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[Covid-19] Wage Subsidy Example Scenario

Apr 4, 2020 / 2 minutes read
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Jacinda is a permanent employee of Beehive Limited and paid $40 gross per hour. She has worked, on average, 25 hours per week over the last 4 weeks.  Due to COVID-19 lockdown measures, Beehive Limited has had to temporarily cease trading for 4 weeks. 


During this period Jacinda is unable to work from home.  Beehive Limited has advised Jacinda that they will pay her 80% of her normal wage during the lockdown.  Beehive Limited has applied for a wage subsidy in relation to Jacinda.

Wage subsidy

Details $ Outcomes
Beehive Limited is entitled to a wage subsidy of $585.80 per week for 12 weeks for Jacinda and will receive this as a lump-sum payment into its bank account.
$7,029.60
  • The subsidy is not subject to GST
  • The subsidy is not subject to income tax
  • In your accounting software, create a new revenue code called "wage subsidy" with no GST
Weekly payment of wages

Details $ Outcomes
Jacinda’s normal weekly gross wages, being 25 hours @ $40 per hour
$1,000.00
  
One of the requirements to receive the subsidy is that for the next 12 weeks Beehive Limited uses its best efforts to retain Jacinda as well as to pay her at least 80% of her normal income.
$800
  • This is the employee’s gross income
  • This is only deductible to the extent it is more than the wage subsidy received, therefore, an income tax deduction can only be claimed for $214.20
  • Continue to code your salary and wages as you usually do in your accounting software
  • Treat these salary and wages as special leave in your payroll software
Normal deductions have to be made from the gross payment to Jacinda, such as PAYE, student loan, Kiwisaver, Child Support etc
$200*
  • Continue to code your salary and wages as you usually do in your accounting software
Jacinda receives the net pay after tax deductions in her bank account
$600
  • Continue to code your salary and wages as you usually do in your accounting software

*an arbitrary figure has been used for the purposes of the example

If the lockdown ceases after 4 weeks, and Jacinda returns to working 25 hours per week, then after the end of the 4 week period Jacinda would start receiving her normal weekly gross wage of $1,000.  Beehive Limited can only claim an income tax deduction of $414.20 ($1,000 - $585.80) for these wages over the next 8 weeks. 

Despite this, there is no requirement to refund 8 weeks of the subsidy.  Beehive Limited just has to continue to use its best efforts to retain Jacinda as an employee, as well as pay her at least 80% of her normal wage, over this 8 week period.

If you have any questions about how this example or the subsidy may apply to your business, please don't hesitate to contact us.

Ngā mihi nui,
Brad

Brad v4

Brad Phillips

Principal

Armed with an extensive knowledge bank, Brad specialises in providing taxation services to clients in the corporate, business, and rural sectors. He also has a keen interest in valuation, asset protection, and estate planning matters.