Coronavirus Wage Subsidy Q&A

Coronavirus Wage Subsidy Q&A

Coronavirus Wage Subsidy Q&A

We’ve pulled together a Q&A for the wage subsidy being offered by the government.

Needless to say, there have been plenty of enquiries so we thought we’d pull together a quick Q&A to cover the common questions.

Can my business apply for the subsidy?

Almost certainly yes. The rules for the scheme state that to qualify:

To qualify:

  • your business must have experienced a minimum 30 per cent 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; and
  • you must provide an undertaking (which is in the form of a declaration on application) that you will, on your “best endeavours”, continue to employ the named staff at a minimum of 80 percent of their income for the duration of the subsidy period.

If you qualify, the wage subsidy will be paid at a flat rate of:

  • $585.80 (gross) for employees working 20 hours or more per week; and
  • $350.00 (gross) for employees working less than 20 hours per week.

Remember that when you apply, you must agree to a declaration stating that you understand the rules of the scheme and have applied in good faith.

What qualifies as a “business”?

Originally, the scheme was only offered to businesses with staff. The government announced that they would expand the scheme this week. All New Zealand employers, contractors, sole traders, self-employed people, registered charities and incorporated societies may now apply for the wage subsidy.

What if I delay applying for the scheme? Will I get less than the twelve weeks?

There is no indication that the subsidy would be abated if you apply later but there doesn’t appear to be any information confirming this at this time.

What if my revenue hasn’t dropped yet?

Remember that the subsidy applies if your revenue has already dropped by 30% or more, or is predicted to do so. If this is the case, you should apply. The period runs until 9 June so you would consider the months of April and May. You may wish to wait if you are not certain that you’ll be impacted. You can always apply later.

So what does “best endeavours” mean?

There’s no guidance on this but it seems reasonable to assume that this means that you would make a commercial decision based on the financial resources of the entity. Some business will experience significant financial hardship during the shutdown and will need to consider other options with staff members.

I’m applying for the subsidy after 3pm on Friday 27 April

If this is the case, you need to consider the changes announced by the government. The advice contained above applies to those who applied for the subsidy prior to that date and time.

You can read about those changes in a more recent blog here.

Other Considerations

So PAYE, KiwiSaver, Child Support and other payments no longer apply?

Wrong. Nothing has changed in this regard. You will still need to deduct PAYE and any other payments as usual.

Can I claim for an employee who hasn’t started working for me yet?

Common sense applies here and we’d advise you to err on the side of caution. Don’t include them in the claim until they actually start.

Is the government still going to increase the average wage on 1 April?

The government has been really resistant to delaying the introduction of the average wage, so at this stage it’s likely to go ahead.

Can I claim for casual employees?

So long as you are planning to retain them, then yes.

Some Admin

I need a NZBN number. Where do I get one?

Click on the link here. If you are trading as a company, you’ll already have one so check your details on the Companies Office website here.

Can I claim for casual employees?

So long as you are planning to retain them, then yes.

Do I have to change my payroll to weekly?

No. If you don’t run a weekly payroll, you will continue to run your payroll on the normal basis i.e. fortnightly, monthly etc..

Employment Law Considerations

What responsibilities do I have to my employees?

The first thing to note is that you have to keep paying your employees their normal pay if they’re working from home. There’s some confusion that you would pay your employees the subsidised rate i.e. $585.80 per week. This isn’t the case. The subsidy is a contribution towards the employee’s pay. 

It’s very important to note that there have been no changes to employment law.

If you need to reduce hours or wages during the shutdown, you can only do this by consultation. The employee needs to agree to the decrease and you must consult them.

Another point to note is that in order to comply with the conditions of the subsidy, you can only reduce wages by a maximum of 20%. This is because you undertake to employ the staff who receive the subsidy for at a minimum of 80% of their normal income.

Can I ask my team to take annual leave?

Yes you can. You can do this immediately but only if your team members agree.

Alternatively, you can give your team 14 days notice that annual leave will apply. This option is the same as the shut down provisions for the Christmas and New Year period.

What if my team members don’t have any annual leave? 

If your team members don’t have any annual leave, or they will use up the annual leave payment before the shut down period ends, you have the option of paying them sick leave. This isn’t mandatory however.

What if topping up wages is no longer sustainable?

At the very least, you’ll need to pay the amount of the subsidy. You would need to have exhausted the other options above.

How do we calculate the 80% if an employee’s pay fluctuates?

Again, there’s no information from the government on this point. If you have an employment agreement with the employee that stipulates their base salary or wages and minimum hours, then it would be reasonable to use this to calculate their “normal income”.

What if the employee’s “normal income” is less than the subsidy amount?

An employer only has to pass on the subsidy for the normal income. If an employee is earning less than the amount of the subsidy, you’re entitled to retain the balance.

What if I can’t keep trading as usual?

If everything fails, and you are unable to continue trading as usual you can:

  1. Reduce Hours for Wage Earners and/or reduce salaries – In order to do this, an employer must consult their employees. It’s likely that you would still comply with the wage subsidy scheme. You would need to pass on at least the subsidy amount to the employee.
  2. Redundancies – Remember that current employment law still applies. It’s likely that you would be able to reduce the time normally taken for this process but we would advise you to take advise from a competent employment lawyer. We are able to recommend some that we work closely with.

Would I have to pay the subsidy back if I restructure?

We simply don’t know. You might have to pay back any surplus amount but the government has been entirely silent on this matter.

Does the subsidy include GST? Will it be included as income for tax purposes?

IRD intend to change the GST rules through an Order in Council to make the subsidy exempt from GST and income tax.

Xero

What do I code the payment to in Xero?

“Other Income” is probably the best account code. Make sure you select “No GST”.

How do I account for all this in Xero Payroll?

Xero have updated information on the Covid-19 Wage Subsidy in Xero Central. Just click on the link here.

 

Please note that this guidance is current as of today’s date. The government is constantly changing it’s advice as the situation unfolds so this information is subject to change. The subsidy was put together rapidly and it’s fair to say that it raises a number of questions that haven’t been considered. We’ll endeavour to update this article as new information comes to hand.

Please note that this information is general in its application. Whilst we have made every effort to ensure accuracy, information is subject to change quickly. You should seek advice that is specific to your business.

You can also follow updates on the Employment website that’s published by the New Zealand government.

Further information on the Wage Subsidy Scheme is available here.

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