Wage Subsidy – it’s been paid, now what?
*Updated as new information is available — last updated 29 March 2020, 11:00 am.
We have now had a chance to digest the wage subsidy and the philosophies surrounding it.
THE WAGE SUBSIDY & HOW TO APPLY IT
Yesterday the government announced adjustments to the COVID-19 wage subsidy scheme which state that:
- will retain named employees for at least the duration of the grant (12 weeks)
- will pay named employees, at a minimum:
- for any work they do at their normal rates
- at least 80% of income where reasonably possible (for employees working reduced hours while self-isolating)
- the full subsidy received for each named employee, where their pay is below the subsidy rate.
(link can be found at https://www.business.govt.nz/news/covid-19-latest-news-and-updates/)
The original declaration states:
“You agree you will, using best endeavours, retain the employees named in your application in employment on at least 80 % of their regular income for the period of the subsidy”
This can be found at the following link:
These are of course significantly different and because there is no case law about how the wages subsidy will be considered, so it is impossible at this stage to say exactly how the courts will consider this situation when challenges are raised about how a company has spent that money (though it has to be spent on wages).
HOW DOES NAVIGATOR ACCOUNTING INTERPRET THE DECLARATION?
There are 3 fundamental philosophies which are changing daily about how you interpret this declaration.
Philosophy 1 (Wednesday)
- Only pay the wages subsidy
- Pay people by the hour for any work they can do
- Ask people to take annual leave
Use all of the above to add up to 80% of regular income
Subsidy to be used to pay wages and companies need to use best endeavours to keep people employed.
Philosophy 2 (Thursday)
As more information came out the philosophy appeared to change to:
- Pay people 80% of wages
- Fund this by on-paying the subsidy and topping up
- People can be asked to work up to 80% of the normal time because you paying them for that
- Annual leave can be used to top up between 80% and 100%
Subsidy to be used to pay wages, and companies need to use best endeavours to keep people employed
Philosophy 3 (Friday)
- You WILL retain all named employees for at least 12 weeks
- You MUST MAKE BEST EFFORTS to pay at a minimum 80% of the income
- You WILL pay the subsidy for each named employee where their pay is below the subsidy rate
These are the rules that apply to anyone who applies for the subsidy from this time forward.
??? Who knows, given the rapidity of change, I suspect (hope) that there will be a “Philosophy 4”.
How do I interpret this?
Every business will be different, but the following is some guidance to help you to make your own calls about how to pay people during this period.
My concern is that when this is over “Philosophy 3” is the standard against which you will be measured by the courts. As such I am hoping and waiting for Philosophy 4.
What the WINZ website says:
The following are 3 key statements on the WINZ website:
- This subsidy is for wages only. It is to help you keep your staff employed while you consider changes that may be needed while the disruption continues, and to ensure the future viability of your business.
- You must make best efforts to retain employees.
- And make the best efforts to pay them a minimum of 80% of their normal income for the subsidised period.
Does the Subsidy “belong” to an individual?
Philosophy 3 states strongly it does “belong” to an individual. However:
- For Employee X on $20 per hour for 25 hours per week, their normal pay would be $500 per week, so it doesn’t make sense to me that they would receive $585.50 during this period.
- For Employee Y on $50 per hour for 40 hours per week, $585.80 is well short of 80%. So if you use the excess $85.80 to bring Employee Y closer to 80% my belief at this stage is that you are still using it as a wages subsidy.
It is really difficult to say how this is going to pan out in terms of interpretation at this stage for those who applied for the scheme under the original declaration. But the fact that it is 2 flat fees (20 hours + and under 20 hours) and not related to how much an individual is being paid leads me to hope that this is for intended for use for the company wages bill rather than to give Employee X a bonus. I.e. if a company receives a subsidy payment of $5,858 per week (i.e. 10 people at 20 hours plus), and their normal payroll cost is $10,000 per week across everyone, and they want to pay everyone 80% of wages then the company spends the $5,858 subsidy, plus tops up $2,145 per week to bring everyone to 80%
Is 80% across the board the most equitable solution?
Philosophy 3 says 80% for everyone, and as far as possible you do want to be equitable to everyone. However, there may be specific hardship situations deal with. For example, Employee X on $20 per hour for 25 hours per week would normally be taking home about $400 per week (after-tax). If his rent is $300 per week he only has $100 for food, bills etc. If you drop him to 80% so his take-home is only about $320 per week, but he still has to pay $300 per week rent, you may need to consider treating him differently.
Can peoples annual leave be covered by the subsidy?
Annual leave is a benefit that is accrued over time and is a separate entitlement to wages. This is a subsidy for wages and I would, therefore, say no you cannot use the wage subsidy to offset someone taking annual leave.
Can people take annual leave at this time?
Yes, but I would suggest that you consider annual leave as a top-up between how much you are paying (80% is the target the moment) and 100% of normal pay. Philosophy 3 and the new declaration are clear that annual leave should not be used to meet the 80% threshold.
NB: Annual leave can take by mutual agreement, so employers do have the right to refuse a request for annual leave. However, in this situation I would be wary of refusing such requests and, as it is a liability which sits on the company, this may be a good time to reduce that liability. However, from a cash flow perspective if everyone is suddenly taking 20% of their annual leave on top of what you are already paying out in terms of top-up between the subsidy and 80% of their wages then you may need to look carefully about how you handle this situation.
What is NORMAL INCOME?
The 1st subsidy declaration references “NORMAL INCOME”, and the 2nd declaration references “USUAL WAGES OR SALARY” but these are not a legally defined term and there is no definitive answer around what that will be. However, the best advice I can give at this stage is to use “Ordinary weekly pay” (http://www.legislation.govt.nz/act/public/2003/0129/latest/DLM236852.html)
which is the calculation used for holiday pay payments.
Can I ask people to do work?
Yes. You are paying them so you can call on them to do work for 100% of the time you are paying them for (NB: the wages subsidy is time you are paying them for).
Work requests, of course, need to be fair and reasonable and given the situation, you need to ensure that the requests are:
- Able to be done at home (i.e. without breaching isolation rules)
- Within the reasonable abilities of the person. E.g. you can’t ask someone who is computer illiterate and doesn’t have access to a computer at home to do on-line work
But this is a great time to get all of those “tidy-up” jobs done e.g. reviewing documents, phoning clients etc.