I hope you and your families are safe and well.
On day 1 of our national lock-down, many of you are wondering how the New Zealand’s government’s wage subsidy will work. This article tries to give you a summary, although please don’t shoot the messenger as we are all trying to understand these new measures.
If you employ staff, many of them will be unable to work from home. Basically, you must pay them a minimum of 80% of their usual pay.
COVID-19 WAGE SUBSIDIES
COVID-19 wage subsidies are available to support employers pay their employees if their businesses are significantly impacted by COVID-19. If you’re considering either reducing your staff’s hours or terminating their employment, the subsidies will help. They have been introduced to ensure everyone receives income to help pay their normal day to day expenses.
If you’re an employer, sole-trader or contractor, you may qualify for the COVID-19 wage subsidy.
- Your business must operate, and be registered, in New Zealand.
- Your employees must be legally entitled to work in New Zealand.
- Your business’ actual sales (or forecasted sales) must have declined by at least 30% for a period of a month when compared with the same month last year. The decline must be related to COVID-19.
- You must have made steps to reduce COVID-19’s impact on your business.
- You must make every effort to retain employees and, during the subsidy period, pay them a minimum of 80% of their normal salary.
Amount of Subsidy
The COVID-19 Wage Subsidy is $585.80 for full-time employees working at least 20 hours per week. It’s restricted to $350.00 for people working less than 20 hours per week. The following examples might help:
- Example 1: You employ Bill Durr, full-time, and his gross salary is $1,000 per week. You must pay them at least $800 gross salary per week. As the government’s subsidy is restricted to $586 per week, you must top-up Bill’s gross salary by at least $215 ($800 less $586).
- Example 2: You also employ Anne Other on a part-time basis and pay her $600 gross per week. The government will subsidise her salary by $350 per week. Anne is entitled to be paid at least 80% of her normal gross salary (80% x $600 = $490). You therefore must top-up Anne’s salary by at least $130 per week ($480 less $350).
The payment will be made as a lump sum for a period covering twelve weeks. This means employers will receive $7,030 for each full-time employee and $4,200 for each part time employee.
Businesses can only get this subsidy once.
- The amount that you “top-up” is tax deductible, whereas the government wage subsidy is exempt from tax.
- The subsidy isn’t subject to GST.
- Salary and wages paid to employees form part of their taxable income and are subject to PAYE, Student Loan and Kiwisaver deductions.
Payments to employees are non-deductible to employers, up to the amounts of subsidies received. Employers will need to distinguish how much they have paid employees that’s been derived from wage subsidies.
Despite the current situation, you must continue to meet your regular Payday Filing obligations.
How to Apply
Our Suggestions for Recording Wage Subsidy Payments
- Ensure you pay your employees at least 80% of their normal pay.
- Continue to pay your employees via your payroll software.
- Code the subsidies you receive to a suspense account.
- If we prepare your annual financial statements and income tax returns, we’ll adjust your accounts when we prepare them.
- If we don’t prepare your annual financial statements and income tax, make sure your accountant adjusts for the government subsidy.
Our Suggestions for Funding the “top-up” Payments
- Continue to pay from your “normal” day to day cash-flow, if possible.
- Consider deferring paying your GST, PAYE and Provisional Tax, or at least talk with us to arrange instalment options.
- Take advantage of the government’s guaranteed loan scheme which is available up to $500,000 if your turnover is more than $250k.
- Approach your bank (six-month mortgage holidays may be available).
Inland Revenue COVID-19 Update
IRD’s front-office services are all now closed and its staff will work from home. The most effective way to contact IRD is online via MyIR. IRD’s telephone support is likely to be severely stretched.
Leave and Self-Isolation Support
From 17 March 2020, the COVID-19 Leave Payment has been available. It’s available to anyone who has had self-isolate, can’t work because they have contracted COVID-19, or are caring for dependents who needed to self-isolate or who have contracted COVID-19.
Employers can apply for the payment more than once. Leave Payments will be paid to employers who have eligible employees. Employers must pass the payment onto their employees in full.
The COVID-19 Leave Payment will be available for eight weeks from 17 March 2020.
If you’re an employer, self-employed, sole trader or contractor, you may qualify for the COVID-19 Leave Payment. Contractors, full-time, part-time and casual employees who are employed legally in the country are covered if they:
- Must quarantine themselves as per Ministry of Health guidelines and have registered with Healthline, can’t work from home, and have not left New Zealand after 16 March.
- Are unable to work because they have contracted COVID-19.
- Can’t work because they are caring for dependents who must self-isolate or have contracted COVID-19.
How Much Can You Get?
The COVID-19 leave payment is $350.00 for someone working part-time (less than 20 hours per week) and $585.80 if they are working at least 20 hours per week.
Payments to employers are valid for 14 days for employees who must self-isolate. As employees may need to self-isolate more than 14 days, employers may also be able to apply for the subsidy more than once.
The leave payment can be paid for the entire period an employee is sick (or looking after a dependent person who is sick) with COVID-19 but the employer must apply every 14 days.
How to Apply
The road ahead may be a long and stressful one. Let’s be kind to each other. Please contact us if you require assistance and look out for our regular updates. Our Business Advisory Services team are here to help you.