Summary of Covid-19 Employment Issues

16 April 2020

Many employers are unsure how to manage their employees during COVID-19 Alert Level 4. This summary outlines the COVID-19 modified Wage Subsidy Scheme, provides answers to commonly asked questions, outlines the Essential Workers Leave Scheme, and provides information on managing and amending Employment Agreements.
This summary is based on the guidelines published as at 16 April 2020. We are continuing to monitor updates or changes to the Government’s guidelines and any new forms of assistance that become available and will update this article accordingly.

COVID-19 modified Wage Subsidy

Employer obligations were clarified on 27 March 2020 with the modification of rules for the COVID-19 Wage Subsidy Scheme. The old rules will continue to apply for all wage subsidy applications made before 27 March 2020.
Scope of the Wage Subsidy
The modified wage subsidy is designed to assist all New Zealand businesses that have been adversely affected by the impacts of COVID-19 and aims to keep people employed.
The subsidy is paid as a lump sum payment of $585.80 per week for a full-time employee (20 hours or more) or $350.00 per week for a part-time employee (less than 20 hours) for a period of 12 weeks.
Eligibility
To access the modified wage subsidy, employers must satisfy the following requirements:
the employer has experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same or equivalent month last year, and that decline is related to COVID-19;
all employees named in a wage subsidy application must be legally employed in New Zealand;
the employer has taken active steps to mitigate the impacts of COVID-19 on its business, which may include:
ongoing discussions with its bank, accountant, and lawyer as to financing and other options to ensure business continuity;
drawing on its cash reserves;
making an insurance claim if possible;
seeking advice and support from the Chamber of Commerce, a relevant industry association, or the Regional Business Partner Programme; and
the employer is not currently receiving the wage subsidy, the COVID-19 Leave Payment or the Essential Workers Leave Scheme for any employee named in the application.
Employer Obligations
Receiving the wage subsidy does not relieve your obligations as an employer under the Employment Relations Act 2000;
Employers must use best endeavours to pay all employees named in the application 80% of their ordinary wages or salary (see Commonly asked questions below); and
Employees named in the application must not be made redundant for the full 12-week period in which they are receiving the wage subsidy.
Wage Subsidy Surplus
An employer may end up with a wage subsidy surplus because an employee’s full legal wages are below the subsidy amount. The employer can use this surplus to either:
pay an employee their wage subsidy for more than 12 weeks if their wage is legally less than the subsidy amount; or
use it towards another employees’ wage subsidy.
The key thing is that the subsidy funds received are only used for paying employee wages, and not any other business expenses.
An employer must notify Work and Income of any redundancies or resignations within the subsidy period. The employer may be required to repay some or all of the subsidy received for that employee if you make them redundant.
Wage Subsidy Register
There is a register where you can search for employers who have received payments under the wage subsidy scheme. You can find the employers name, how many employees they applied for, and the total amount they received.
You can find this register at the following address: https://www.msd.govt.nz/about-msd-and-our-work/newsroom/2020/covid-19/covid-19-wage-subsidy-employer-search.html

Commonly asked questions:

What is ordinary wages or salary?
The ordinary wages or salary of an employee are as specified in the employee’s Employment Agreement as at 26 March 2020. If an employee is paid a salary, the salary is their ordinary salary. If an employee is paid hourly or is a casual or ‘on-call’ employee, the employer should average out the employee’s wages over the past three months to find their ordinary wages. In either case, if an employee’s ordinary wages or salary is lawfully below the amount of the subsidy you can pay the employee that amount.
What does “use your best endeavours” mean?
Employers must take all available courses of action that a prudent, determined and reasonable employer would take, but not to the extent that it puts the employer into financial jeopardy. If an employer uses best endeavours but still reduces wages below 80%, the employer must pass on the full subsidy amount to the employee and can discuss with the employee other ways of making up the 80%, i.e. annual leave.
Can an Employer ask an Employee to use their annual leave to make up the 80%?
Yes, however the employee must consent to this. The subsidy cannot be used to reduce the employer’s annual leave liability.
What are the tax implications of the Wage Subsidy?
The wage subsidy is exempt from GST. Payments received by employers are not taxable, however payments made to employees are subject to normal income tax requirements, i.e. PAYE, ACC levies, Kiwisaver contributions and student loan repayments. If you are unable to pay tax, there are options for relief. Please speak to your accountant about this.
What if I already applied and received the original Wage Subsidy?
You are required to use this to pay your employees named in the application for the full 12-week period, however you can apply for employees you did not name under the original scheme under the modified wage subsidy.
Under which criteria will my application be assessed?
Any applications made prior to 3pm on 27 March 2020 will be assessed against the original criteria. All applications made after that date will be assessed against the modified wage subsidy criteria.
What if one of our employees is overseas and cannot get back into NZ due to COVID-19 travel restrictions?
Legal employees of NZ businesses can still receive the wage subsidy if they are not physically present in NZ.
If I ended an employment relationship due to the impact of COVID-19, can I re-employ this person and receive the Wage Subsidy for them?
Yes you can. Their ordinary wages or salary will be that specified in the employee’s Employment Agreement as at the date the employment relationship ended.
What if an individual has two jobs?
Both employers will get the wage subsidy and they should each pay the proportionate amount to the employee based on their ordinary wages or salary.
If you have any questions about the wage subsidy, please get in touch with us.
You can read the obligations in full and apply for the wage subsidy at the following address: https://workandincome.govt.nz/products/a-z-benefits/covid-19-support.html#null.

Essential Workers Leave Scheme

On 2 April 2020 the Government introduced the Essential Workers Leave Scheme to provide support to essential businesses whose essential service workers are unable to attend work for one of the following reasons and cannot work from home:
are at higher risk if they get COVID-19, and Ministry of Health guidelines (see below) recommend they stay at home while NZ is in lockdown (and potentially longer).
come into contact with someone who has COVID-19 and must self-isolate for 14 days (as required by Ministry of Health guidelines).
have tested positive for COVID-19 and are required to remain off work until they’ve been cleared by a health professional to be released from self-isolation.
have household members who are at higher risk if they get COVID-19 and the Ministry of Health recommend the worker also remains at home to reduce the risk to them.
The Ministry of Health has defined the groups of people to be at higher risk of becoming severely ill from COVID-19 as those with chronic lung disease or moderate to severe asthma, serious heart conditions, immunocompromised conditions, severe obesity, diabetes, chronic kidney disease, people undergoing dialysis, liver disease, and those people over 70 years of age, residents of aged care facilities, and pregnant women.
Like the wage subsidy, eligible businesses will receive $585.80 for each full-time worker (20 hours or more) or $350.00 per week for each part-time worker (less than 20 hours) for a period of four weeks. Businesses will be able to reapply for the same worker after four weeks if necessary.
Eligibility
To access the essential workers leave scheme employers must satisfy the following requirements:
have experienced a minimum 30 percent decline in actual or predicted revenue over the period of a month when compared to the same or equivalent month last year, and the loss is attributable to the impacts of COVID-19; or
their ability to support eligible employees that need to take leave because of COVID-19 has been negatively impacted by the COVID-19 public health restrictions, and
have had a conversation with their employee about how they can best support them at this time; and
must not be receiving the wage subsidy or the COVID-19 Leave Payment for the employee’s named in the application.
Employer Obligations
Receiving the wage subsidy does not relieve your obligations as an employer under the Employment Relations Act 2000;
If the employee’s ordinary wages or salary before COVID-19 exceeds the relevant subsidy rate, the employer must pass on the full subsidy and make best endeavours to pay the employee at least 80% of their ordinary wages or salary (as specified in the employee’s employment agreement as at 5 April 2020);
If the employee’s ordinary wages or salary before COVID-19 is less than the relevant subsidy rate, the employer is only required to pass on their ordinary wages or salary.
Employees named in the application must not be made redundant for the period you receive the subsidy in respect of those employees.
Leave Scheme Surplus
Any surplus funding from the essential workers leave scheme must be used to fund essential business workers’ wages where possible. If an employer has no other staff to use the subsidy in relation to, employers should notify Work and Income and return the money.
You can read the obligations in full and apply for the leave scheme at the following address: https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-essential-workers-leave-support.html#null

Amendments to Employment Agreements

During this uncertain period, the fundamental principles of Employment Law remain unchanged. Any changes to employment agreements, whether the wage subsidy or leave subsidy has been received for the employee or not, must be made in consultation with the employee and the agreed decision recorded in writing.
In some circumstances changing the terms of an employment agreement (whether permanent or on a temporary basis) may be the only viable option. Such changes may include reducing hours of work and/or wages. A number of employers are adopting an approach of proposing a reduction in working hours and salary to 80% of ordinary wages or salary.  It is important that you consult with your employees and seek their agreement before implementing any change.  If your employees do not consent to any amendments, you may need to look at a more formal restructuring process.
Please get in touch with us to assist you in preparing a variation of agreement.

Redundancy

If you are still struggling after receiving the COVID-19 wage subsidy and after considering all viable options to mitigate the impact of COVID-19 on your business (e.g. seeking the agreement of your staff to reduce work hours and wages), a formal restructure may be the only viable option. You will need to follow a formal restructuring process which includes consultation with affected employees and you will need to justify, based on your current income or decrease in workload, that you cannot afford the existing positions or hours and need to restructure to a more manageable level.
Please get in touch with us to discuss the process, and your justifications, before you begin any restructuring process.

Rise in Minimum Wage

On 1 April 2020 the adult minimum wage increased from $17.70 to $18.90 per hour. For information on employers rights and responsibilities regarding the increase in wages amid COVID-19 Alert Level 4, please see the following address: https://www.employment.govt.nz/leave-and-holidays/other-types-of-leave/coronavirus-workplace/covid-19-minimum-wage/.
Alexandra Boustridge/Connor Morriss
Senior Associate/Solicitor