COVID-19 - Update on Wage Subsidy (27 March 2020)

This blog provides an update to our original blog post on this subject (here).  It doesn’t discuss the leave subsidy. 

Background 

It’s very hard to advise on aspects of the wage subsidy.  The rules are vague and continue to evolve.  As always, we recommend being prepared to repay any excess funds if it turns out you weren’t eligible. 

We’d recommend clear and concise communications with staff.  You should also be careful about any promises you make.  If you promise to pay your staff their normal wages during the lockdown, what happens if it lasts for 8 weeks?  12 weeks?  We’d recommend making your position clear and using language like the following: 

Assuming that the lockdown is only for 4 weeks, the best we can do is to provide you with XX% of your normal wages before tax. If the lockdown, goes beyond 4 weeks then we'll reassess our position.  We’d of course be happy to let you take leave to top up your income. 

What’s changed 

  • We are now in lock down 

  • The application no longer requires an NZBN (New Zealand business number).  This was an issue for non-companies with employees 

  • Employees must be kept in employment during the period of the subsidy 

  • The sick leave scheme and wage subsidy scheme will now merge 

  • The government appears to have verbally overridden the 80% rule (discussed further below) 

  • The $150,000 cap per organisation has been removed.

What’s clear 

  • The employer can’t apply for the subsidy and not pass it on to employees  

  • Any payment to employees is taxable like usual (i.e. subject to PAYE) 

  • The payment is a lump sum amount and there is no option to be paid for a shorter period of time 

  • Multiple applications for each employee are possible (if they have multiple jobs) 

  • Shareholder employees (those not on PAYE) are treated like normal employees 

  • Casual employees are included if they’d normally be working during the period of the wage subsidy 

  • The subsidy is not subject to income tax or GST 

  • Wages paid with subsidy funds are non-deductible for tax purposes

What’s probably correct 

  • If a business is not operating during the shutdown, they must still pass on the subsidy, but they don’t necessarily need to top up staff to the 80% threshold.  There is a lot of conflicting information online, but we’ve checked verbally with the Government.  This afternoon (27/03/2020), the Government stated: 

Businesses accessing the scheme must still undertake best endeavours to pay employees 80% of their pre-COVID income. Where that is not possible – in particular where a business has no activity whatsoever due to the shutdown and workers are not working any hours – they must pass on at least the whole value of the wage subsidy to each affected worker. 

  • That there will be further support – but it’s unclear who for.  Most commentators are predicting something directly for workers rather than employers 

  • There is no obligation to repay the subsidy if business picks up and employees are paid normally. 

  • Normal wages are generally determined by standard contracts (or in the case of casual employees averaged over 12 months – use common sense and judgement here).

Michael Parker