COVID-19: Practical information about the Wage Subsidy and Leave Support Schemes
What are your entitlements under the schemes - 25 August 2020
By Robyn Walker, Darren Johnson, Andrew Button
With the confirmation that COVID-19 Alert Level 3 will remain in place until 11:59pm on Sunday 30 August we set out in this article what relief is available to businesses from 1pm on 21 August.
- A new two-week Resurgence Wage Subsidy Scheme (RWS) will be available for businesses who have had, or predict they will experience, a 40% reduction in revenue in a two-week period between 12 August and 10 September, compared to a similar period in 2019.
- The RWS payment is $1,171.60 for a full-time employee and $700 for a part-time employee.
- The RWS applies across New Zealand and is not restricted to Auckland.
- The RWS opened for applications at 1pm on Friday 21 August. Applications will close on 3 September 2020. Applications are made through the Ministry of Social Development.
- The existing Wage Subsidy Extension Scheme (WSE) continues in place unchanged until 1 September 2020.
- A business cannot be in receipt of the WSE and the RWS at the same time.
Leave Support Scheme
- The requirement for a business to be financially impacted by COVID-19 before being able to access the Leave Support Scheme has been removed with effect from 1pm on 21 August. All other aspects of the scheme remain unchanged.
Businesses (including self-employed people) feeling the effects of COVID-19 will have the following options available to them:
- If a business is not currently receiving the Wage Subsidy Extension (WSE), they can apply for the Resurgence Wage Subsidy Scheme (RWS) if they meet the eligibility criteria. The RWS will provide two weeks of support, being $1,171.60 per full-time worker and $700 per part-time worker.
- If they have not yet applied for the Wage Subsidy Extension (WSE), a business will continue to have until 1 September to satisfy the eligibility criteria and make an application. The WSE provides eight weeks of support through a lump sum payment of $4,686.40 per full-time worker and $2,800 per part-time worker. Further details of the WSE are available here. Critically, a 40% revenue drop must have already occurred prior to applying for the WSE. This may be difficult for businesses who were well on the way to recovery; however, with the period from 12 August to 30 August being impacted by Alert Level 3, more businesses may now be eligible to apply before the WSE closes on 1 September.
To keep matters simple, the eligibility criteria for the RWS will be largely consistent with the previous schemes, with some refinements to reflect the current context we find ourselves in.
Key RWS eligibility criteria include:
- The business has had, or predicts it will have, a 40% decline in revenue over a 14-day period, and:
- The revenue drop must be related to COVID-19.
- The revenue drop must occur between 12 August 2020 and 10 September 2020.
- The revenue drop must be compared to a similar period in 2019 (or to a period that gives the best estimation of the decline due to COVID-19 for high-growth businesses or businesses that have been operating for less than a year).
- 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 two weeks covered by the RWS. Applicants must have obtained employee approval to be included in an application.
- The employer must endeavour 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 two-week subsidised period (unless the employee is ordinarily paid less).
How to measure revenue and find a comparative period
Because the RWS applies for only a 14-day period, those businesses who only prepare periodic invoices (e.g. monthly) may struggle to specifically isolate the revenue which relates to a particular 14-day period – either in 2020 or in the 2019 comparative period. There is not currently any guidance as to how businesses should measure revenue in these circumstances.
A pro-rata approach may be one solution. We recommend that anyone seeking to make use of the RWS clearly document the basis on which any application is made, as all payments made will be subject to reviews and audits by the Ministry of Social Development.
Which one to apply for?
If a business that has been affected by COVID-19 has not yet applied for the WSE, it will have a decision to make as to whether it makes a claim under the RWS or the WSE. Given the WSE is for a period of eight weeks, as compared to two weeks for the RWS, businesses should give consideration as to the extent of the impact of COVID-19 on the business as a result of the change in alert levels and the level of support actually required.
Businesses who haven’t had the necessary reduction in revenue to date to meet the WSE criteria may be able to satisfy the criteria under the shorter RWS, given the revenue drop is measured over only 14 days, and can be based on a predicted revenue drop through to 10 September (noting that this then needs to result in an actual 40% revenue drop).
The WSE needs to be based on an actual 40% revenue drop, so businesses may need to wait until the end of Alert Level 3 on 30 August to get an accurate measure of revenue and put in an application by the WSE closing date of 1 September.
Refresher: What are the different wage subsidies?
The original Wage Subsidy Scheme (WS) provided 12 weeks of support where businesses had an actual or predicted 30% reduction in revenue over a 30-day period, compared with the same period in 2019. Any predicted revenue reductions need to be verified as having actually occurred. The original Wage Subsidy opened for applications on 17 March and closed on 9 June 2020. Details about the Wage Subsidy are available here.
The Wage Subsidy Extension Scheme (WSE) opened for applications on 10 June 2020 and provides eight weeks of support where a business has suffered a 40% reduction in revenue compared to 2019 over 30 days prior to applying. The WSE closes on 1 September 2020. Details about the WSE are available here.
The Resurgence Wage Subsidy Scheme (RWS) opened for applications on 21 August. The WSR will provide two weeks of support where a business will, or predicts it will, suffer a 40% reduction in revenue over a 14-day period from 12 August 2020 to 10 September 2020, as compared to a similar period in 2019. Applications for the RWS will close on 3 September 2020.
It is not possible to be in receipt of more than one subsidy at the same time.
Key aspects of each of the three Wage Subsidy Schemes are largely the same. For example:
- The business needs to have suffered a loss in revenue which is attributable to COVID-19 and the business must have taken active steps to mitigate the financial impact of COVID-19.
- The subsidy amount is $585.80 per week for a full-time worker and $350 per week for a part-time worker. A worker is full-time if they work 20 hours or more per week. Weekly hours should be averaged over the last 12 months where workers’ hours fluctuate.
- The amount of the subsidy needs to be passed on in full to employees, unless the employee normally earns less. In that case, the surplus subsidy can be used to help pay for other staff or should be paid back.
- While each scheme is based on a high-trust model, each scheme requires the applicant to complete a declaration that they meet the eligibility criteria. All claims will potentially be subject to audits and reviews.
Nutz for Coffee Limited is owned by Brendan and specialises in selling coffee made with nut milk and other alternative milks. Nutz for Coffee Limited have three coffee shops in the Auckland CBD and ten employees. While all the stores are able to continue operating during Alert Level 3, foot traffic is so low in the city that there are virtually no customers. Revenue for the second half of August 2020 is predicted to be at least 40% down on revenue in the previous year. Nutz for Coffee Limited applied for and received the original Wage Subsidy and also the WSE, which it completed on 5 August 2020. Nutz for Coffee is able to apply for the two-week RWS when applications open on 21 August.
Swimnow is a successful swimming lesson business run by Blake and his 25 part-time employees. Swimnow provide group and individual lessons, as well as running swim squads and ocean swimming. Swimnow applied for the original 12-week wage subsidy but as of 17 August has not applied for the WSE as business had been steady and revenue had largely rebounded to 2019 levels. When Auckland entered Alert Level 3, the council-run swimming pools where the lessons were all held were closed down and ocean swimming was conservatively put on hold. Swimnow is not able to operate from 12 August 2020 until Alert Level 3 is reduced to Alert Level 2. Revenue for the two weeks beginning 12 August is predicted to fall to $0 and revenue for all of August 2020 is now predicted to fall to below 50% of revenue earned in August 2019. Swimnow is eligible to apply for the two-week RWS on 21 August, based on its predicted revenue loss over 14 days, or it can wait to verify that a 40% revenue loss has occurred over 30 days in August 2020 in order to apply for the eight-week WSE. Based on previous experience from the March-May lockdown, Blake is confident that business will again rebound once Alert Level 3 restrictions are removed and therefore the eight-week WSE will not be necessary. As such, Swimnow applies for the two-week RWS.
Fraser runs a nation-wide shoe store chain, Frasers Limited. Frasers has stores throughout New Zealand, including an online store. Trade at the Frasers stores in Auckland dropped to zero due to Alert Level 3 closures, while sales through the online store picked up slightly. Sales through the stores outside Auckland went down about 20% compared to normal, as a result of more people working from home and not shopping. Overall Fraser estimates that Frasers Limited is down 35% on revenue compared to a similar period in 2019. Fraser wants to know whether a RWS claim can be made for the staff at the Auckland stores who have suffered a 100% reduction in revenue. Unfortunately, because the 40% drop in revenue test is not satisfied across the whole business, the RWS cannot be claimed.
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 (LSS). Currently an employer needs to have been financially affected by COVID-19 in order to be eligible for the LSS; from 21 August this will no longer be required. We outline below some key information about the LSS as it applies from 21 August.
Who can use the Leave Support Scheme?
Employers (including the self-employed) 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 completed the following:
- Discussed the application with the employee(s) before making it.
- Received employee consent to the relevant points outlined in the declaration.
- 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 used to support paying that. If full paid leave options aren't available, the subsidy could be used to top up what is available. Employers are expected to endeavour to pay the relevant employees at least 80% of their usual wages or pay at least the LSS payment amount.
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 Wage Subsidy, 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 received for full-time and part-time workers respectively. If an employee ordinarily earns less than these amounts, they should be paid their ordinary amount and any surplus should be used to pay other staff or returned.
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.
Can a business get both the WSE, the RWS and the LSS subsidy?
No - employers cannot receive a wage subsidy and a Leave Support Scheme payment in respect of the same employee at the same time.
Fresh Fruits Ltd (FFL) is a fresh fruit retailer that employs five full-time staff. One of FFL’s employees, Emma, is older than 70 years of age and has been advised by her doctor that she should remain at home for a period of at least two weeks due to her high-risk profile. Emma normally earns $650 per week. FFL can make an application under the LSS for Emma. FFL receives a payment of $2,343.20 which is used to pay Emma $650 per week for the two weeks of sick leave taken. FFL treats these payments like a normal salary payment to Emma and withholds PAYE and other required deductions. As FFL does not have any other employees using the LSS, FFL returns the unused balance of $1,043.20 ($2,343.30 less $1,300) to the Ministry of Social Development.
Greg runs a successful motor dealership, V8s for Mates Limited (V84M). V84M has dealerships and garages operating across the upper North Island. Greg has a number of staff who live in South Auckland but ordinarily work at the Huntly V84M dealership. Those staff are unable to get to work during the period of Alert Level 3 travel restrictions and their work cannot be done from home. While turnover is down, it is not down 40% in order to claim the RWS, so Greg wants to know whether the Leave Support Scheme is available to provide any assistance to the staff who are unable to work. Unfortunately the staff who cannot work because of the COVID-19 restrictions do not fall within any of the four ‘affected groups’ and therefore it is not possible to use the Leave Support Scheme.
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 by COVID-19. This includes aiding businesses as they access government support and entitlements.
The content of this article is accurate as at 25 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.