Objective and subjective factors to consider before claiming a wage subsidy

Factors to consider before making a claim

Applications are currently open for the second round of the Wage Subsidy. In this article we explain some of the common issues we regularly come across as well some of the factors to consider before making a claim.

By Robyn Walker

What is available?

Qualifying businesses (including sole traders) are able to make a claim for a two-week wage subsidy of $600 per week ($1,200 in total) for a full-time employee and $359 per week ($718 in total) for a part time employee for every fortnight that any part of New Zealand remains in either Alert Level 3 or Alert Level 4. The first fortnight covered the period 17 August to 31 August (with claims required to be made by 11:59pm on 2 September). The second fortnight covers the period 31 August to 13 September and applications must be made by 11:59pm Thursday 16 September 2021. A third fortnightly claim will be triggered if it becomes apparent that Auckland will remain at Alert Level 3 or 4 for a total period exceeding five weeks.

Claims under the Wage Subsidy Scheme August 2021 (WSS) can be made through the Ministry of Social Development (MSD) website here. Businesses must reapply for each fortnightly claim, and must apply by the due date for each fortnight (something which tripped some people up on the first round of the wage subsidy).

What are the eligibility requirements?

The purpose of the WSS is to support employers to continue to pay employees and protect jobs for businesses affected by the move to Alert Level 4 on 17 August 2021.

To be eligible for each tranche of the WSS there are a number of criteria to meet, including:

  • You must be an eligible employer, which includes charities, non-government organisations, sole traders and contractors.
  • The employees must be legally working in New Zealand.
  • Employees must consent to being included in the WSS application.
  • The employer must retain employees for the duration of the wage subsidy period and must use best efforts to pay staff at least 80% of their usual wages. Employers still need to comply with employment law, including not requiring employees to vary employment agreements or use leave entitlements without agreement.
  • There must be a 40% decline in revenue (explained further below).
  • Active steps must have been taken to mitigate the impact of the change in alert levels (discussed further below).
  • Applications cannot be made in respect of employees who are the subject of a separate COVID-19 payment (e.g. a Short-Term Absence payment or Leave Support Scheme payment).
  • Evidence must be prepared and retained to support all aspects of the WSS claim.

The revenue decline test

A business needs to suffer a 40% decline in revenue over each 14-day period as a consequence of the continuation of Alert Levels 3 and 4 (note: on 10 September the Government has also clarified that the effects of Alert Level 2 on businesses can also be factored into the revenue decline test). The revenue during the elevated alert levels is compared to a ‘typical’ 14-day period between 6 July to 16 August 2021 (being the six weeks before the change in alert levels). Businesses with highly seasonal revenue have the option of looking back at income in the same 14-day period in either 2019 or 2020.

An application can be made before the conclusion of each 14-day period on the basis of a predicted 40% revenue reduction. However the revenue drop will need to be subsequently verified with the wage subsidy repaid if the threshold is not met.

Example: Capital Perk Limited is a coffee shop based in Wellington, all its coffees are $5 each. It typically sells 500 coffees a day, 5 days a week, giving typical fortnightly revenue of $25,000. From 18 – 31 August Capital Perk has $0 in sales and it applies for the first round of the wage subsidy. On 1 September, caffeine deprived Wellingtonians purchase 1,000 coffees, before sales taper back to a more modest 300 coffees a day for the next fortnight. In the period 1 – 14 September Capital Perk has total sales of $18,500. As this represents a 26% reduction in typical revenue Capital Perk is not eligible for the second round of the wage subsidy.

Revenue is defined as “the total amount of money a business has earned from its normal business activities, before expenses are deducted", and shouldn't include the Wage Subsidy or any other government assistance payments.

Objectively, this revenue decline test may be relatively easy for businesses to satisfy if they are unable to operate during Alert Level 4 and may have experienced almost four weeks with no revenue already. The test does require more consideration for businesses which are able to operate at a reduced capacity (particularly for the parts of the country who have moved back to Alert Level 2) or for businesses who may be unable to work but may still be contractually entitled to payment.

The guidance from MSD does not currently elaborate on how a revenue drop should be substantiated for a business which is not regularly invoicing customers (for example, customers are invoiced monthly). By comparison the Inland Revenue provide the following guidance when measuring revenue declines for the purpose of the Resurgence Support Payment: “For a cashflow business, such as a restaurant, this is likely to be the daily takings. For a business that invoices clients, this will be the activities the business carries out that would entitle it to bill or invoice either immediately or at a later date”. We recommend businesses consider a similar approach in relation to the WSS.

Example: Holidaze Limited runs school holidays programmes. Holidaze earns the majority of its income during school holidays, but also earns some income during school terms running after school programmes. Holidaze earned $50,000 per week ($100,000) between 12-15 July, in the subsequent 3 weeks income is $5,000 per week ($10,000 in a fortnight). When New Zealand enters Alert Level 4 income drops to $3,500 per week ($7,000 in a fortnight) in the period 17 August to 30 August.

Holidaze should compare its revenue from 17-30 August to a ‘typical’ fortnight, being $10,000. In this instance it would not be appropriate to compare the revenue during Alert Level 4 to the $100,000 earned during the school holidays; instead revenue should be compared to the ‘typical’ earnings of $10,000 per fortnight. As a highly seasonal business, Holidaze could potentially look at revenue earned from 17-30 August 2019 and 17-30 August 2020 to determine if there had been a 40% decline in revenue which was due to the change in Alert Levels. Holidaze would need to document the basis on which its business is of a seasonal nature, and how the seasonal nature of the business made it harder for the business to meet the 40% revenue decline using the default comparator period.

Applicants should also be ensuring they are reading the declaration for each wage subsidy carefully to ensure all criteria are met. While the Government has stated: “The Government has clarified the revenue decline test for the COVID-19 Wage Subsidy August 2021 #2 and includes the effect of Alert Level 2 on businesses as well as the continuation of Alert Levels 3 and 4 from 17 August 2021”, the actual WSS declaration still requires applicants to document how the continuation of Alert Levels 3 and 4 caused a revenue loss. Being able to demonstrate a clear link between the Alert Level and the loss of revenue is critical.

A common issue we are seeing in reviews we have carried out of 2020 wage subsidy claims, is that businesses have not always made it clear that the decline in revenue was the result of the change in alert levels and not because of other factors. This becomes more important when the revenue reduction is close to the required decline percentage. The WSS requires applicants to prepare and retain evidence that demonstrates how the revenue loss was attributable to the change in alert levels. We strongly recommend your supporting documentation identifies any other revenue reduction factors to ensure you do have the required revenue decline due to the change of alert levels.

Example: Snow Work Limited is operated by Lindsey, its sole shareholder-employee. In early August, Lindsey decided to take a six-week extended holiday and cancelled all upcoming workstreams. In late August Lindsey has no income, and therefore has had a 40% drop in revenue. However, Lindsey is not eligible for the wage subsidy as the decline in revenue is due to her decision to close the business for her holiday rather than the change in alert levels.

Mitigating the impact of the change in alert levels

Each previous wage subsidy scheme has included the requirement that “your business must have taken active steps to mitigate the financial impact of COVID-19".

This phraseology has subtly changed for this wage subsidy and now requires “before making an application, you must have taken active steps to mitigate the impact of the move to Alert Level 4 on 17 August 2021 on your business activities. This includes (but is not limited to) engaging with your bank, drawing on cash reserves as appropriate, and making an insurance claim”.

What precisely is required remains slightly unclear, particularly in relation to "drawing from your cash reserves as appropriate". In particular, while there should be an expectation that businesses look to their own available resources in order to pay employees, when faced with an uncertain period of lockdown it may also be reasonable to not use all cash reserves to pay employees when there are other expenses to be paid and using those reserves may otherwise negatively impact on the on-going viability of the business.

It is worth nothing that the review of the management of the wage subsidy scheme by the Auditor-General identified this requirement as “not clearly defined” and noted the subsequent difficulties caused by applicants not needing to provide corroborative evidence at the time of application. The Auditor-General stated: “We recommend that, when public organisations are developing and implementing crisis-support initiatives that approve payments based on “high-trust”, they ensure that criteria are sufficiently clear and complete to allow applicant information to be adequately verified”.

While the WSS hasn’t gone so far as to elaborate on when cash reserves should be used, the WSS declaration makes it very clear there is an obligation to fully document the active steps that have been taken. Applicants should proceed on the assumption that this documentation will be requested as part of a post-application review.

We recommend that businesses undertake (and document) cash flow forecasts which model a range of potential scenarios when assessing whether this criterion has been satisfied. This might include looking across a reasonable range of potential timeframes based on the information available at the date of the application.

Practical matters to consider

While applications are currently open for the second round of the WSS, there are a number of practical issues to consider before putting in an application. These include:

  • Crunching numbers on the revenue decline expected. Applicants will need to be confident that there will be a decline in revenue (this will need to be substantiated at the end of each 14-day period). For more complex businesses, the WSS includes a new concept of a ‘commonly owned group’ which should be considered.
  • Seeking consent from employees to make the application. This should be in writing where practicable.
  • Obtaining all the information about employees you are applying for, including cross checking to ensure there are no double claims if a Short-Term Absence Payment or Leave Support Payment has been applied for recently.
  • If you have staff working variable hours (including casual staff), you’ll need to establish whether they are full time employees (20 hours or more per week) or part time employees (less than 20 hours per week).
  • Cross-checking that your information is up to date with Inland Revenue. MSD will be validating data with Inland Revenue, so ensure that any recent changes to employees have been updated to prevent delays in processing your claim.
  • Documenting all active steps taken to mitigate the effect of COVID-19, as well as substantiating how the revenue decline relates to the change in alert levels.

Other observations

Each previous wage subsidy scheme has operated in slightly different contexts from each other. The original wage subsidy scheme in March 2020 came about when the future was very uncertain and no one had any idea how long the lockdown would last with mass redundancies being predicted. Subsequent lockdowns have been short and sharp focused around Auckland and they have also involved regions being in Alert Level 3 so many more businesses were able to operate to some degree (and subsequently may not have been able to meet the revenue decline tests). This lockdown also comes with uncertainty because it involves the delta strain of COVID-19 and we can look to Australia to see that extended lockdowns may be possible if the virus is not brought under control. However, in contrast to the original wage subsidy scheme, prior to this outbreak the labour situation in New Zealand was quite different. With many employers desperate for staff before the outbreak, it seems less of a risk that mass redundancies, however that really depends how long the increased alert levels continue. While employers may be less likely to lay off staff, the reality is that there still needs to be cashflow to pay those staff.

We also have a better understanding of market behaviour around lockdowns. Some businesses will suffer a permanent reduction in revenue due to a lockdown (you’ll never be able to buy yesterday’s flat white) while other businesses have previously experienced a post lockdown surge in sales where consumers purchase all the goods and services they otherwise would have been acquiring during the lockdown. This previous experience is something which businesses should be considering as part of the process of determining whether to apply for the wage subsidy. For example, businesses with a history of a strong sales bounce-back may find banks are willing to be more flexible around additional lending and debt covenants; thereby mitigating the effects of COVID-19 and the need to apply for the WSS.

At this stage it is not clear how long New Zealand will be at elevated Alert Levels, but this will become much clearer each week. The Minister of Finance made it clear in February that support will continue to be available:

“The Wage Subsidy Scheme will also be available nationally when there’s a regional or national move to Alert Levels 3 and 4 for a period of seven days. The support will be provided in two weekly payments for the duration of the alert level period, rounded to the nearest fortnight. The Wage Subsidy Scheme has been very effective in keeping people in work so far with more than $14 billion paid out to protect 1.8 million jobs”.

Each round of the wage subsidy will remain open for two weeks, and a business is only able to claim for the second round two weeks after the application for the first round. Some key dates to be aware of are below:



Applications Open


Revenue Loss Period


Applications Close


Round 1


9am Friday 20 August


17-30 August or 18-31 August


11:59pm Thursday 2 September


Round 2


9am Friday 3 September 


31 August – 13 September 


11:59pm Thursday 16 September 


Round 3 


9am Friday 17 September 


14 September – 27 September 


11:59pm Thursday 30 September 


The WSS continues to be a high trust scheme, so it’s important to ensure it is only claimed when appropriate. If you’d like more guidance on how the WSS works please get in touch.

There is other business and employee support available in the form of Short-Term Absence Payment, the Leave Support Scheme, the Resurgence Support Payment and the Small Business Cashflow Loan Scheme. You can learn more about them here.

The content of this article is accurate as at 10 September 2021, 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.

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