COVID-19: The latest Wage Subsidy information
A new extension scheme - 19 June 2020
As well as making the move from Alert Level 2 to Alert Level 1 and the clear signal our economy is moving from “responding” to “recovering” from COVID-19, June marked the end of the Wage Subsidy Scheme and the beginning of the Wage Subsidy Extension Scheme.
- What is the same?
- What is different?
- When can claims be made?
- What is the new revenue reduction test?
- Administrative requirements
By Robyn Walker, Darren Johnson, and Phil Stevenson
The Wage Subsidy Scheme was designed to run from the period 17 March through to 9 June, and with that period now finished, its successor, the “Wage Subsidy Extension Scheme” (WSE Scheme) takes its place. Over 71 percent of all businesses in New Zealand received support under the Wage Subsidy Scheme due to the major impact the Level 4 Lockdown had on businesses. The WSE Scheme is designed to be more targeted towards the businesses who are still needing support, with an estimated 230,000 businesses being eligible.
While identical in many respects, there are some key differences between the WSE Scheme and the original Wage Subsidy Scheme.
What is the same?
- The same business types can apply, including companies, partnerships, self-employed, contractors, charities, etc.
- Payment is made in an upfront lump sum.
- 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 which works 20 or more hours per week and a part-time worker is less than 20 hours.
- Employers need to seek 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 staff which the WSE Scheme is received in respect of.
- The WSE Scheme amount must be passed on in full to employees (unless they ordinarily earn less).
- Employers should do their best to pay employees at least 80% of their normal pay and must follow all employment laws.
- Recipients need to have taken active steps to mitigate the impact of COVID-19 on their business.
- New businesses, high growth businesses, and R&D start-up businesses will be able to measure revenue decline in slightly different ways; e.g. making a comparison to revenue within 2020 rather comparing to 2019.
- All recipients need to read and agree to a detailed declaration.
- Applications are made through the Work & Income website, with a separate CSV upload process for employers with over 100 staff.
What is different?
- Businesses need to have suffered a 40% (rather than 30%) decline in revenue over a 30 day continuous period, compared with a comparable period in 2019.
- The WSE Scheme runs for an eight week period (rather than 12 weeks), meaning the payments are $4,686.40 for a full time employee and $2,800 for a part time employee.
- It is clearer when repayments are required. For example if a self-employed person makes a claim, they must repay the subsidy to the extent it is greater than what they would ordinarily draw from the business; if an employee leaves, the WSE funds must be used to help other employees, if there are no other employees any balance must be repaid.
When can claims be made?
While the WSE Scheme opened for applications at 9am on 10 June, there will not be an avalanche of applications on that date as it is not possible for an applicant to be in receipt of the original wage subsidy and the new WSE at the same time; i.e. an applicant must have waited 12 weeks from the date they applied for the original wage subsidy before applying for the WSE Scheme.
When the Wage Subsidy was originally introduced on 17 March New Zealand didn’t have an Alert Level system and it was largely “business as usual” for many businesses, in addition the Wage Subsidy was restricted to providing a maximum benefit of $150,000 per employer (equivalent to supporting 21 full time workers). However on 21 March, the Alert Level system was introduced, and with New Zealand moving to Alert Level 3 on 23 March the decision was made to remove the $150,000 cap on the Wage Subsidy. As can be seen in the aggregated Wage Subsidy data (table 1), after 40,415 applications in the first few days of the scheme, more than 280,000 applications were submitted in following the week when New Zealand moved to Alert Level 4. The following week, after further amendments were made to the Wage Subsidy on 27 March to provide more flexibility for employers, an additional 96,000 applications were submitted.
What this means, is that from 10 June, there will be a potential pool of 40,415 businesses who will be able to apply for the WSE Scheme if they meet the new scheme criteria; the following week an addition 280,000 businesses can consider applying etc. After a couple of weeks, 72 percent of existing wage subsidy recipients will be eligible to potentially reapply.
One of the issues for businesses to grapple with is the need to make multiple applications in the event that a business did not apply in respect of all of its employees at the same time. Given the numerous changes to the rules of the original scheme, a number of businesses may have made a number of wage subsidy claims. Simply due to the logistical headache of manually filling in the online form when the benefit was capped at $150,000 an employer might have just filled in 22 names, then needed to reapply for other employees after 23 March, if an employer had new starters during the 12 week period they would have completed separate applications. As a result, for each tranche of employees a new assessment of revenue loss will need to be made, and separate applications made.
What is the new revenue reduction test?
The key new issue for businesses to grapple with is demonstrating at least a 40% reduction in revenue. While with the original Wage Subsidy Scheme there was the ability to apply on the basis of a prediction of having a 30% reduction of revenue in any month prior to 9 June, under the new WSE Scheme it is necessary for the revenue loss to have already occurred prior to application. This will be a stumbling point for a number of businesses, however the WSE Scheme is intended to be targeted towards those businesses who are most impacted by COVID-19; for example the tourism and hospitality sectors who may be likely to easily satisfy this test. Other businesses will need to stop and fully assess before rushing to make applications.
One aspect which may cause confusion is the statement on the WSE application page: “Your business must have experienced a minimum 40% decline in revenue for a continuous 30 day period. This period needs to be in the 40 days before you apply (but no earlier than 10 May 2020) and must be compared to the closest period last year. The decline must also be related to COVID-19.” In essence what this is saying is:
- A business needs an actual 40% revenue loss before it can apply.
- The revenue loss is measured on a 30 day period, but there are generally 10 days leeway to complete necessary administrative processes (see below) before an application needs to be made.
- The revenue loss needs to have occurred from 10 May 2020 (i.e. towards the end of New Zealand’s second phase in Alert Level 3), therefore businesses applying in the first 5 days of the WSE Scheme won’t have a full 40 day period to evaluate due to the inability to look further back than 10 May 2020.
- Revenue is compared to the closest logical period in 2019. For example, if a business does not operate 7 days a week, it should do a comparison to a period with the same number of working days.
An important aspect of the WSE Scheme is ensuring there is transparency over who is receiving it, therefore there is a requirement on applicants to notify in writing all employees included in an application, and to obtain consent that an application can be made. This position is the same as with the original Wage Subsidy Scheme, however in that instance there was conflicting guidance released by the Privacy Commission advising that employee information could be provided without approval due to the Civil Defence National Emergency status in place at that time. Given this is no longer in place, completing this step prior to applying is essential this time around. There are a number of obligations in relation to communicating with employees included in the declaration and these should be followed before applying.
It is also important the businesses document in full how they are eligible for the WSE Scheme and the steps taken to mitigate the impact of COVID-19. We have seen an increase in audits and reviews of Wage Subsidy applications, so being prepared at the time of application is an important step. For those who applied for the Wage Subsidy Scheme on the basis of a predicted revenue drop to 9 June 2020, we expect to see more queries from the Ministry of Social Development asking applicants to verify that the predicted revenue drop has actually materialised. If not, the Wage Subsidy will need to be repaid (as 12 June 2020, $158.2million of Wage Subsidy payments have been refunded from 5,134 applicants).
The Boxy Cinema
The Boxy Cinema has been severely impacted by COVID-19, at first having to reduce cinema capacity by 50% to allow social distancing between groups of cinema-goers, then being shut from 23 March when the country moved to Alert Level 3. Since reopening in Level 2 from 14 May, because of limited cinema capacity, a lack of new release blockbusters, social distancing requirements for the café and cancelled events the Boxy Cinema continues to be over 40% down on revenue when comparing revenue to May / June 2019. Since March 2020 the Boxy Cinema has been taking active steps to mitigate COVID-19, including introducing online-streaming events and home deliveries of food, as well as engaging with its bank and advisors.
The Boxy Cinema has 30 employees. When the wage subsidy scheme first started on 17 March, the Boxy Cinema made a claim for 22 full time employees, allowing them to receive the maximum wage subsidy amount (at that time) of $150,000. On 23 March an additional wage subsidy claim was made for the remaining 8 employees when the cap was removed.
On 10 June, after reading the declaration in full and notifying employees, the Boxy Cinema is able to make a claim for 22 full time employees based on reduced revenue in the period of 11 May 2020 – 9 June 2020. On 20 June the Boxy Cinema is able to make another application for its 8 remaining employees; it is able to use the same revenue loss as calculated for the first WSE Scheme application as 11 May 2020 is the 40th day before 20 June 2020.
We have a team of specialists who are helping our clients with Wage Subsidy claims and audits. If you need advice on the scheme please get in touch.
The content of this article is accurate as at 19 June 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.