Wage subsidy covid-19

COVID-19 Wage Subsidy Questions

From 11:59pm on Wednesday, 25 March 2020, New Zealand’s alert status in response to the COVID-19 threat was lifted to Alert Level 4. During this period, New Zealanders not working in essential services must stay at home and stop all interactions with others outside of their household.

This has left many employers with difficult decisions about whether they can retain staff if they must continue to pay them during the Level 4 Alert phase.

WAGE SUBSIDY

The Government did however step in to assist, by providing a wage subsidy scheme for which all employers can apply.

Provided they meet certain conditions, employers can receive $585.80 for staff working 20 hours or more per week, and $350.00 for staff working less than 20 hours per week, paid as a lump sum covering 12 weeks per employee.

Since its announcement, the scheme has gone through several iterations. Broadly though, these key criteria have remained constant:

  • your business must have experienced a minimum 30% 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 (including but not limited to engaging with your bank, drawing on your cash reserves as appropriate, making an insurance claim); and
  • you must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.

QUESTIONS RAISED

The intent of the scheme has been one of “high trust” to get cash into the hands of employers quickly. By submitting their application, employers are asked to make a declaration about their eligibility and how they will use the subsidy.

But this approach, while laudable in its goal, has generated many questions for employers who have remained uncertain whether they should claim for certain types of employees, to what extent this affects other leave entitlements and how the subsidy should be applied.

The most recent iteration of the wage subsidy scheme introduced from Friday, 27 March 2020, requires employers to agree to an expanded declaration. That declaration, and expanded guidance from the Ministry of Social Development (MSD), has provided some answers that employers were seeking, but some questions still remain.

Below is a list of questions relating to the Alert Level 4 phase and wage subsidy that have arisen with responses based on what we know as at the date of this post.

WHAT CAN THE SUBSIDY BE USED FOR?

It is not intended to fund other aspects of your business, but to keep staff employed while you work out the implications of the Covid-19 shutdown.

That seems to have been made explicit by the 27 March 2020 version of the declaration which states: “You will only use the subsidy for the purposes of meeting your named employees ordinary wages and salary and your obligations in relation to this subsidy.”

MUST I PAY STAFF 80% OF THEIR WAGES TO GET THE SUBSIDY?

The initial version of the scheme suggested that it was mandatory to pay at least 80% of an employee’s wages to qualify.

Subsequent versions appeared to soften this to requiring an employer to use “best endeavours”, and the 27 March 2020 version of the declaration clarifies that employers must at least pay the full subsidy to the employee it was claimed for.

The Finance Minister’s press release on 27 March 2020 expanded on this by suggesting that where a business has no activity due to the shutdown and workers are not working any hours, this may be an example where an employer will not be expected to pay 80% of their employees’ pay.

CAN I JUST REDUCE STAFF WAGES DOWN TO 80% OR THE LEVEL OF THE SUBSIDY?

You cannot change an employee’s pay without their agreement.

The 27 March 2020 declaration expressly requires employers to confirm that they will abide by their obligations under the Employment Relations Act 2000 and that they will make no changes to an employee’s rate of pay or hours without their written agreement.

Anecdotally, most employers who consult with their staff about reducing their wages to 80% or lower are finding that employees are generally accepting the change, rather than face potential redundancy.

It is important to capture the agreement in writing, and in fairness to the employee it should ideally indicate how long the reduction in pay will remain for or when it will be reviewed.

If employees do not agree to reduce their pay, you would have to continue paying them at their usual rate, or ask them to agree to take unpaid leave or to agree to reduce their hours, or otherwise look to see whether you have a business interruption clause that could allow you to suspend their employment or otherwise commence a restructuring process. These options were canvassed in my earlier post.

WHAT IF THE EMPLOYEE EARNS LESS THAN THE SUBSIDY?

A key clarification made by the Government on 28 March 2020 was that for any staff whose salary or wages was below the subsidy level, employers are only expected to pay them at that level and not at the higher rate of the subsidy.

That presents another issue however, because it means that some employers will receive excess subsidy funds they have declared they will not use for any other purpose than for meeting the wages of their employees for whom the subsidy was sought.

Guidance on the MSD website suggests that excess subsidy can be applied to paying other employees’ wages who might otherwise be paid at a level higher than the subsidy.

But if you have no other staff to which you could apply the excess subsidy, a conservative approach would be to set aside those excess funds on the assumption it may need to be paid back to the MSD later.

HOW DO I DETERMINE WHETHER AN EMPLOYEE WORKED MORE OR LESS THAN 20 HOURS?

The 20 hour per week threshold determines whether you receive the flat rate for part time or full time staff.

There may be cases where employees are contracted to work less than 20 hours per week but at the time of the Level 4 Alert phase commencing, were working more than that. So how do you determine their hours for the purpose of the scheme?

The Government’s guidance suggests that what matters is the hours the employee has actually worked, not what they were contracted to work.

That guidance states that average weekly hours can be determined by reference to the hours worked each week over the previous 12 months, or if they have not worked for you for 12 months yet, then the weekly average over their period of employment.

CAN I USE THE SUBSIDY TO PAY CASUAL STAFF?

The MSD guidance confirms that applications can be made on behalf of casual staff using the average weekly hours calculation referred to above.

Remember that if they have regularly worked a pattern of hours, and expect such ongoing work, then they may not be truly casual employees. This is something to bear in mind if you later need to restructure your business and consult with permanent staff about making positions redundant.

Truly casual staff, those who work ad hoc hours and do not expect a pattern of regular work, would not generally need to have their positions made redundant because they do not expect ongoing employment.

WILL THE WAGE SUBSIDY APPLY IF I AM PAYING STAFF ANNUAL LEAVE OR SICK LEAVE?

The 27 March declaration states: “You will not unlawfully compel or require any of the employees named in your application to use their leave entitlements for the period you receive the subsidy in respect of those employees.” A footnote to that point explains this is not intended to prevent you from paying leave entitlements as you are lawfully permitted to do, including as provided for in an employee’s employment agreement.

That suggests that the subsidy can still be claimed even if staff are on annual leave or sick leave if they are lawfully taking such leave.

So if staff are genuinely sick, or caring for someone who is sick, they could claim sick leave and the subsidy could still be applied to that period.

Further, if employees agree to take accrued annual leave, or annual leave in advance, or you lawfully direct them to take accrued annual leave on 14 days notice, then the subsidy can be claimed.

Remember that employers must pay for sick leave and annual holidays under the statutory formula set out in the Holidays Act.

WHAT SHOULD STAFF BE PAID FOR STATUTORY HOLIDAYS?

The Level 4 Alert phase covers the 2020 Easter break, so employers are turning their minds to what staff will be paid for those holidays.

Again, employers’ obligations to pay statutory entitlements according to the Holidays Act remain in place.

If employees would have otherwise worked on the public holiday had the Level 4 Alert phase not been in place and it had not been a public holiday, then they have a right to be paid for that public holiday at the statutory rate.

The Holidays Act says that employees are to be paid for public holidays at the rate of not less than their relevant daily pay (what they would have earned had they worked that day) or, if impossible to work out what their relevant daily pay would be, their average daily pay (being the average of the previous 52 weeks).

If staff have agreed to reduce their pay to, say 80%, for the Level 4 Alert phase, then the relevant daily pay rate will be at that reduced rate and it seems fair they receive this for the public holiday. If they have not agreed to a reduction, then their relevant daily pay calculation will not be affected by a reduction in pay.

WILL I HAVE TO PAY BACK THE SUBSIDY IF STAFF ARE MADE REDUNDANT?

The 27 March 2020 declaration states: “You will retain the employees named in your application as your employees for the period you receive the subsidy in respect of those employees”.

The intent of the scheme is, where you have received a subsidy regarding an individual employee, you will not make that employee redundant for the entire 12 weeks for which the subsidy was received.

However, the declaration goes on to require you to agree to repay the subsidy, or any part of it, for which you do not meet the obligations for its use or for which you stop being eligible. It also requires you to notify MSD within five working days if any staff end their employment with you.

That could mean that if you made an employee redundant, then provided you repay the portion of the subsidy back to the Government that relates to the balance of the 12 week period for which they were no longer employed by you, you would be acting consistently with that declaration.

But this remains an aspect of the scheme that may require further clarity as time progresses. Whatever the case, the redundancy would need to be justified on usual principles, meaning that it was for good reason and followed a fair process including consultation and consideration of alternatives. See my earlier blog post for more on this.

CAN I USE THE SUBSIDY TO PAY STAFF THEIR CONTRACTUAL NOTICE ON REDUNDANCY?

This is connected to the question above. The intent of the scheme is for employers to retain their staff and to not have to make them redundant.

However, if it is correct that an employee can be made redundant provided the balance of the unworked subsidy is repaid to the MSD , it seems fair that the notice period on redundancy could be a period to which the subsidy could be applied.

CAN THE SUBSIDY BE PAID AS A LUMP SUM TO STAFF?

Apparently some employers are electing to pay to each staff member the entire 12 week subsidy received for their wages as a lump sum.

This is probably an unwise practice, given that if the entire sum is paid out and the employee’s employment is terminated (whether by reason of redundancy or because they resign for example) then the employer may be in breach of their declaration if they do not repay MSD for the period of the 12 week subsidy payment for which that employee was no longer employed.

The 27 March 2020 declaration expressly provides that you must notify MSD within five working days if any of the employees named in your application end their employment relationship with you.

The better approach would be to use the subsidy to pay staff their wages on your usual payroll timings over the course of the 12 week period.

CAN I APPLY FOR THE SUBSIDY MORE THAN ONCE?

You can only apply once per employee, but if you have missed employees in an initial application you can apply again regarding those additional employees.

Further, if you have made staff redundant and then rehired them, then that is a further application you can make provided you have re-employed them before making your application.

FURTHER QUESTIONS

Undoubtedly more questions will arise. The response to the COVID-19 pandemic is an evolving situation. Email me at mail@markdonovan.co.nz with any further queries and I may look to update this article if required.