Applying the correct rules to the Wage Subsidy
WHO CAN GET THE SUBSIDY?
All New Zealand employers who have been adversely affected by COVID-19 are eligible to apply. This includes:
- registered charities
- Non-government organisations (NGOs)
- the self-employed and sole traders
- incorporated societies, and
- post-settlement governance entities.
If you’re an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 wage subsidy.
- your business is registered and operating in New Zealand
- your employees are legally working in New Zealand, including employees who:
- have a NZ work visa
- have a condition on their NZ temporary visa that allows them to work in NZ
- are international students whose visa allows them to work in NZ
- the business has 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 has taken active steps to mitigate the impact of COVID-19
- you must retain the employees named in your application for the period of the subsidy.
WHAT CAN YOU GET?
The COVID-19 Wage Subsidy will be paid at a flat rate of:
- $585.80 for people working 20 hours or more per week (full-time rate)
- $350.00 for people working less than 20 hours per week (part-time rate).
The subsidy is paid as a lump sum and covers 12 weeks per employee.
If you work variable hours (or your employee does), you can use an average to work out what rate to apply for.
Use the average hours worked each week:
- over the last 12 months, or
- over the period of time, you (or they) have been employed (if it’s less than 12 months).
If the average hours are:
- 20 or more, apply for the full-time rate
- less than 20, apply for the part-time rate.
PAYING YOU STAFF
If you are receiving the COVID-19 Wage Subsidy, you must try your hardest to pay the employee named in your application, at least 80% of their usual wages. If that isn’t possible, you need to pay at least the subsidy rate (ie, full-time or part-time).
If your employee’s usual wages are less than the subsidy, you must pay them their usual wages. Any difference should be used for the wages of other affected staff – the wage subsidy is designed to keep your employees connected to you.
GST & INCOME TAX
You don’t have to pay GST on the wage subsidy.
Your employee will need to pay tax on their wage subsidy payment as it’s paid to them as part of their normal wages. This means it’s subject to the usual employer deductions, eg, PAYE, Student Loan, KiwiSaver, Child Support etc.
When calculating PAYE deductions, do not gross up the Wage Subsidy component. PAYE is deducted from the subsidy (i.e. $585.80 less PAYE, etc).
You can agree with your employee the frequency at which the subsidy is paid. However, if the subsidy is being paid outside of their usual pay cycle this might have adverse tax implications for your employees such as:
- they may be taxed at the wrong rate
- it may impact Working for Families entitlements.
For most businesses, the Wage Subsidy is classified as “excluded income” for income tax purposes. This means that as a business you don’t pay income tax on the Wage Subsidy you receive from MSD. You don’t get an income tax deduction for the wages you pay using the Wage Subsidy. You still need to make the usual PAYE deductions when you pass it onto your employee.
If you’re self-employed, you need to pay income tax on the COVID-19 Wage Subsidy you receive, as it’s a payment to replace a loss of earnings.
For more information on tax queries, please give us a call.