COVID-19 Wage Subsidy: Frequently asked questions

Nick Stanley
by, Nick Stanley

We’ll be updating this page with questions we receive from our members about the government's COVID-19 wage subsidy and the wage subsidy extension.

This information is correct as at 2pm, 15 May 2020.

What is the COVID-19 wage subsidy extension?

The government is offering an extension to the wage subsidy to help businesses still significantly impacted by COVID-19 so they can keep paying their employees after the initial subsidy ends.

Businesses (including sole traders) can apply for a subsify extension if they have suffered or expect to suffer a loss of revenue of at least 50% for the 30-day period prior to the application date, compared to the nearest comparable date from the previous year.

Applications will be able to be submitted for a 12-week period.

The subsidy will be paid as per the current rates in a lump sum to cover an 8-week period.

Employer's who have already submitted applications and received wage subsidies previously will need to submit a new request. You won't be able to receive more than one COVID-19 payment for the same employee at the same time.

The wage subsidy extension will be available from 10 June until 1 September 2020.

Find out more about the wage subsidy extension on the Work and Income website.

If, before the end of the 12-week period, the business ceases to be viable and I am forced to make some (or all) of my employees redundant, what effect will this have on the wage subsidy I received?

Employers are obliged to retain their employees they received the wage subsidy for. If you have to make an employee redundant during the subsidy period, the Work and Income website says:

"You can use the wage subsidy to pay the employee any notice period arising from the redundancy, and you must repay any balance of the wage subsidy that’s left after the notice period has been paid."

While the notice period is covered, you cannot use the wage subsidy to make any redundancy payments (defined in their employment agreement).

Can I use the wage subsidy to help cover an employee's final pay when they voluntarily resign?

Yes. Information on the Work and Income website states that employers must advise the Ministry of Social Development if an employee receiving the wage subsidy leaves their employment voluntarily.

You won't be able to claim any more subsidy for that person but you don't have to return the subsidy already paid.

Their final pay would be part of the subsidy you've already been paid.

If an employee can't work their previously-agreed hours because of childcare and homeschooling obligations, can I use the remainder of their wage subsidy for the casual staff who are covering their remaining hours?

Yes. Employers have an obligation to offer the full hours; if they can't, they have to pay the employee the wage subsidy amount (full- or part-time).

In this situation, the employee is unable to work their full hours despite the work being there, so the employer can use the money to pay casual staff picking up the work.

For example, if the employer applied for and received the wage subsidy for an employee working 22 hours per week, but going back to work at Alert Level 3, the employee is only available to work 16 hours per week, the employer now only has to pay the employee for those 16 hours and can use the remainder to pay casuals.

Do employees on ACC get paid the subsidy?

Yes. The ACC website says:

"You should pass on COVID-19 wage subsidy payments to employees receiving weekly compensation from ACC. You must tell us each time you pay them the wage subsidy by completing an ACC038 form.

The subsidy is treated as income, so we’ll take it into account when making weekly compensation payments to the employee."

So, employers should apply for the wage subsidy for all employees and pass it on, including to those on ACC. You should then go to the ACC website and complete the ACC038 form notifying ACC of the amount paid. ACC will adjust their payment to the employee.

How do I work out if revenue has dropped by more than 30%

Revenue means the total amount of money a business has earned before expenses are deducted.

In applying for the wage subsidy, you must compare one month of your business' revenue against the same month the previous year. For example, March 2020 compared to March 2019.

If the revenue of the month in the affected period is at least 30% less than it was in the month you compare it against, you can apply for the wage subsidy.

If your business has been operating for less than a year or is a high-growth firm, you need to compare your revenue against a previous month that gives the best estimation of the revenue drop caused by COVID-19.

Easter and Anzac Day are coming up. Do I have to pay my employees for public holidays?

The short answer is: if these days are 'otherwise working days' then yes, you do. Treatment of public holidays has not changed under Alert Level 4.

Employment.govt.nz clearly states:

“If Fridays and Mondays are otherwise working days based on pre-COVID-19 working patterns, employees should be paid for the upcoming public holidays. The payment should be Relevant Daily Pay, or if it meets the criteria, can be Average Daily Pay.

Determining whether a day is an 'otherwise working day' should be based on the employee's pre-lockdown working pattern. However, if the employer and employee have agreed to a permanent change, this new arrangement can be used to assess whether the day is an 'otherwise working day'."

So what does this mean in practice? Here are some break-downs:

Businesses operating as usual (people working usual hours from home or they are an essential business)

Treat these employees the same way you would during normal work times, because they continue to work.

For example, if somebody continues to work their normal 40-hour week (five 8-hour days), then they will work two 32-hour weeks over Easter and still be paid for 40 hours, which recognises their Good Friday and Easter Monday entitlements.

If they work on either of the public holidays then, like usual, they would be paid time-and-a-half for any hour worked and receive a full day in lieu ('alternative holiday').

Similarly, for part-time workers whose hours haven’t changed, their normal work pattern applies. For example, a regular Monday-Thursday part-time worker would receive public holiday entitlements for Easter Monday but not for Good Friday.

Remember: Good Friday and Easter Monday are public holidays; Easter Sunday is not.

However, the government has said that during Alert Level 4, supermarkets are allowed to open on Easter Sunday. Shop employees can refuse to work on Easter Sunday without giving a reason and employers can’t compel their people to work on Sunday. They can offer employees extra pay as an incentive.

Businesses operating on temporarily reduced hours or changed conditions due to COVID-19

The most common work pattern we have observed in this group is where employers and employees have agreed to a temporary 20% reduction in hours, e.g. an employee who normally works a 40-hour week, works 32 hours during the lockdown. Their pay is made up of the government subsidy and the employer’s payroll.

Employment.govt.nz is clear that pre-COVID 'otherwise working days' should apply to this group, meaning if the employee would have worked on the public holiday prior to the lockdown, you will need to recognise the public holiday.

The method for calculating payment for the public holiday remains: Relevant Daily Pay, which is determined by what the employee would have earned, had they worked. Therefore, if reduced hours have been agreed to as part of the lockdown, the payment for the public holiday is based on the reduced hours.

If the employee is not required to attend work, they receive payment for the day, based on the reduced hours. If they are required to work, they receive time-and-a-half for the hours actually worked, plus a full day as an Alternative Holiday (day in lieu). If it is not possible to determine Relevant Daily Pay, then Average Daily Pay can be used.

The government has also stated that: “employers can use the wage subsidy to cover some or all of their employees’ wages, including pay for the upcoming public holidays.”

Therefore, you can use the wage subsidy money to cover the normal public holiday costs. The employee works their temporarily reduced hours over the agreed days of each Easter and ANZAC week and receives payment for these days, plus payment for the public holiday, based on the above calculations. The wage subsidy is used to cover these payments; any additional money is paid via company cashflow.

Businesses not operating at all; staff at home receiving the wage subsidy only.

As businesses are able to use the wage subsidy to cover public holidays, there is no change in pay for this group.

They are at home receiving the subsidy of $585.80 or $350 (or normal earnings if these are less than the wage subsidy). The payment covers any public holiday entitlement they might be eligible to receive.

What are the company’s obligations if we are an essential business and an employee says they don't feel safe using public transport to get to work?

The government advises that essential workers whose only means of getting to work is public transport should continue to go to work (unless they meet the criteria of people unable to attend work because of COVID-19). Public transport is an essential service and all buses and trains have put appropriate safety measures in place. 

If the employee still has concerns, you could explore other travel options or if they can use additional personal protective equipment (PPE) while taking public transport. Refusing to work simply because the employee doesn’t feel public transport is safe, despite the transport companies and the employer doing everything that is reasonably practicable to ensure the person’s safety, may not be enough to refuse to work.

What are the company’s obligations if we are an essential business and an employee is immunocompromised and unable to work?

The employee should be eligible for the government's Essential Workers Leave Support, given people with immunocompromised conditions are at most risk of severe illness from COVID-19 (according to Ministry of Health guidelines).

An employee should also be eligible for leave support if they can't work because they live with someone who is at higher risk if they contract COVID-19.

In applying for Essential Workers Leave Support, you must have consulted with your employee about how you can best support them, which includes exploring options to use any sick or discretionary leave they may have, instead of getting the leave support.

You must also try your hardest to pay the person at least 80% of their usual income. If that isn’t possible, you need to pay them at least the full leave support rate or their usual earnings (if they are less than the leave support).

You must also meet all your existing obligations under employment law. This includes getting the employee’s agreement on any changes to their employment agreement, such as rates of pay, hours of work, and leave entitlements.

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What do I do with people I have just offered jobs to, but they haven't started yet?

If both you and the employee have signed the employment agreement (therefore formalising the offer of employment), you will need to consult with them if you can no longer take them on. Don’t assume you can simply withdraw the offer.

If the employee has not signed the agreement, it would depend on the circumstances, but it would be best to keep lines of communication open to explore options.

Can casual workers get the wage subsidy?

Employers can apply for any casual employee who would have been expected to work during the time they receive the subsidy.

For casual employees who have variable hours, assess their subsidy rate by averaging their hours over the last year or the total period of their employment (if it’s less than a year).

Do I pay tax and Kiwisaver on the wage subsidy?

As the wage subsidy is paid as part of normal wages, it's subject to the usual employer deductions, e.g. PAYE, KiwiSaver, Student Loan, Child Support etc.

The subsidy is classified as “excluded income” for income tax purposes, so businesses don’t pay income tax on the wage subsidy.

You also don’t have to pay GST on the wage subsidy.

Find out more at the Inland Revenue website.

Do I have to pay 80% of employees’ normal wages?

The government is encouraging businesses to make best endeavours to pay employees 80% of the normal wage, at least.

If that isn’t possible - following consultation with affected employees - the employer can simply pass on the subsidy amount and maintain the employment relationship.

This applies if the employee is not working. If the employee is working, then you must meet the minimum wage requirements at least. This means that an employee earning $18.90 an hour can work a maximum of 30.99 hours per week.

Employers must still follow good faith and other legal obligations in making proposals on how they will manage reductions in work, hours or pay, or if they are only passing on the wage subsidy.

As with any proposal to change the terms of the employment relationship, you must follow due process of consultation with your employees (this can be expedited due to the circumstances).

How do I calculate normal weekly earnings for the purposes of the wage subsidy?

If you’ve applied for the subsidy before 4pm Thursday 26 March, you have some flexibility to make a decision that best suits your business. This could be either:

  1. averaging the person’s weekly wage, using the average hours worked each week over the last 12 months or, if it’s less than 12 months, over the period of time they have been employed;
  2. Looking at what they were rostered (or expected) to work during the period of the wage subsidy; or
  3. Referring to the hours in their employment agreement.

If you applied after 4:00pm Thursday 26 March, you must use the hours specified in their employment agreement.

Note: if you ended the employment relationship with any employee as a result of the business being adversely affected by COVID-19 and have since re-employed them on or after 17 March 2020, you must use the hours in their employment agreement as at the date the employment relationship ended.

Find out more about applying for the wage subsidy on the Work and Income website.

Does the minimum wage apply?

Yes. Businesses must still pay employees for any work they do - whether they are working from home or from premises - and the new minimum wage rates (as of 1 April 2020) apply:

  • $18.90 per hour for adults (up from $17.70).
  • $15.12 per hour for workers on the training or starting-out wage (up from $14.16).

If your business can’t update its payroll system due to current conditions, process the increase as soon as you can and backdate employees’ pay.

If no work is being performed, there is no requirement to pay the minimum wage (the only stipulation of the wage subsidy is to pay at least 80% of an employee’s pre-COVID-19 income, if possible).

Can I require people to work while on the wage subsidy? Can we have a part-week of work and the rest covered by the subsidy?

Yes, if you’re otherwise compliant with the rules of the current Alert Level and health and safety requirements (e.g. you’ve implemented social distancing at work, have changed your practices and moved desks around, using split shifts, only one person per vehicle), then you can require your employees to work and pay them using the subsidy money.

It’s likely that you will need to either:

  1. Reduce their hours, so that they are working less hours than normal (e.g. a plumber earning $25/hour could only work 23.4 hours per week, and an accountant earning $40/hour could only work 14.6 hours); or
  2. Reduce their pay rate, and thus have them work more hours.

You would have to consult with the affected employees before making either of these changes.

Can we use the wage subsidy to pay employee’s annual leave through this time?

If an employee had previously applied for, and had approved, annual leave during this time, then yes, you can use the wage subsidy to cover the cost of their annual leave.

Leave must be paid in accordance with the Holidays Act.

My employees want to be paid annual leave to top up, do I have to accept this?

Employers and employees, including those receiving the wage subsidy, must follow normal legal requirements when making decisions about leave.

You may agree to let employees use their annual leave, but obviously, if the business isn’t in a financial position to pay annual leave at employees contracted rates of pay, there is no legal obligation to do so.

You must only make your best effort to pay at least 80% of each employee’s pre-COVID-19 income.

Similarly, employers cannot illegally require or compel employees receiving the subsidy to use their annual leave.

Businesses are able to institute an annual closedown (you can only do this once a year), which means employees would be required to use their annual leave.

If you can’t agree with your employees on the timing of annual leave, you can require them to do so by providing 14 calendar days' notice of the requirement.

We are a non-essential business and are closed through the lockdown. Can we ask our employees to use annual leave?

If you have applied for or are receiving the wage subsidy for your employees, you can’t compel or require those people to use their leave entitlements for the period you receive the subsidy, other than as you are lawfully permitted to do, including as provided for in an employee’s employment agreement.

In other words, probably not.

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