Since the Wage Subsidy was first introduced on 13 March 2020, the Government has refined and clarified aspects of the Wage Subsidy as we see it operate in practice. The latest Government update has confirmed something that we have known since its inception, that the Wage Subsidy does not override any rights or obligations arising out of employment law or an employment agreement. The update has also clarified the minimum obligations on employers who receive the Wage Subsidy.
Eligibility criteria and entitlements
The Wage Subsidy is intended to support businesses in New Zealand who have been detrimentally affected by COVID-19. As of 27 March 2020, the money available for the Leave payment has since been folded into the Wage Subsidy. As such, the Wage Subsidy remains the only Government compensation available for employers. We do note however, that any applications that had already been processed as at 3pm on 27 March 2020, will continue to be paid out.
All New Zealand employers (including any employer, contractor, sole trader or self-employed) who have been adversely affected by COVID-19 are eligible to apply for the Wage Subsidy. To qualify for the Wage Subsidy, the following requirements must be met:
- The business is registered and operating in NZ.
- The employees are legally working in NZ.
- The business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month, when compared with the same month last year, and that decline is attributable to COVID-19. For the sake of clarity:
- The business must experience this decline between January 2020 and 9 June 2020.
- Revenue means the total amount of money a business has earned from its normal business activities, before expenses are deducted.
- Where a business has been operating for less than a year, they must compare their revenue against a previous month that gives the best estimation of the revenue decline related to COVID-19.
- The business has already taken active steps to mitigate the impact of COVID-19. Work and Income New Zealand have described the following as active steps to mitigate the effects of COVID- 19: drawing from cash reserves (where appropriate), activating a business continuity plan, making an insurance claim, proactively engaging with the bank and seeking advice and support from the Chamber of Commerce or a relevant industry association or regional business partner programme. This list is not exhaustive and there may be other active steps that an employer could take to mitigate the effects of COVID-19.
- Employers are prevented from claiming the Wage Subsidy in respect of employees who they are already receiving financial assistance for. As such, an employer may not name an employee in an application for the Wage Subsidy, if the employer is already receiving either the Wage Subsidy or the Leave Payment in respect of that employee. In other words, employers are prevented from double dipping.
If granted, the COVID-19 Wage Subsidy is paid as a lump sum and covers 12 weeks per employee. The subsidy will be paid at a flat rate of:
- $585.80 (gross/before tax) for people working 20 hours or more per week (full-time rate)
- $350.00 (gross/before tax) for people working less than 20 hours per week (part-time rate)
If an employer is granted the subsidy for the full 12 weeks, an employer can expect to receive $7,029.60 for an employee working 20 or more hours, or $4200 for an employee working 20 or less hours. The Wage Subsidy is required to be paid to employees as wages and cannot form part of any payment for leave.
Calculation of hours worked
In making the application, the employer must disclose whether the number of hours each employee works per week is more or less than 20 hours. The ordinary wages or salary of an employee are those specified in the employment agreement as at 26 March 2020.
However, for some employees, the number of hours worked will vary from time to time. In this case, the following should be used to determine whether to apply for the full-time or part-time rate for the employee(s).
Use the average hours worked each week:
- over the last 12 months, or
- over the period of time which the person has been employed, where this is less than 12 months.
If the average hours worked are:
- 20 or more per week, apply for the full-time rate;
- less than 20 per week, apply for the part-time rate.
Employers can also claim the subsidy for any casual employee(s) that are employed at the time they apply and who would have been expected to work during the subsidised period. Casual employees tend to have variable hours, in which case the subsidy rate will be assessed on the basis above.
Once the subsidy has been granted, there are a number of continuing obligations on the employer. Employers agree to abide by these obligations as part of the declaration for the Wage Subsidy application. Broadly speaking, employers who submit the application form declare they meet the eligibility criteria, will use the subsidy for the purpose of meeting the named employees ordinary wages and salary, and have obtained the necessary consent from the named employees in the application.
These obligations can be summarised as:
- Acknowledging that the granting of the Wage Subsidy does not override any existing obligations under the Employment Relations Act 2000
- Agreeing not to change any obligations under any employment agreement without the written consent of the relevant employee
- Retaining any employees named in the application for the 12-week subsidised period
- Agreeing not to unlawfully compel or require any employee to use their leave entitlements during the subsidised period
- The Wage Subsidy will be used to pay ordinary wages/salary only
- Agreeing to use best endeavours to pay employees at least 80% of their normal income throughout the subsidised period
- If an employer is not able to pay an employee 80% of their normal income, pay that employee at least the full amount of the Wage Subsidy
- Unless, the ordinary wages/salary of the employee was lawfully below the amount of the Wage Subsidy prior to the impact of COVID-19.
We note that there are separate declarations for employers, depending on whether they applied before or after 4pm on March 27. For employers who have applied for the COVID-19 Wage Subsidy on or after 4pm 27 March, see the relevant declaration here. For employers who applied for the Wage Subsidy before this specific date, see the relevant declaration here. The eligibility criteria differ between the two. The later declaration sees the employer’s undertaking to retain staff and use best endeavours to provide employees with 80% of their normal income recategorized as a continuing obligation rather than an eligibility criterion. Irrespective of which declaration an employer has made, employers who fail to meet this criterion/obligation will be required to refund the amount of the subsidy that they are either ineligible or unable to meet their obligations.
In respect to an employer’s obligation to use best endeavours to pay an employee at least 80% of their normal income during the subsidised period, we note this must be done by agreement. An employer may request, and an employee may then agree to reduce their income for the subsidised period. The Wage Subsidy should form part of any payment for wages/salary.
Regarding employees’ leave, an employee may take leave by agreement or on 14 days’ notice from the employer. However, although lawful, we note that directing employees to take leave, may be inconsistent with an employer’s best endeavours to provide employees with 80% of their normal income. What is considered an employer’s best endeavours is largely a factual analysis and will depend on the employer’s individual circumstances. Generally speaking, the test of best endeavours is particularly high, and if an employer could do more, then it may not meet that test.
As part of the required declaration, the employer also agrees to notify the Ministry of Social Development within 5 working days if anything changes that may affect the employer’s eligibility or entitlement to the Wage Subsidy, or whether the employer is unable to meet its obligations under the Wage Subsidy including if any of the employees named in the application end their employment relationship.
Provision of information
As part of the required declaration, the employer agrees to provide the Ministry of Social Development with information about the employer, its business and (with consent) the employees named in the application. This information will be used to the extent required by the Ministry of Social Development (MSD) or its auditors to make decisions about the application, to audit and review any subsidy that is granted, and how any subsidy granted is paid to employees. Similarly, an employer agrees that MSD may share this information with other agencies (including non-government agencies) or other agencies may provide information about an employer’s business to MSD or its auditors to the extent necessary to make decisions about the employers application and how any subsidy granted is to be paid to employees.
Employers are required to discuss their Wage Subsidy application with any employees that will be named in the application, and obtain those employees’ consent to share that information. In particular, an employee’s consent should be obtained in relation to:
The provision of information about that employee in the application to the MSD;
The employer providing any further information about the employee required in order for MSD to process, audit or review an employer’s application, both before and after it is granted, as well as reviewing how any subsidy is paid to employees;
The sharing of that information between MSD and any other relevant agency to the extent necessary to process, review or audit an employer’s application, both before and after the application has been granted, as well as reviewing how any subsidy is paid to employees;
MSD using any information that is provided in relation to the employee, to make process, review, audit an employer’s application, either before or after it is granted as well as reviewing how any subsidy is paid to employees;
The employees consent to other agencies providing information about them to the MSD and its auditors, to the extent necessary for the MSD to process, review and audit an employer’s application, both before and after it is made, as well as review how any subsidy has been paid;
The information being used by the MSD to make any decisions in relation to the employee’s application for other assistance; and
The employer advising MSD if they end their employment relationship during the subsidised period.
We also advise employers to inform their employees of their right under the Privacy Act to request access to their personal information that has been provided in the application.
A high volume of Wage Subsidy applications will be expected from employers. To expedite the processing times, we advise that employers ought to provide information that is accurate, not misleading, and matches the records held by Inland Revenue.
We understand that there are a number of complex issues that face employers in the process of, or have already applied for the Wage Subsidy. Please contact us for specific advice in relation to your individual circumstances. We are more than happy to assist with your legal obligations. Alternatively, we have a new HR practice which can help employers with any HR support which they made need at this time.