COVID-19: Practical information about the Wage Subsidy Extension and the Leave Support Scheme
Responding to recent changes in alert levels - 14 August 2020
By Robyn Walker & Darren Johnson
With the country moving out of Alert Level 1 to Levels 2 and 3, businesses are rightly beginning to reconsider their eligibility for government assistance through either the Wage Subsidy Extension or the Leave Support Scheme. At this stage no further assistance has been announced outside of the existing schemes, but further announcements will be likely in the event of the alert levels being lifted or extended beyond the current parameters.
In this update we set out practical information for businesses to be aware of to determine their eligibility to make use of these two schemes.
Wage Subsidy Extension
The Wage Subsidy Extension (WSE) has been open since 10 June and applications currently close on 1 September. As of 31 July, 466,412 employees were being supported by the WSE and $2 billion had been paid out under the scheme, which is much lower than forecast. The WSE pays a lump sum of $4,686.80 for a full-time employee and $2,800 for a part-time employee to cover an eight-week period from the date of application.
We answer common questions about the WSE below.
When can I apply?
If you received the original Wage Subsidy, the WSE can only be applied for after the completion of the original Wage Subsidy twelve-week period (which runs from the date of application). Businesses who applied toward the end of the original Wage Subsidy application period will only be able to apply towards the end of the Extension application period; i.e. closer to 1 September. Around 90% of all businesses who applied for the original Wage Subsidy should have already completed the first twelve-week subsidy period and will be eligible to apply for the WSE if they have not already.
What are the eligibility criteria?
- The business has had a 40% decline in revenue over a continuous 30 day period, compared to a comparable period in 2019 (with some other options, explained below);
- The revenue drop must be related to COVID-19.
- The revenue drop must have occurred within 40 days immediately prior to making the application.
- The business must have taken active steps to mitigate the financial impact of COVID-19; which can include drawing on cash reserves (if appropriate), making an insurance claim, talking to the bank, and seeking advice from an accountant or other support networks such as a chamber of commerce or industry association.
- The employees named in the application need to remain employed for the eight weeks covered by the WSE. The business needs to have obtained employee approval to be included in an application.
- The employer must use best endeavours to pay at least 80% of each named employee’s normal wages or salary for the duration of the subsidy; or pass on at least the full amount of the subsidy claimed, to the employee, for the subsidised period (unless the employee is ordinarily paid less).
Business had been improving - will the 40% revenue drop be too hard to meet?
The WSE was designed with a stricter revenue test than the original Wage Subsidy in order to ensure it was targeted more towards businesses with a continued need for support. When New Zealand was in Alert Level 1, many businesses were back operating largely as normal with revenue often being down on 2019 but not sufficiently down to meet the 40% test. However, with Auckland moving to Alert Level 3 and the rest of New Zealand moving to Alert Level 2, the reinstatement of various restrictions on business operations and many workers reverting to working from home may mean that businesses should be re-looking at whether they will be able to satisfy this test prior to 1 September 2020.
It is important to note that in comparison to the original Wage Subsidy, the WSE can currently only be applied for on the basis of an actual reduction in revenue rather than a predicted reduction in revenue. This will mean that businesses who may have been trading at a reasonable level prior to 12 August 2020 may need to wait until closer to the final 1 September application date in order to determine if the balance of August has been impacted enough to now satisfy the revenue drop test.
Given the short time period for assessing revenue and making an application, businesses may wish to start documenting their eligibility now and reviewing the requirements under the WSE Declaration. In particular:
- Prior to making an application, it is necessary for a business to have engaged with its employees about the application (or potential application).
- The employer must have obtained consent from its employees to be included within the application and to have their information shared with the Ministry of Social Development (MSD) and other agencies.
- The business needs to have taken active steps to mitigate the impact of COVID-19.
- If a business will be looking at revenue in August 2020, it should gather the revenue data for the equivalent period in August 2019.
What are the alternative revenue measurement tests?
The base case is that a business needs to compare revenue over a 30 day period to the closest equivalent period in 2019; for example comparing revenue in August 2020 to August 2019. A comparison does not need to be made to 2019 in two circumstances:
- The business has been operating less than a year.
- The business is a high-growth business that has experienced a significant increase in revenue.
In these instances, those businesses can use a different comparison period within 2020 that gives the best estimation of the revenue decline related to COVID-19.
What is revenue?
This is a surprisingly tricky question as revenue can be measured in many different ways. For the purposes of the WSE, revenue is defined as being “the total amount of money a business has earned from its normal business activities, before expenses are deducted (this doesn’t include the Wage Subsidy).”
COVID-19 Leave Support Scheme
Since early April 2020 there have been a number of variations on the Leave Support Scheme. Beginning life as the Essential Worker Leave Support Scheme (EWLS Scheme), 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 was extended to all businesses, organisations and self-employed people experiencing hardship due to COVID-19 and was renamed the COVID-19 Leave Support Scheme (the LSS). The LSS remains in place and is available to help employers to pay their employees when they can’t work.
We outline below some key information about the LSS.
Who can use the Leave Support Scheme?
Employers who have been financially impacted by COVID-19 will be able to apply for the LSS on behalf of individual employees if those employees cannot work, and an employee has advised that they are in one of the affected groups:
- They are deemed 'higher risk' if they contract COVID-19 and Ministry of Health guidelines recommend they remain at home for the duration of the COVID-19 public health restrictions.
- They have household members who are deemed 'higher risk' if they contract COVID-19 and Ministry of Health guidelines recommend the employee also remains at home to reduce the risk of transmitting the virus to other household members.
- They have come into contact with someone who has contracted COVID-19 and are required to remain at home for 14 days (as required by Ministry of Health guidelines).
- They 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.
Employers intending to access the LSS will also have to read, understand and agree to a declaration when making an application. Importantly, employers will have to confirm that they have:
- Discussed the application with the employee(s) before making it;
- Received employee consent to the relevant points outlined in the declaration; and
- Confirmed the employee(s) 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).
Employers are also expected to have a conversation about how best to support the employee. For example, they may choose to use existing sick or annual leave, with the LSS subsidy used to support paying that. If full paid leave options aren't available, the subsidy could be used to top up what is available.
What do you get?
The LSS makes a payment for a period of four weeks at a time for each affected employee. The weekly LSS payment amount is the same as for the WSE, 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 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.
What does it mean when it says the business needs to be financially impacted by COVID-19?
Like with the Wage Subsidy, the business needs to have been adversely impacted by COVID-19. There are two alternative tests:
- The business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month in 2019, or a reasonable equivalent month for a business operating less than a year, and that revenue loss is attributed to the COVID-19 outbreak (note this criteria largely mirrors the criteria under the original wage subsidy scheme).
- The business has had its ability to support the employees named in the application negatively impacted by the COVID-19 public health restrictions.
In relation to this second point, MSD has noted that “needing to pay employees so they can stay home, and funding replacement staff, is sufficient for an employer to say they have been negatively impacted.” MSD have also provided the following examples:
- A small business whose revenue is not significantly affected by COVID-19 but has to hire someone else and pay the leave for the employee who needs to stay home, and to operate they need to cover the absence.
- A business whose revenue after the impact of COVID-19 is not significantly affected, but a lot of their employees need to remain at home and the employer must fund the leave and replacement staff costs.
Can I get both the WSE and the LSS subsidy?
No - employers cannot receive a Wage Subsidy and a Leave Support payment in respect of the same employee at the same time. However, if an employer has completed its eight weeks under the WSE, it can make use of the LSS.
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 the nation is affected. This includes aiding businesses as they access government support and entitlements.
The content of this article is accurate as at 14 August 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.