparison periods for assessing the decline in revenue are (the principle applies that the base period against which the current period will be compared remains 2019)
(1.) The reported month is compared with the same month of 2019 (e.g., the reported month of February 2021 is compared with February 2019)
(2.) the amount of revenue calculated as the monthly average for 2019 is compared, i.e., as 1/12 of the total revenue for 2019 (this applies, for example, if such a calculation would be more objective due to seasonality or the alternation of so-called strong and weak months). This method may only be chosen by an employer or self-employed person who carried out gainful activity throughout the entire year 2019.
(3.) The reported month is compared with February 2020. This method is intended only for those employers or self-employed individuals who carried out gainful activity for only part of 2019 or part of 2020, but no later than February 1, 2020.
(4.) The reported month is compared with September 2020. This method is intended only for those employers or self-employed individuals who carried out gainful activity only for part of 2019 or part of 2020, but no later than September 2, 2020.
As of the date of this article’s update, it is not yet clear how the decline in revenue will be assessed in cases where the activity began after September 2, 2020, and continued until February 1, 2021.
It applies that the method of calculating the decline in revenue may vary from month to month.
The term "revenue" must be interpreted differently in the case of an applicant that is an entity using double-entry bookkeeping, where revenue is understood as the sum of all income, i.e., amounts that were invoiced in the given month, or for which a claim for payment arose based on relevant accounting and tax documents (an accounting entity is not always required to issue an invoice). However, the key point is that it does not matter whether these amounts were actually paid or not.
We do not consider this approach to be the most appropriate solution because the invoiced amount does not necessarily represent actual cash revenue, especially during a period when the entity could have access to those funds.
In the case of an applicant who does not use double-entry bookkeeping (but uses single-entry bookkeeping or keeps records of income and claims flat-rate expenses), revenue is defined as the amount of actual income received into the applicant’s account or cash register, i.e., amounts actually paid to the applicant.
For the purposes of granting both of the aforementioned contributions, an employee is considered to be only an employee in an employment relationship (i.e., not, for example, a “contractor”).
- In the case of the first contribution to support selected groups of individuals who have no other income at the time the state of emergency is declared, the following applies:
Eligible applicants are:
- A self-employed person who has suspended or restricted the performance or operation of their business and who is not subject to health and pension insurance obligations or is not taking a so-called “contribution holiday.”
- A natural person who is the sole shareholder of a limited liability company (s.r.o.), is also its managing director, and is not its employee (a so-called single-member s.r.o.).
Only an entity that was established and began operating no later than February 1, 2021 is eligible to apply for the grant for January and subsequent months.
The amount of the grant for February 2021 and subsequent months is set at a flat rate of 360 euros.
An individual must attach to the application a sworn statement that they have no other income and that they are an eligible applicant for this subsidy.
Additional conditions for an eligible application by an employer, or a self-employed person who is an employer, for the subsidy are:
- to pay the employee wage compensation amounting to at least 80% of their average earnings (note: until April 4, 2020, when the amendment to the Labor Code took effect, this had to be 100%), or at least 60% if this is stipulated in an agreement on serious operational reasons concluded between the employer and employee representatives, but in an amount consistent with such an agreement (note: the potential amount of the subsidy is adjusted to the actual amount of wage compensation paid),
- a commitment that, for at least one month following the month for which the contribution is requested, the employer will not terminate the employment relationship with the employee for whom the contribution is requested, nor will the employer take any legal action that would terminate the employment relationship with the employee by notice or agreement for the reasons specified in Section 63(1)(a) and (b) of the Labor Code (so-called organizational reasons on the part of the employer),
- submit data on the number of employees as of March 31, 2020,
- that as of December 31, 2019, the applicant was not a company in difficulty (this also applies to self-employed applicants) – assessed according to the criteria set forth in the Guidelines on State Aid for the Rescue and Restructuring of Non-Financial Companies in Difficulty (2014/C 249/01) .
An applicant who is an employer, or a self-employed person who is an employer, must provide the relevant Office of Labor, Social Affairs, and Family with a sworn statement:
1. payment of wage compensation amounting to 80% of the employee’s average earnings (100% prior to the amendment to the Labor Code effective as of April 4, 2020) or at least 60% due to the existence of an agreement on serious operational reasons concluded with employee representatives, but at the same time in the amount specified in such an agreement (note: the possible amount of the contribution is adjusted to the actual amount of wage compensation paid),
2. undertaking the obligation that, for at least one month following the month for which the contribution is requested, the employment relationship will not be terminated, nor will any legal act be performed that would terminate the employment relationship with the employee by notice or agreement for the reasons specified in Section 63(1)(a) and (b) of the Labor Code,
3. that the entity was not in financial distress as of December 31, 2019.
The employer, a self-employed person who is an employer, and a self-employed person, in addition to the specific conditions for entitlement to individual grants, further declares by affidavit:
1. compliance with the conditions under Section 70(7) of Act No. 5/2004 Coll. on Employment Services, namely:
a) has fulfilled tax obligations in accordance with a special regulation,
b) has fulfilled obligations regarding the payment of advance contributions for public health insurance, social insurance premiums, and mandatory contributions to old-age pension savings,
c) has not violated the prohibition on illegal employment during the two-year period preceding the submission of the grant application,
d) has no outstanding financial obligations to the office,
e) is not in bankruptcy, liquidation, or receivership, nor has a repayment schedule established under a special regulation,
f) has no recorded unsatisfied claims by its employees arising from employment relationships,
g) has not been lawfully prohibited from receiving grants or subsidies or from receiving aid and support provided from European Union funds, if it is a legal entity;
2. a decline in revenue of a certain amount in the case of employers and self-employed persons whose revenue declined during the period from the declaration of a state of emergency, a state of emergency, or a state of exception,
3. the fact that no claim for the recovery of aid has been made against it based on a previous Commission decision declaring the aid unlawful and incompatible with the internal market.
Tax and contribution obligations and the obligation to settle financial liabilities to the authority are considered fulfilled for February 2020. The entity meets the relevant conditions even if:
- the tax administrator has granted a deferral of tax payment, payment of tax in installments, or payment of tax arrears in installments,
- the Social Insurance Agency has granted the applicant installment payments for outstanding insurance premiums, or the health insurance company has granted the applicant installment payments for outstanding advance insurance premiums or arrears from the annual insurance premium settlement,
- the Labor Office has determined installment payments for the applicant’s outstanding financial obligations.
Although the concept of a sworn statement may seem relatively easy to abuse, the relevant authorities will continuously conduct additional checks to verify compliance with the conditions for granting contributions, for which they will require the entities to which the contributions were granted to provide relevant documents proving the eligibility for drawing the contributions. If it is subsequently determined that the conditions were not met, any grants provided in error must be returned, and at the same time, other negative consequences may be imposed on such a recipient. It is therefore crucial to properly and thoroughly assess in advance the individual conditions for drawing down contributions and their fulfillment by each applicant, as well as in relation to each employee for whom the contribution applies.
This program will be financed from the European Social Fund under the Human Resources Operational Program (taking into account the fulfillment of the reallocation conditions from the relevant operational programs) and co-financed from the state budget. For this reason, the grant recipient is required to display an A3-sized poster at the workplace where the supported individuals work, stating that the activities are carried out as part of the project and are made possible with the support of the EU (funds provided by the European Social Fund).
More information, links to application forms, and instructions for filling them out can be found on the website established by the Ministry of Labor, Social Affairs, and Family www.pomahameludom.sk.
We view the measures taken positively, but it is evident that they do not address the situation comprehensively. Many businesses remain without assistance or a solution. A significant number of employers do not fall into any of the eligible applicant groups for these grants because they were not affected by the Measures and the obligation to close their operations and suspend activities, nor are they experiencing a drop in revenue in the current months. This applies primarily to larger companies in the manufacturing or service sectors, where declines in revenue will only become apparent over time (for example, they are still manufacturing and providing services based on old contracts and orders today, but new orders and contracts are no longer coming in), or many companies (in the fields of technology development and assembly, specialized maintenance services, etc.) that carried out their contracts or a significant portion of their contracts abroad are now unable to fulfill these contracts or are not accepting new ones from their foreign partners.
We see the solution in the introduction of so-called Kurzarbeit and other programs to support and maintain jobs in Slovakia, which will also be applicable to other employer-employee relationships.
We are monitoring the situation on an ongoing basis and will update and supplement the information.
