COVID-19: Practical information to help you understand COVID-19 entitlements

When the Government announced that Auckland would be spending a minimum of seven days at Alert Level 3, commencing from Sunday 28 February 2021, this automatically triggered a new wage subsidy scheme being implemented. The new wage subsidy (entitled Wage Subsidy March 2021 (‘WSM’)) opened for applications on 4 March 2021. This is the fourth wage subsidy implemented, and while it retains many of the same features of its three predecessors, there are important differences for businesses to be
aware of.

The purpose of the WSM is to support employers who have experienced a minimum 40% decline in actual or predicted revenue in order to keep employees on the payroll during this difficult period. The WSM is calculated based on number of employees and spans an initial 2-week period that may be extended further depending on the length of time that Auckland (or another part of New Zealand) is at Alert Level 3. The weekly amount of the subsidy is calculated as $585.80 per employee working 20 hours or more per week and $350.00 per employee working less than 20 hours per week. The subsidy will be paid as a lump sum covering a 2-week period and must be passed through to employees.
 

What is the same as previous wage subsidies?

There are many similarities to the previous wage subsidy schemes which many will be familiar with:

• The regime remains a “high trust” regime and is administered by the Ministry of Social Development.
• The same business types can apply, including companies, partnerships, self-employed, contractors, charities, etc.
• Payment is made in an upfront lump sum.
• There is no cap on the maximum payment a single employer can receive.
• Payment rates are $585.80 per week for a full-time worker and $350 per week for a part time worker.
• A full-time worker is one who works 20 or more hours per week and a part-time worker is less than 20 hours.
• Employers need to seek (ideally written) consent from employees that a wage subsidy can be sought in respect of them. Employers should share privacy information with employees.
• Employers need to commit to retaining the staff named in the WSM application.
• Employers should do their best to pay employees at least 80% of their normal pay and must follow all employment laws.
• The WSM amount must be passed on in full to employees (unless they ordinarily earn less).
• Applicants need to have taken active steps to mitigate the impact of COVID-19 on their business, this can include drawing on cash reserves, making an insurance claim and activating a business continuity plan.
• Applications are made through the Work & Income website, with a separate CSV upload process for employers with over 100 staff.
• All applicants need to read and agree to a detailed declaration.
• If a 40% revenue decline does not eventuate or any other eligibility criteria are not met it will be necessary to repay the WSM in full.
• Employers who have received the WSM will have their names added to the searchable register.
• Only one form of employment support can be received at a time in respect of an employee, so, for example, you can’t claim a wage subsidy in relation to any employee who is already the subject of a leave support scheme payment.
• You can however receive the WSM and the Resurgence Support Payment at the same time.
• The WSM is not subject to GST and is not subject to income tax (unless received by a self-employed person).

What is different from previous wage subsidies?

• A business must have suffered a decline in revenue due to the move to Alert Level 3 on 28 February 2021 (i.e. it can’t be a natural reduction in seasonal revenue or voluntarily choosing not to work to suppress revenue).
• Businesses need to have suffered a 40% decline in revenue over a 14-day continuous period between 28 February and 21 March 2021, compared with revenue in a ‘typical’ 14-day consecutive period within 4 January to 14 February 2021.
• ‘Highly seasonal’ businesses will be able to measure revenue decline in a slightly different way.
• The WSM Scheme runs for an initial two-week period, meaning the payments are $1,171.60 for a full-time employee and $700 for a part time employee. Applicants may be able to apply for an additional two-week payment if Alert Level 3 is extended beyond a fortnight (a continued 40% revenue decline will be required as well as a separate application).
• There is a clearer onus on applicants to prepare and retain evidence to support how the eligibility criteria have been satisfied. These don’t need to be provided as part of the application, but will need to be available on request.

Can you explain the new revenue test?

The key new issue for businesses to grapple with is demonstrating a 40% or more reduction in revenue due to the move to Alert Level 3 on 28 February 2021. There are two key elements here:

• What is the revenue comparison period?
• How do you establish that the decline in revenue was due to the move to Alert Level 3?

Revenue earned in a 14-day continuous period post the move to Alert Level 3 needs to be compared to ‘typical’ revenue in a 14-day consecutive period in the six weeks prior to any Alert Level changes, in this case, between 4 January and 14 February 2021 (known as the ‘default comparator period’). Businesses will have discretion to assess and choose what 14-day period best represents ‘typical’ revenue. The 14-day period doesn’t have to run to a calendar week, it simply needs to be 14 consecutive days. Likewise, there is no need to undertake any calculations to determine what ‘average’ revenue was over the six-week period.

Complicating the current situation is the time of year we are in and how that influences the revenue which was derived between 4 January and 14 February 2021. Many businesses may have been experiencing higher than typical revenue due to the holidays, but equally many businesses may have been undertaking a holiday shutdown and had very low revenue for part of the six-week period. In addition, the school holidays and a number of public holidays may influence (positively or negatively) the revenue earned during the default comparator period. This is perhaps best illustrated with a calendar:

What 14-day period will make the best comparison period will differ by business and the individual facts and circumstances. For businesses which are ‘highly seasonal’, it may be possible to do a comparison back to 2019 or 2020. This is discussed further below.

The next essential element is that any drop in revenue must be due to the move to Alert Level 3 on 28 February. Businesses need to be able to draw a direct correlation between the reduction in revenue from the comparator period and the Alert Level change.