UPDATED: 31 March 2020. This blog contains the views of McKone Consultancy based on information that was available as at 31 March 2020. It is not intended as professional advice.
A lot of employers have been looking to get clarification on just what the Government’s Wage Subsidy means and their ability to require employees to use their annual leave during the COVID-19 Level 4 Lockdown.
The Government has put a Wage Subsidy in place. The levels of financial support are $585.80 per week for any employee working more than 20 hours per week and $350 per week for any employee who works less than 20 hours per week. (See Work and Income for full details of the subsidy).
The Wage Subsidy applies to support employers maintain and pay employees who can still work during the COVID-19 Level 4 Lockdown. Employers who apply for the Wage Subsidy must commit to using "best endeavours" to retain their employees for the 12-period covered by the Wage Subsidy. Where they have the resources to do so they should maintain their employees full normal pay or where they don’t have resources must use their best endeavours to pay at least 80% of their employees’ normal pay.
NOTE: From 4pm on 27 March 2020, the Government collapsed the separate Wage and Leave Subsidies into one Wage Subsidy. The Government has also changed the rules to state that Employers can apply for the subsidy even where employees are not working or not able to work from home. The "best endeavours" requirement still applies, but where the employer cannot top up wages, they must at least pass on the full wage subsidy to their employees. Where an employee would normally earn less than the applicable Wage Subsidy, the employee is paid their normal wage, not the higher Wage Subsidy amount.
In moving staff to 80%, employers also need to deal with their employees in good faith. This means consulting on the proposal to move to 80% pay for the lockdown period. There must be a genuine reason for doing so, such as a demonstrable reduction in business revenue as a result of COVID-19.
Where an employer’s revenue stream is not impacted, they may not have genuine grounds to implement a reduction in their employees’ wages to 80%. COVID-19. The Wage Subsidy is not intended to be an opportunity for employers to unilaterally cut employees’ wages. Good faith and consultation still need to be applied.
If an employee cannot work from home, due to the nature of their employment and the lockdown, from 4pm 27 March 2020 they will now be eligible for the Wage Subsidy. The Subsidy will apply to working, non-working, and self-isolating employees and those who are caring for self-isolating dependents.
From 4pm 27 March 2020, the Government expects employers to maintain employees in work. If this means an employer can only pay the Wage Subsidy then that, at least must be passed onto the employee. This does not stop the employer taking "best endeavour" steps to negotiate other arrangements, which may include special leave with or a top up to less than 80% (depending on the company’s ability to pay).
The Government does not expect or want to see employers requiring employees to take their annual leave during the lockdown. This does not prevent an employee from requesting to use some or all of their annual leave entitlement. Note: The employer cannot unilaterally place their employees on annual leave but may exercise their right under the Holiday Act 2003 to give employees 14 days’ notice of the requirement to take their annual leave. If an employee uses their annual leave this should be paid at the full contractual rate. At this stage there is no clear guidance on whether an employer can use the Wage Subsidy to offset the cost of annual leave, so our advice until any clear guidance becomes available is to use Annual Leave to top the Wage Subsidy. This would mean the employee’s leave balance is reduced by only that portion equivalent to the top up.
The key aspect is to consult with your employees and, where you can, reach agreement.
NOTE: Where an employee is working, they must be paid their contractual wage / salary entitlement for the hours they work. Any change to this rate must be mutually agreed and recorded as a variation. This is not an opportunity to unilaterally reduce a person's wages.
If a business cannot afford to top up an employee's wages to at least 80% of their normal wage they must at least pass on the full rate of the wage subsidy rate to their employees. As stated above, the employer must still use their "best endeavours" to pay at least 80% of the employee’s income or greater wherever they can.
“Best endeavours” does allow employers to negotiate an alternative approach to topping up to 80%. For example, an employer and their employees may negotiate a temporary cut in wages – for example agree to a 20% cut in pay, particularly if that means the difference between everyone keeping their job and being paid something. This means the employer would be topping up to 80% of the employees temporarily reduced pay rate. It is recommended that employers keep a record of what steps they have taken to meet the “best endeavours” requirements for the subsidy.
Employers should avoid seeking a reduction in pay rates if they are still trading and their income revenue has not been drastically impacted by the COVID-19 lockdown.
Where the Wage Subsidy is greater than what an employee would normally be paid, if the employer is not able to top up the employee’s pay, the employer can pay the employee what they would normally be paid. The balance of the Wage Subsidy for that individual may then be used to help pay other affected staff.
If an employer has received the Wage Subsidy for employees, they should not then seek to make these employees redundant during the 12-week period for which the subsidy applies. You would need to defer the implementation of any redundancy until after the 12-week period. This may mean you are only able to pay these employees either their normal pay or the Wage Subsidy, whichever is the lower of the two. Making employees redundant during the 12-week period may put you in breach of the rules for the Wage Subsidy.
If you have a legitimate reason, not related to payment of wages, you may be able to declare employees redundant during the 12-week period, however the balance of any subsidy for those employees must be repaid to the Government and cannot be used to pay other employees.
Finally, employers need to be aware that the Wage Subsidy is to help them pay staff. While the subsidy is not subject to any tax for the employer (e.g. GST), because it is provided for wages, it is still subject to PAYE. The employer’s obligations to continue to pay Kiwisaver contributions, overtime, any normal allowances still remain in place and are not set aside because of COVID-19.
Information and guidance on the application of the Wage Subsidy continues to evolve on almost a daily basis, so please always check official sources before acting on any of the information in this blog.
For further information:
Author's LiveStream - available on Hutt Valley COVID-19 Business Support Group
Disclaimer: This blog does not constitute legal or professional advice. It is based on that was available to the author as at 31 March 2020. This information is provided for general information purposes only.