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[Covid-19] Wage Subsidy and Leave Payment

Apr 4, 2020 / 2 minutes read
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Wage Subsidy

The Government’s wage subsidy package announced at the commencement of this lockdown period is intended to provide some assistance and support to employers over these uncertain and unprecedented times. 

The wage subsidy will be paid at the rate of $585.50 per employee working 20 hours or more and $350.00 for those working under 20 hours per week.   The payment is a once-only payment, paid as a lump sum and covers 12 weeks per employee.

It is being administered by the Ministry of Social Development.  You can apply online at

Covid-19 Support

The subsidy is intended to assist in keeping employees in work where the business has suffered a 30% decline in trade as a result of the current corona virus epidemic.  Employers are expected to make best endeavours to pay their employees 80% of their pre-COVID income.

To qualify your business will need to meet a number of criteria.

  • Your business must be registered and operating in New Zealand
  • Your employees must be legally working in New Zealand
  • Your business must have 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 related to COVID-19
  • Your business must have taken active steps to mitigate the impact of COVID-19


It must be remembered that in agreeing with an employee how much they will be paid, an employer is still required to comply with all aspects of employment law.  The wage subsidy rules do not override employment law.

Depending on when your application was made, an employer’s obligations in respect of the scheme will be different:

If applied for before 4pm on 27 March 2020 then:

  • There is no requirement to pass on the full subsidy to employees for whom an employer has they have applied for the subsidy.  However, employers must use their best endeavours to pay employees at least 80% of their regular income for the period of the subsidy
  • For the period of the subsidy, employers only need to use their best endeavours to retain employees, for whom they have applied for the subsidy, for the period of the subsidy


If applied for on or after 4pm on 27 March 2020 then:

  • Employers must retain their employees, for whom they have applied for the subsidy, for the period of the subsidy
  • At least the full amount of the subsidy has to be passed onto an employee unless the ordinary salary or wages of the employee, pre-COVID-19, are lawfully below this amount


This subsidy now applies to a wider range of organisations – all employers that have been adversely affected by COVID-19 are now eligible to apply.  This includes contractors, sole traders, and self-employed persons, registered charities, incorporated societies, non-government organisations and post-settlement governance entities – subject to meeting a number of specific definitions.

Companies – must be registered with the NZ Companies office, be physically located in New Zealand and their employees must be legally entitled to work in NZ. 

Obviously, sole traders can’t be registered with the NZ Companies Office, however, they must have a personal IRD number for paying income tax and GST, government licences and permits for their business needs and qualifications or registrations for their trade or profession.

The 30% decline in revenue must be experienced between January 2020 and 9 June 2020 when compared against the revenue for the same month last year.

You must be able to demonstrate you have taken active steps to mitigate the impact of Covid-19 on your business.  We recommend you speak with your bank and discuss with Great South as to whether there is any financial assistance available to you through the grants they administer.  Keep a diary note of any discussions held and the outcomes of these. 

This subsidy is being administered on a high trust model.  While you will not be asked for verification at the time of making a claim you should remember that claims will possibly be subject to audit and verification at a later date.  Please be aware that where false or misleading information has been provided claims will be subject to a fraud investigation.


COVID-19 Leave Payment

From 3.00pm on 27 March the Leave payment was no longer able to be applied for.  It has been rolled up into the Wage Subsidy.

If you had applied for the Leave payment prior to this date, the application will be processed as usual.


Essential Workers Leave Scheme

This scheme was announced on 2 April 2020 and has been available since 6 April to essential businesses.  It is intended to support those workers in essential business who are required to take leave from work to comply with public health guidance.

To qualify you’re an essential business needs to meet a number of criteria.

  • Your business must be registered and operating in New Zealand
  • Your employees must be legally working in New Zealand
  • Your business must have either 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 related to COVID-19 or had its ability to support the employees named in the application negatively impacted by the COVID-19 public health restrictions
  • Your business must have taken active steps to mitigate the impact of COVID-19

 

Employers in essential businesses will be able to apply for essential workers who either:-

  • are at higher risk if they get COVID-19, and Ministry of Health guidelines recommend they stay at home whilst the lockdown is in place (and potentially longer)
  • come into contact with someone who has COVID-19 and must self-isolate for 14 days (as required by Ministry of Health guidelines)
  • have tested positive for COVID-19 and are required to remain off work until they have been cleared by a health professional to be released from self-isolation, or
  • have household members who are at higher risk if they get COVID-19 and Ministry of Health recommend the worker also remains at home to reduce the risk to them.


As we understand it, an essential worker who has had to self-isolate for 14 days upon arriving in New Zealand does not meet the above criteria.

An employer’s obligations for receiving the payment are the same as those for obligations for employers who applied for the wage subsidy on or after 4pm 27 March 2020 (refer to above under wage subsidy).

Payment rates are the same as for the wage subsidy.  However, payments will be made four-weekly with the option to re-apply for those same workers after four weeks or make further applications for additional workers who are eligible at any time.

If an essential business receives this subsidy for an employee, then they are not entitled to receive the wage subsidy for the employee at the same time.


Tax implications of subsidies

Inland Revenue has now confirmed the income tax implications of all of the subsidies and the subsequent payments made to employees.

The subsidies are an exempt supply and not subject to GST.

The receipt of the subsidy by the employer will not be taxable in the hands of the employer.

The subsidy that is then paid onto the employees will be a non-deductible tax expense for employers.  Clarification is being saught as to whether the wages are only non-deductible to the extent of the wage subsidy received, or whether the full wage payment is non-deductible.

The subsidy that is paid onto employees is taxable in the hands of the employee, therefore, subject to usual PAYE, Kiwisaver, Student Loan, Child Support deductions, etc.

The subsidy paid to employees or received by the self-employed is taxable in their hands.

It is possible for an employer to top-up an employee’s wages above the minimum 80%, whether it is a cash payment or payment of annual leave.  It will be up to the employer and employee to negotiate this.

If you have any questions about how these measures may apply to your business, please don't hesitate to contact us.

Ngā mihi nui,
Diane

Diane

Diane Wilson

Head of Human Resources