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COVID-19 FAQ Sheet for Employers

06 April 2020

Objective: To provide employers with general information about the Government’s COVID-19 Wage Subsidy Scheme (WSS).  This is general information only. You should seek legal advice if you are wanting advice on a specific situation or employee.

1. What is the Government’s COVID-19 Wage Subsidy Scheme and who is entitled to it?

The WSS is designed to support employers who have been adversely affected by COVID-19 and to assist them with continuing to pay their employees. It also ensures workers continue to receive an income, even when they are unable to perform their work from home and are not an essential service.

Employers who meet the following criteria will be eligible for the WSS:

  • Business registered and operating in New Zealand;
  • Has experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same month last year, or a reasonably equivalent month for a business operating for less than a year;
  • Taken steps to mitigate the financial impact of COVID-19 (i.e. taken advice from their bank or implemented a business continuity plan);
  • Agrees to make “best endeavours” to retain the employees covered by the subsidy, and tries its hardest to pay them 80% of their usual wages/salary for the duration of the subsidy (12 weeks). If it is not possible for an employer to pay employees at least 80% of their usual wages/salary, then the employer must pay at least the relevant rate of subsidy to individual employees. If an employee’s usual income is less than the relevant rate of subsidy, the employer must pay their usual income; and
  • Obtains consent from employees to pass their information on to Work and Income.

2. Can an employer top-up the wage subsidies with annual leave?

The WSS requires employers to use their “best endeavours” to retain and pay their workers a minimum of 80% of their usual wages/salaries for the subsidised period. In many cases, this means employers will need to top-up the WSS.

An employer can choose to top-up their workers’ wages/salaries to 80% out of its own pocket, or by providing discretionary paid leave. Alternatively, employees may agree to use a portion of their annual leave to top-up this payment. If an employee refuses to take annual leave during this period, an employer can require an employee take annual leave by giving 14 days’ written notice.

If an employer wishes to direct an employee to use a portion of their annual leave entitlement to top-up their pay, they should first consult with the affected employees and provide relevant information outlining the reasons for this (i.e. why the employer cannot afford to top-up their pay themselves).

Employees should be given a reasonable opportunity to respond, and at least 1-2 working days, even in these exceptional circumstances.

We recommend employers exercise caution before requiring employees to use their annual leave in the circumstances. In considering whether or not such a requirement is justified, employers should consider and consult with employees on alternative options, such as giving employees the option to simply receive the subsidy if it is not possible for the employer to provide at least 80% of their usual wages/salary.

Even if the employer is planning on giving paid discretionary leave to top-up, they should still consult with their employees to meet their good faith obligations. Consultation should be carried out whenever there is a change to the “normal practice” of the business.

An employer should not request their workers use their sick leave entitlements.  The general principle will apply here – i.e. if there is no identifiable illness or injury or they are not caring for a dependant who is sick or injured, then sick leave should not be used. However, employees may still seek to use their sick leave if they are sick or otherwise have symptoms of COVID-19.

3. Is an employer required to pay tax when paying out the wage subsidies?

If eligible, the WSS will be paid to the employer in a lump sum (tax-free). However, normal PAYE deductions still apply when paying employees their wages/salaries. This also includes deductions for student loan re-payments and KiwiSaver payments.

4. Does an employer have to apply the wage subsidies to each specific employee?

The WSS is a payment across the business as a whole and is paid as a lump-sum payment. The Ministry for Social Development (MSD) requires the money to be used for wages only and should not be directed to other payments for the business (otherwise MSD may take enforcement action).

Any difference between the WSS and an employee’s usual pay should only be used for wage costs, rather than other business expenses, given the WSS is designed to keep employees paid and employed.

5. What does “best endeavours” mean when trying to retain employees or pay them 80% of their usual wages/salaries?

There has been a degree of confusion around the WSS eligibility criteria that means a business must use “best endeavours” to retain their employees and pay them a minimum of 80% of their normal wages or salary for the duration of the subsidy.

As stated above, if it is not possible for an employer to pay at least 80% of an employee’s usual income, it should at least pay the relevant subsidy amount for each employee. This should in many cases address any immediate financial pressure on retaining employees.

However, if an employer discovers they will be unable to retain the employees for which they are receiving the subsidy, then it will need to be able to justify this change in circumstances and demonstrate the steps it has exhausted before considering other options e.g. redundancy. A written record is important, as the WSS may be subject to auditing later.

As with other matters affecting employees, employers will still be required to consult with employees in good faith, and do only what a fair and reasonable employer could do in the circumstances.

Finally, employers should liaise with MSD if they have received wage subsidy payments for employees who leave or are let go during the period of the subsidy. MSD may require some or all of the WSS to be repaid if the employer is no longer eligible for the payment received.

6. How does an employer assess whether their casual employee(s) qualifies for the full-time or part-time wage subsidy rate?

Casual employees generally should not have any expectation of ongoing work or future income from their work, and therefore would not ordinarily be entitled to a subsidy for future income.

However, given the exceptional circumstances the country finds itself in, MSD has indicated that employers may also access the WSS for casual employees.

Given casual employees will have variable hours, it will not always be clear what the appropriate subsidy rate will be for individual employees. Therefore, employers may determine this by averaging out an employee’s hours over a set period (e.g. the last four weeks, the last three months, etc). Employers should consult with employees regarding this process and the calculations relied upon. If the average is 20 hours or more, they can apply for the full-time rate, and if it is under 20 hours they can apply for the part-time rate.

If they have worked for less than a year, the employer should average the hours worked during their total employment period. In correspondence with casual employees, we recommend employers make it clear that offering the WSS does not alter the casual nature of their employment.

7. What other obligations do employers have?

The WSS does not change any other employment law obligations. If an employer wishes to go through a disciplinary/poor performance/redundancy process, the employer will still need to consult and act in good faith as usual, including providing employees with access to relevant information.

Employers should ensure they are being active and communicative during this time. It may be an unsettling time for some employees, so access to EAP services should also be considered.

8. Can employers require employees not to work (i.e. if there isn’t enough work)?

If the employee is ready, willing and able to perform their duties, they are entitled to be paid their usual wages/salaries as if they were attending the workplace.

If this is not possible (i.e. if there isn’t enough work or if they cannot work from home), then the employer will need to consult with their employees about a reduction of hours, change in role, reduction of remuneration, or short-term business continuity arrangements (such as utilising the WSS). In most cases, this can only be done with the employee’s written agreement, or as part of a broader restructuring/redundancy process.

 

Emma Thomson-Learmonth is a Solicitor in the Commercial Disputes & Employment Team at Norris Ward McKinnon. You can contact Emma at emma.thomson@nwm.co.nz