Since the New Zealand government announced the wage subsidies there have been some changes to the terms and conditions so we thought it was time to bring you up with the latest including how to apply.
In this article we summarise the amounts you can receive, the conditions that attach to it, your obligation to retain workers and the details of your company that will be available to the public as a result of your application.
The subsidies are being paid out relatively quickly (some within 24 hours) providing all tax returns have been filed as it is this information that is being cross matched.
The New Zealand wage subsidies are available for New Zealand businesses who are significantly affected by the COVID – 19 outbreak.
The subsidy is paid out as a 12 week prepayment of wages calculated at $585.80 per week for a full-time employee and $350 per week for a part-time employee.
A full-time employee is a staff member employed for more than 20 hours per week while a part-time employee is employed for less than 20 hours per week.
Because the subsidy is paid out as a lump sum this equates to a payment of $7029.60 for a full-time employee and $4200 for a part-time employee.
Do You Qualify?
The wage subsidy is being paid out to encourage employers to hang on to their New Zealand employees. To qualify, a New Zealand business must have experienced a 30% decline in revenue. This could be where the company has already suffered the loss or where one is reasonably expected to be suffered as a result of the impact of Coronavirus.
You need to compare any 4 week period between January and 9 June 2020. The comparison will usually be made against the same time in the previous year however, in the case of a company that may not have been trading in the previous year, it needs to be made against a comparable period.
In order to qualify for the subsidy the business must:
- Be physically located in New Zealand
- Be registered with the New Zealand Companies Office (the New Zealand equivalent of ASIC)
- Have employees that are legally working in New Zealand. This does not include contractors who may be entitled to apply for the wage subsidy in their own right.
- Have taken active steps to reduce or mitigate the impact that COVID–19 has had on their business prior to making the application. This may include engaging with your bank, drawing on the company’s cash reserves if appropriate or making an insurance claim if one is available.
- Retain the employees for the period of the subsidy
How Do You Measure The Decline In Revenue?
Your company must have experienced at least a 30% decline in either the actual revenue or predicted revenue over a month when compared to the same month in the previous year. If your company wasn’t trading over the same period in the previous year then you are allowed to compare to a similar month.
Furthermore, the drop in revenue must be a result of the COVID-19 outbreak and not part of a continuing or expected trend.
The term “revenue” typically refers to the amount of money a business has earned from its normal business activities prior to any deduction of costs.
Retention Of Employees
When the subsidy was first announced, employers were expected to use their “best attempts” to retain the employee. However it is now expected the employee will be retained throughout the period of the subsidy.
Employees need to pay staff at least 80% of their usual wages. If that is impossible then the employee must receive at least the amount of the subsidy received for that employee. This applies even if, as a result of the lockdown, the company has ceased to be carrying out any business activity.
However, if the employee’s usual wages are less than the rate of the subsidy, the employer can continue to pay that lower amount for the duration of the subsidy. It is not expected that the subsidy will provide the employee with the equivalent of a pay rise.
Employee Consent
Before applying for a wage subsidy the company must be discussing the wage subsidy with your employees and get their consent (we suggest in writing) to sharing their personal information with the Ministry of Social Development which is the government department that is overseeing the subsidy.
The employee should provide their consent that the following details in relation to them will be provided as part of the application:
- Their name
- Date of birth
- IRD (New Zealand tax file) number
- Their employment type (whether they are full-time or part-time)
Business Details
As part of the application the company will need to supply:
- It’s IRD (New Zealand tax file) number
- It’s New Zealand Business Number (NZBN)
- The name of the company
- The address of the company
- The employee details (as per above)
Business Interruption Insurance
If you are entitled to business interruption insurance and receive a claim, you need to repay the subsidy whether in whole or in part if you receive any costs relating to employee retention.
Employees With Fluctuating Hours
It’s possible that your employees work on variable hours. If that is the case you need to average those hours to determine if the employee is a full-time (more than 20 hours per week) employee or a part-time (less than 20 hours) employee.
In determining the average you should calculate on a weekly basis the number of hours worked by each employee over the last 12 months or, if they have been employed for less than 12 months, over the period that they have been working for your company.
Tax Treatment
Legislation has been passed to ensure wage subsidy receipts are not subject to either income tax or GST. However the subsequent wages paid by the subsidies are not tax-deductible either. In effect, one cancels out the other to the extent that the wages were paid from the wage subsidy.
You should note that wages will still be subject to PAYE (withholdings), ACC levies, Kiwisaver contributions and student loan repayments. These are not necessarily covered by the wage subsidy.
If you are paying your employees other than as per their normal wage cycle, you need to discuss this with your employees. It is quite possible that there may be adverse tax implications for them if they are paid in a different cycle or manner to how they have been prior to the wage subsidy.
Employment Law Obligations
While receiving the wage subsidy you need to be aware that any changes to your employment agreement with your employee can only be made with the written agreement of that employee. That means you cannot change rates of pay, hours of work and leave entitlement without their agreement.
While you should be paying your employees as per their usual pay cycle you can agree to a different interval but only if the employee agrees. You should have this agreement in writing.
You cannot require your employees to use their leave entitlements for the period that they receive the wage subsidy.
You must retain your employees that form part of the wage subsidy claim during the period of the wage subsidy. At present that is the 12 week period.
You can only use the wage subsidy for the purposes of paying the wages of the employee for which you have received that wage subsidy.
You will continue to be responsible for paying the employee’s ordinary wages and salary as agreed in their employment contract that was in force as at 26 March 2020. If employees left the business as a result of the impact of COVID-19 but have been subsequently reemployed on or after 17 March 2020, the wages and salaries are those that existed at the time the employment relationship ended.
What The Public Will See
As a condition of applying for the wage subsidy, you will be consenting to having details about your application released to the public.
The government wants to ensure that employees can check whether their employer has applied for and received the wage subsidy. That will allow an employee to determine their entitlement. As a result of that certain details relating to your application will be available on the Ministry of Social Development website in an easy-to-use search box.
Details that will be available to the public include the name of your company, the amount of subsidy that was paid to you and the number of employees covered by the subsidy.
How Do I Apply For The Wage Subsidy
You can click on the this link to apply for the wage subsidy
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.