More information is now available about the Wage Subsidy Scheme and the new Essential Workers Leave Support Scheme. Please click here for the most up to date information.
On 27 March, the Minister of Finance Hon Grant Robertson announced schematic changes to the Wage Subsidy and Leave Payments Scheme. We set out these changes below.
Following previous announcements on 23 March 2020 that widened the eligibility and value of the Wage Subsidy, there have been further important changes to the Wage Subsidy Scheme and the Leave Payment Scheme. Employers need to ensure they understand these new rules and are complying with all of the eligibility requirements for the Wage Subsidy.
- From 4pm on 27 March, the Leave Payment Scheme has been absorbed into the Wage Subsidy Scheme, preventing applicants from accessing both entitlements at the same time for workers.
- The Government is considering a new policy to provide support to workers in essential services where required to take sick leave. We await further clarity on this new scheme.
- Employers and businesses accessing the Wage Subsidy are expected to take “best efforts” to retain employees and remunerate them at least 80% of their normal income. Where this is not possible, the Government expects that, at a minimum, employers pass on the full value (less taxes) of the subsidy to employees (i.e. either $585.80 or $350 per week for 12 weeks) unless the employee is ordinarily paid less than these amounts; and retain employees for the duration of the subsidy.
- The Ministry of Social Development (MSD) has shaped its thinking on what counts as taking “active steps” to mitigate the impact of COVID-19 on your business activities. Acceptable activities now include (but are not limited to) “engaging with your bank, drawing on your cash reserves as appropriate or making an insurance claim”.
- MSD will begin publishing the names of organisations and people that have accessed the subsidy.
The new declaration which needs to be made at the time of applying for the Wage Subsidy should be read and considered in full by all businesses looking to claim the Wage Subsidy. You can read it here.
During the 27 March announcement, the Finance Minister clarified that nothing under the Wage Subsidy scheme overrides employers’ legal obligations, especially with respect to leave entitlements and matters of employment relations. Employees should not be compelled to take leave to receive the subsidy. This position is reinforced by the following Q&A replicated from the MSD website.
Q: As an employer, what are my obligations under employment law at this time?
A: Your obligations under employment law haven’t changed.
Q: As an employer, how much am I obliged to pay the employees named in my application for the COVID-19 Wage Subsidy (after it was modified on March 27) if they are not working?
A: You must try your best to pay your staff at least 80% of their regular wages/salary where reasonably possible. If that is not possible, you must pass on at least the full rate of the COVID-19 Wage Subsidy to each employee named in your application.
Q: As an employer, if I have already received a COVID-19 Wage Subsidy for an employee, do the new obligations of the COVID-19 Wage Subsidy (after it was modified on March 27 2020) now apply?
A: No. The obligations for the COVID-19 Wage Subsidy remain the same as at the time you applied.
Q: As an employer, what happens if I make my employee redundant during this time?
A: You need to try your best to retain your employees you are currently receiving the COVID-19 Wage Subsidy for. If you applied for the COVID-19 Wage Subsidy for any employees after 5pm on 27 March 2020, you must retain those employees or you will be in breach of your obligations.
Recap: About the Wage Subsidy
Given the rapidly evolving nature of Government support for businesses at this time, we remind you of the key features of the regime which was first introduced on 17 March, then modified on 23 March and again on 27 March, with a clarification issued on 28 March.
What is the Wage Subsidy? The Wage Subsidy allows qualifying organisations to claim NZ$7,029.60 for a full time employee and NZ$4,200 for a part time employee (working less than 20 hours per week). The total amount in respect of all employees is paid out in a lump sum that covers a 12-week period.
Who is eligible? Every organisation in New Zealand is able to apply for the Wage Subsidy including employers, contractors, sole traders, self-employed people, registered charities, incorporated societies, non-governmental organisations and post-settlement governance entities provided they meet the other eligibility criteria
What are the eligibility criteria? As of 4pm 27 March the eligibility criteria are:
- The employees (including you if you are a sole trader or self-employed person) named in your application are legally employed by your business and are employed in New Zealand; and
- Your business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same month last year, or a reasonably equivalent month for a business operating less than a year, and that revenue loss is attributable to the COVID-19 outbreak; and
- Before making your application for the subsidy, you have taken active steps to mitigate the impact of COVID-19 on your business activities (including but not limited to engaging with your bank, drawing on your cash reserves as appropriate, making an insurance claim); and
- You are not currently receiving the COVID-19 Wage Subsidy or COVID-19 Leave Subsidy in respect of any of the employees named in your application.
What are active steps? An employer should have taken active steps to mitigate the financial impact of COVID-19 before applying for the Wage Subsidy. There are a range of activities which businesses should be considering and these can include:
- Engaging with your accountant
- Activating your business continuity plan
- Drawing on cash reserves (as appropriate)
- Making an insurance claim
- Proactively engaging with your bank
- Seeking advice from the Chamber of Commerce, a relevant industry association or the Regional Business Partner programme.
To prepare for the application process, you will need to:
- Have proof that you are registered and operating in New Zealand, and that your employees are legally working in New Zealand;
- Be comfortable that you meet the eligibility criteria and can agree to the declaration with MSD;
- Collect your bank account, IRD number, New Zealand Business Number (NZBN) and organisation contact details; and
- With employee consent, collect employees’ names, dates of birth, IRD numbers and employment types (i.e. more or less than 20 hours of work per week).
Tall Trees Limited has eight full-time employees. After watching the 27 March announcements, the CEO, Alex, evaluates that she will be unable to pay 80% of normal income to her team for the foreseeable future as Tall Trees Limited is unable to operate during the COVID-19 lock down and its employees are unable to work from home. During this period, there is no income coming into the business. After working through the employment law implications carefully with her staff and having the staff agree to receive only the Wage Subsidy amount during the lock down period, Alex applies on 31 March for the Wage Subsidy for all eight staff. Tall Trees Limited receives a payment from MSD on 3 April for $56,236.80. Over the course of the next 12 weeks, the eight staff receive a minimum of $585.80 (less normal employment taxes), with Tall Trees Limited undertaking to increase its payments to staff as the business restarts earning income at the end of the lock down period.
Blue Sky Limited has 20 part-time employees who each earn between $100 to $400 per week. Blue Sky Limited is eligible to claim the Wage Subsidy in respect of its employees. Blue Sky Limited receives a total Wage Subsidy of $84,000. Blue Sky Limited must pay all of its 20 staff a minimum of $350 per week for the next 12 weeks if its employees ordinarily earn $350 or more, and their normal wage to employees who would ordinarily earn less than $350 per week.
Blake works two jobs. He works 40 hours per week at a bakery (Crunchy Cookies Limited), where he earns a minimum wage of $756 per week. At the weekend he also works 8 hours per week for a local bike shop (Bike Life Limited), earning $160 per week. Assuming they each meet the eligibility criteria for the Wage Subsidy, Crunchy Cookies Limited and Bike Life Limited would each apply for the Wage Subsidy in respect of Blake. Crunchy Cookies Limited will receive a Wage Subsidy of $7,029.60 and Bike Life Limited will receive a Wage Subsidy of $4,200 in respect of Blake. Over the next 12 weeks Crunchy Cookies Limited would ensure that Blake receives a minimum of $585.80 per week and Bike Life Limited would continue to pay Blake his usual wage of $160 per week. Bike Life Limited would have an excess amount of Wage Subsidy of $2,280 ($350 less $160 per week, times 12 weeks). This amount does not need to be returned to the Government, but in the spirit of the Wage Subsidy Scheme should be applied towards paying the wages of other staff whose wage is not fully covered by the Wage Subsidy Scheme.
Calm Seas Limited has 100 full-time employees and 50 part-time employees. Calm Seas Limited is potentially eligible for a Wage Subsidy of $912,960. John, the CEO of Calm Seas Limited, implements the business continuity plan he put in place, speaks to his accountant, and establishes that there are insufficient cash reserves to be able to commit to retaining all 150 employees for the next 12 weeks without receiving the Wage Subsidy. John and his accountant have forecast that the receipt of the Wage Subsidy would allow him to commit to retaining all 150 employees. Calm Seas Limited makes an application for all 150 staff.
Rolling Hills Limited has 500 full time employees who are on average paid $52,000 each per year. Rolling Hills Limited anticipates it will suffer over a 50 percent reduction in revenue. Rolling Hills Limited has activated its business continuity plan, spoken to its accountant and bank, and has prepared forecasts based on its cash reserves and available credit lines. Rolling Hills Limited believes that it could afford to retain its full workforce if its salary costs were halved; that is, it is only able to pay each staff member a maximum of $500 per employee per week if the business is to survive. Rolling Hills Limited applies for the Wage Subsidy and receives an additional $585.80 per employee per week. Over the 12 week period, Rolling Hills Limited continues to pay all employees their full weekly salary of $1,000; being funded $585.80 using the Wage Subsidy and $414.20 from its own funds.
White Cloud Limited has 10 full-time employees, each earning $104,000 per annum. White Cloud Limited therefore has a weekly salary cost of $20,000. White Cloud Limited is anticipating a sharp reduction in revenues and is potentially facing having to make 4 staff members redundant. After discussing the situation with all its staff members, all staff members agree that they would each be prepared to take a 20 percent reduction in salary for the duration of the COVID-19 issues, in order for all staff to keep their jobs. With the agreement of staff, the weekly salary cost reduces to $16,000 (or $192,000 over twelve weeks). White Cloud Limited is able to apply for the Wage Subsidy; it receives a Wage Subsidy of $70,296 for the 12-week period. White Cloud Limited pays its staff using the Wage Subsidy of $70,296 and $121,704 of its own funds.
*Please note in respect of all examples that these are gross amounts. All payments to employees remain subject to PAYE and other usual deductions.
Thanks to the careful planning and systems we have already implemented as a firm, we are well positioned to provide advice and support to all of our clients as we self-isolate as a nation. This includes aiding businesses as they access government supports and entitlements. In short, while our physical offices are closed to aid in the fight against COVID-19, we are still open for business.
The content of this article is accurate as at 28 March 2020, the time of publication. This article does not constitute advice; if you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.