5 minute read 31 Mar. 2020
Red bridge in front of forest

Answering your NZ Wage Subsidy questions

Authors
Darren White

EY Oceania Private Services, Tax Partner

Cultivates long-term growth for people and their businesses. Provides innovative tax advice. Family at the heart of it all.

Tori Sullivan

EY Law New Zealand Leader

Tax controversy practitioner. Gives advice from practical and technical perspectives. Barrister & Solicitor.

5 minute read 31 Mar. 2020
Related topics COVID-19

BREAKING NEWS: Amendments to the COVID-19 Leave Payment and Wage Subsidy effective    

On 17 March 2020, the New Zealand Government released the Wage Subsidy and COVID-19 Leave Payment. The COVID-19 Leave Payment applied in those instances where an employee fell ill with COVID-19, was caring for someone in these circumstances, or was directed to self-isolation by the Health Department. 

From 3.00pm on 27 March 2020, the COVID-19 Leave Payment is no longer available for employers. Applications already submitted will continue to be processed and paid. For those employees who fall ill with COVID-19, are supporting someone dependant on them for care who has COVID-19, or has been directed to self-isolation, relief will now be provided by way of the Wage Subsidy.

The questions and answers set out below are relevant and up to date with Government announcements as of 30 March 2020. We will continue to provide updates as they arise.

APPLICATION CRITERIA

How much is the Wage Subsidy? The Wage Subsidy is paid as a lump sum to employers and covers 12 weeks payment per employee at the flat rate of:

  • $585.80 for people working 20 hours or more per week;
  • $350.00 for people working less than 20 hours per week.

As the wage subsidy is a flat rate applied to all employees, it may not be effective for all types of business, as some business will be impacted worse than others.

To be eligible for the wage subsidy, do I have to keep paying employees 80% of their salary even if they are not working? An employer must use its best endeavours to pay at least 80% of each named employee’s wages or salary for the period it receives the wage subsidy. If this is not possible, then the employer has to at least pay the wage subsidy in full to the employee.

Do the employees have to consent to being included in the application? No, not in the context of the COVID-19 state of emergency. The Civil Defence National Emergencies (Information Sharing) Code 2013 (Code) allow agencies to disclose employee personal information in the context of a national emergency to the Ministry of Social Development to facilitate access to the government wage subsidy. Personal information can also be disclosed under the Code to other public sector agencies in situations where disclosure is for a purpose that directly relates to the government management of response to, and recovery from, the state of national emergency.

Even so, the Privacy Commissioner is encouraging agencies to notify individuals about the use of their personal information in this way once that is reasonably practicable. Employers should take care to only use their employee’s personal information for Covid-19 management and not for any other purpose (e.g. inclusion in marketing databases).

It is also important to note that once the Code ceases to be in force (20 days after the expiry of the state of national emergency), employers will need to revert back to obtaining consent, or relying on other relevant exceptions under the Privacy Act 1993, before they use or disclose employee personal information for any purpose other than what it was collected for.How can I evidence that I have taken “active steps” to mitigate the impact of COVID-19? The Government guidelines include, drawing from case reserves (as appropriate), activating a business continuity plan, making an insurance claim, proactively engaging with banks, seeking advice and support from the Chamber of Commerce, a relevant industry association and/or the Regional Business Partner programme. We suggest that businesses take advice as to the best ways to evidence their attempts to mitigate the impact of COVID-19.

Do essential services qualify for the wage subsidy? Yes, provided they meet the relevant criteria. The categories of “essential services” are very broad and the Government has published a list here: COVID19.govt.nz. Where businesses provide both essential and non-essential services, they must shut down their non-essential operations while continuing their essential services. Businesses that continue to operate essential services must still take steps to ensure the health and safety of their workers performing those services.

Can I apply for the wage subsidy for fixed term employees? Yes, although we recommend you seek further advice if the fixed term contract ends in the 12 week subsidy period.

Can I apply for the wage subsidy for casual employees? Yes, provided they are employed at the time the employer applies and would have been expected to work during the time the employer will receive the wage subsidy. You should carefully review your employment agreement and circumstances for casual workers before you make an application, particularly which wage subsidy to apply for (the less than 20 hour or more than 20 hour subsidy).

I have employees on ACC. How does that affect the wage subsidy? The wage subsidy applies to an employer’s entire workforce. There is no statement or advice that this excludes workers that are covered on ACC (whether completely off work or working reduced hours). We recommend you seek further advice if you have employees on ACC and are looking to apply for the wage subsidy.

With the COVID-19 leave subsidy ceasing from 27 March 2020, can I still get assistance for employees who are sick with COVID-19, caring for someone sick with COVID-19 or who are directed to self-isolate? The wage subsidy is now to be used for employees who are sick with COVID-19, are caring for someone sick with COVID-19 or who are directed to self-isolate. There is no longer a separate leave subsidy.

Will the wage subsidy be extended? At this stage, we do not know. However, given that the original subsidy was announced during Stage One, and an amendment was made within the first week of Stage Four, we expect that the Government may need to revisit its effectiveness and likely need to make variations or extensions to the scheme.

 

APPLICATION PROCESS

When should I apply for the wage subsidy? Generally, if it is reasonable to conclude that you will have a decline in revenue for a one-month period because of COVID-19 and expect that you will be able to continue to pay that employee 80% of their usual wages you should apply for the wage subsidy for that employee. If your circumstances turn out to be better than expected, you should engage with MSD as there are now repayment obligations in place.

How quickly will MSD process the wage or leave subsidy? MSD are endeavouring to turn applications around within 5 days, but that may need to be revised given the level 4 shutdown will affect MSD staffing too.

Do I need to apply for all employees at the same time? No, you can make an application for additional employees later provided it is within the 12 week period commencing on 17 March 2020.

Are my obligations to employees different depending on when I apply for the wage subsidy? Yes, the obligations are different depending on whether you applied for the wage subsidy before or after 4pm on Friday 27 March 2020. We recommend you obtain advice to ensure you properly understand your obligations under the different schemes.

What documentation should I maintain to support my application if MSD audits me? Primarily MSD will require proof of a 30% drop in revenue due to COVID-19 for any month compared with 2019 (these requirements are modified for start-ups and organisations who have had growth). Contemporaneous documentation supporting why you forecast a 30% decrease in revenue, how you have calculated an employee’s usual pay and the consultation you have had with your banks, advisors and industry associations should be maintained.

What documentation should I maintain to support my application if MSD audits me? Primarily MSD will require proof of a 30% drop in revenue due to COVID-19 for any month compared with 2019. Alternatively, contemporaneous documentation supporting why you forecast a 30% decrease in revenue, how you have calculated an employee’s usual pay and the consultation you have had with your banks, advisors and industry associations.

Will my Company name be advertised if I apply for the wage subsidy? Yes, it will. We believe this is to safeguard against those that are receiving a wage subsidy for their employees but are not passing it on.

Are there repayment obligations?

Yes. Organisations are required to update MSD within five days in relation to any changes to their eligibility to receive the wage subsidy (including if an employee terminates their employment relationship with an employer).

Employers must repay the wage subsidy if they:

  • fail to meet any obligations as to how the subsidy is to be used;
  • become ineligible for the subsidy;
  • provide misleading information in their application; and
  • receive insurance like business interruption insurance for any costs.

The Government has announced it may pursue those employers, including under the Crimes Act 1961, in the event they do not abide by the repayment obligations above.

 

PAYING EMPLOYEES / WAGE SUBSIDY

Do I have to pass on the entire wage subsidy to my employees? Yes, at least the entire wage subsidy must be passed onto employees. However, if the wage subsidy is higher than an employee’s normal wage, an employer does not have to pass the entire wage subsidy to that employee. Rather, any difference should be used for the wages of other affected employees. Employers should continue to use best endeavours to pay employees 80% of their usual pay.

How do I determine what an employees’ usual hours of work are? This will depend on each employee’s employment agreement and circumstances. We recommend further advice is sought where employees have variable hours of work and/or regularly work overtime.

Can I top up the wage subsidy with annual leave or sick leave? The employer and employee can agree that the employee will use part of their annual leave or sick leave (in the event that they or someone in their care is sick) to “top up” the wage subsidy payments. Communications with employees in this regard should be carefully worded and we recommend legal advice is sought to cater for individual circumstances. Employers cannot require an employee to use their annual leave in order to receive the subsidy.

Can I unilaterally make employees take annual leave while receiving the wage subsidy? The Government has stated that the wage subsidy does not change any legal obligations employers have in relation to leave entitlements. An employer can direct employees to take annual leave provided it gives at least 14 days’ notice before that annual leave commences. Legal advice should be obtained if you are considering making employees take annual leave and have made a Wage Subsidy Application.   

Is it enough to “retain” employees by keeping them on the “books” or do I still have to pay them? The employer has to continue to pay them. As part of an employer’s declaration when applying for the subsidy, they are to both retain the employees, and pay those employees at least 80% of their normal wage or salary. If that is not possible, the employer must pay them the full rate of the wage subsidy, or, if the wage subsidy is higher than an employers’ normal pay, whatever their normal pay is.

If the business shuts down temporarily due to the lockdown and there is no work, do I have to continue paying my employees? The purpose of the wage subsidy is to retain and pay employees during this time. If an employer is receiving a wage subsidy for employees (and if the business is shut down), then at the very least the employers have to pass the entire wage subsidy to the employee (unless their normal pay is lower than the subsidy). In the event that the employer does not apply for the wage subsidy, then it will not be held accountable to the criteria of the wage subsidy. However, in those instances, employment law obligations continue to apply, and so a process would have to be followed to either seek an employee’s agreement to taking a period of unpaid leave, or a restructure implemented during which the employee’s employment would be disestablished and their employment deemed redundant. We would strongly recommend that advice is sought before such steps are taken.

Does holiday pay accrue on a wage subsidy where employees are not actually working?  While the Government has stated that the wage subsidy scheme does not change any legal obligations employers have in relation to employees’ leave entitlements they have not made it clear whether holiday pay will accrue on the wage subsidy. We are currently seeking guidance from the Ministry of Social Development on this.

If I have not applied for the wage subsidy and the business is shut due to the lockdown and there is no work, do I have to continue paying my employees? Employment law obligations continue to apply, and so a process would have to be followed to either seek an employee’s agreement to take a period of unpaid leave or implement a restructure. Legal advice should be sought before such steps are taken.

 

RESTRUCTURING/VARYING EMPLOYMENT AGREEMENTS

Can I restructure an employee or vary the terms of an employment agreement employee who is listed in a wage subsidy application? Generally, you cannot implement a restructure that would have the effective of making an employee redundant whilst in receipt of the wage subsidy. However, you are able to make changes to terms of employment (such as rates of pay, hours of work, leave entitlements) but only with the written agreement of the employee.

While there is no strict prohibition against restructuring employees for Wage Subsidy Applications made before 4pm 27 March, we strongly recommend obtaining legal advice in the event that this becomes a consideration.  

Can I restructure an employee who is not listed in a wage subsidy application? Maybe. It is possible that many employers may be forced to consider redundancies to ensure business continuity. But the process for making employees redundant is somewhat complex. While New Zealand has no mandatory redundancy compensation, there is an obligation on employers to consider all possible alternatives to redundancy (including claiming the wage subsidy) and to consult with affected employees throughout the process. We recommend employers obtain legal advice before making any employees redundant.

Can I unilaterally make my employees take unpaid leave while receiving the wage subsidy? No. Even without the wage subsidy, there is no right to temporarily suspend or furlough employees on no pay. If the employer does not apply for the wage subsidy, employers may agree with an employee that they take leave without pay.  

If I don’t apply for the wage subsidy, can I apply a force majeure clause in an employment agreement? Maybe. Some employment agreements include a force majeure (or “act of God”) clause suspending or terminating that agreement when an event outside the control of the parties (such as a global pandemic or unprecedent Government-imposed shutdown) prevents the contract of employment from being fulfilled. These clauses may permit employers to suspend employees’ employment (and therefore not to pay them) during this period. It is important that these clauses be carefully reviewed to ensure they apply to the Covid-19 shutdown and are applied fairly. We recommend employers obtain advice before attempting to invoke these clauses.

 

TAX

What are the tax consequences of the wage subsidy? The wage subsidy is exempt income to the employer under s CX 47(2) of ITA 2007, and non-deductible when paid to the employee under sDF1(2). The wage subsidy is taxable remuneration to the worker and is subject to PAYE in the normal way at the date of payment. GST does not apply to the wage subsidy received by the employer under new s 89 of the GSTA 1985 and related Order in Council.

 

Summary

The wage subsidy is has thrown up questions for many businesses. But here you'll find all of the questions answered.  

About this article

Authors
Darren White

EY Oceania Private Services, Tax Partner

Cultivates long-term growth for people and their businesses. Provides innovative tax advice. Family at the heart of it all.

Tori Sullivan

EY Law New Zealand Leader

Tax controversy practitioner. Gives advice from practical and technical perspectives. Barrister & Solicitor.

Related topics COVID-19