COVID-19: Practical information about complying with the Wage Subsidy Scheme and changes to the Essential Workers Leave Support Scheme
Since first being introduced on 17 March 2020, the Wage Subsidy Scheme has successfully delivered over $10 billion dollars into the economy to support employers, employees and the self-employed. Over 500,000 applications have been received, and payments made in respect of over 1.6 million employees and self-employed workers. As many employers have already applied for the Wage Subsidy Scheme, the focus now turns to ensuring that employers are complying with the terms of the scheme; in particular being able to evidence the need for the subsidy and retention of employees on the payroll.
As we have moved from the Alert Level 4 lockdown to Alert Level 3, more workers are able to return to work. As a consequence, from 1 May 2020 the Essential Workers Leave Support Scheme will broaden its eligibility to more than essential workers and will be available to all businesses, organisations and self-employed people.
Wage Subsidy Scheme
The Wage Subsidy Scheme allows qualifying organisations to claim NZ$7,029.60 for a full time employee and NZ$4,200 for a part time employee (working less than 20 hours per week). The total amount in respect of all employees is paid out in a lump sum that covers a 12-week period commencing at the time of application. If your businesses has not yet claimed under the Wage Subsidy Scheme, details of the scheme, including answers to common questions and examples are available here.
Given the details of all Wage Subsidy recipients are listed on a publicly searchable register, there has been a lot of interest in and speculation about the eligibility of some applicants. On 24 April 2020, the Ministers of Finance and Social Development announced that a process of auditing Wage Subsidy recipients had commenced, with a team of 104 fraud experts and investigators put on the job. In the event that any recipient is found to have provided false or misleading information, a repayment of the subsidy will be required, and there is the possibility of civil proceedings to recover funds and prosecution under the Crimes Act 1961. Government agencies have the ability to exchange a range of data in relation to the Wage Subsidy and we know that the Ministry of Social Development (MSD) is matching data with Inland Revenue to identify potential audit subjects.
Claimants should have ensured they were familiar with all the eligibility criteria prior to making a Wage Subsidy application. Since 4pm 27 March the key eligibility criteria for employers have been:
- The employees named in the application are legally employed by the applicant and are employed in New Zealand; and
- The business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month (between January and 9 June 2020) when compared to the same month in 2019, or a reasonably equivalent month for a business operating less than a year (or high-growth businesses), and that revenue loss is attributable to the COVID-19 outbreak; and
- Before making an application for the subsidy, the business must have taken “active steps” to mitigate the impact of COVID-19 on business activities; and
- Employers accessing the Wage Subsidy are expected to take “best efforts” to retain employees and remunerate them at least 80% of their normal income. Where this is not possible, the Government expects that, at a minimum, employers pass on the full value (less taxes) of the subsidy to employees (i.e. either $585.80 or $350 per week for 12 weeks) unless the employee is ordinarily paid less than these amounts; and employers must also retain employees for the duration of the subsidy (12 weeks).
In the event of being selected for an audit, a business should be able to demonstrate how it has satisfied the criteria above; including having documentation to support each aspect. This will be particularly important for those businesses who were making a claim on the basis of anticipated reductions in revenue.
From our experience dealing with Wage Subsidies in the past (for example after the Canterbury earthquakes), it generally costs less (time and money) to prepare a supporting documentation file now than urgently back-filling the information at a later date in response to a review/audit. While in the moment a claim may make complete sense, as the weeks and months go by, the underlying assumptions and interpretations can become harder to remember or justify.
Businesses should be compiling documentation to support claims, demonstrating the existence of effective internal processes and controls. The type of information being collated could include financial information, evidence of the impact of COVID-19, communications with banks, and details of all employee changes for the duration of the subsidy. We are happy to discuss documentation requirements further, so please contact us if you would like more insights.
Any business that determines that it has not satisfied the eligibility criteria should contact MSD and seek to make a repayment; in fact over a thousand have already done so. Voluntarily returning funds received is much preferable to being audited and facing possible prosecution. It is to be expected that in many instances initial forecasts of revenue reductions would not have been accurate given the uncertainty of the last six weeks.
It is important to note that if an employee voluntarily leaves a business during the 12 week subsidy period, it is not necessary for the employer to repay any balance of the wage subsidy for that employee (the funds should be applied towards paying other employees); however the employer should ensure they contact MSD to advise of this. Failing to advise MSD of an employee voluntarily leaving may result in a ‘please explain’ question when a named employee stops appearing on payroll data filed with Inland Revenue.
Clyde Clothing Limited (CCL) anticipated being closed for the duration of the Level 4 Lockdown and therefore forecast that its revenue in April 2020 would be down almost 100% on revenue in April 2019. As such, in late March (after ensuring other eligibility criteria had been met) CEO Bonnie Parker, made an application for the Wage Subsidy in respect of the 20 full time employees working for CCL. CCL received a payment of $140,592. During the Level 4 Lockdown it was established that as CCL was selling high quality merino wool knitwear they would be able to continue to sell products online and have these delivered to customers. As a result of a cold-snap, CCL’s sales were better than forecast and in early May when Bonnie reviewed the April 2020 accounts it was established that sales had only dropped by 15%. CCL has not met the eligibility criteria for the Wage Subsidy and should contact MSD to arrange a repayment of $140,592.
Ned Kelly runs The Kelly Whiskey Armoury Limited (KWAL); he lodged a Wage Subsidy claim in respect of his nine employees Red, Ellen, Mary-Jane, Annie, Margaret, Dan, James, Kate and Grace. During the period of the Level 4 and 3 Lockdown, Ned has committed to retaining all nine staff and has negotiated temporary salary reductions with each of them; ensuring that at a minimum they received no less than $585.80 per week. In mid-May, Red and Ellen each decided to leave KWAL to pursue other careers. Ned is required to contact MSD to let them know that Red and Ellen are no longer employed. Ned is able to retain the balance of the wage subsidy received in respect of Red and Ellen and uses these funds to continue to pay his remaining seven employees.
Leave Support Scheme
In early April, the Essential Worker Leave Support Scheme (EWLS Scheme) was established. The EWLS Scheme was designed to ensure that essential workers who were required to take leave from work to comply with Ministry of Health public health guidance continued to receive income if they could not work from home. From 1 May, the EWLS Scheme is being extended to all businesses, organisations and self-employed people experiencing hardship due to COVID-19; all other criteria of the EWLS Scheme remain the same. The EWLS Scheme will be renamed the Leave Support Scheme.
Key information about the Leave Support Scheme:
- The Leave Support Scheme makes a payment for a period of four weeks at a time for each affected employee. The weekly Leave Support Scheme payment amount is the same as for the Wage Subsidy, being $585.80 for a full time worker, and $350 for a part time employee. Therefore payments of $2,343.20 and $1,400 are to be received for full time and part time workers respectively.
- Employers cannot receive a Wage Subsidy and a Leave Support payment in respect of the same employee at the same time.
- Employers are able to re-apply for the same employee after each four-week period (if required), and can submit multiple applications relating to different employees.
- Employers will be able to apply for the Leave Support Scheme (on behalf of employees) if they have:
- Workers who are self-isolating in accordance with Ministry of Health guidance because they have contracted the virus or have come into close contact with someone who has contracted the virus (or have a dependent they need to care for who is sick or self-isolating);
- Workers are staying at home in accordance with recommendations under the Ministry of Health guidelines, due to the worker being deemed at a higher risk if they contract COVID-19 (for example they suffer from respiratory disease, they are over 70, they are pregnant); or
- Workers who have household members who are deemed at higher risk if they contract COVID-19, and as such should self-isolate to reduce the risk of transmitting the virus to that household member (in accordance with Ministry of Health guidance).
- Employers intending to access the Leave Support Scheme will also have to read, understand and agree to a declaration when making an application. Importantly, employers will have to confirm that:
- They have confirmed that employees meet the Ministry of Health Guidelines at the time of application (it is only necessary for the employee to confirm to the employer that they meet one of the criteria, they do not have to confirm what it is);
- They have talked to employees about “how [to] best support them at this time” (e.g. use of sick / discretionary leave); and
- They cannot “financially support [the] employee due to the COVID-19 public health restrictions” (e.g. the cost of paying for your employees' leave and paying for replacement staff is significant).
MSD has published a helpful FAQs guide, covering common questions related to the Leave Support Scheme, including discretionary leave entitlements, evidential basis, the application process, eligibility and other categories.
Thanks to the careful planning and systems we have already implemented as a firm, we are well positioned to provide advice and support to all of our clients as we self-isolate as a nation. This includes aiding businesses as they access government supports and entitlements. In short, while our physical offices are closed to aid in the fight against COVID-19, we are still open for business.
The content of this article is accurate as at 28 April 2020, the time of publication. This article does not constitute professional advice. If you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.
Robyn is a Partner within the Tax Team at Deloitte in New Zealand. This involves many things, including preparing submissions on behalf of Deloitte and developing thought leadership in the area of tax. She likes to think about how tax developments really impact on Deloitte's clients and has a particular interest in tax policy and keeping up to date with all the many tax developments.