Application guide for wage and leave claims for NZ businesses and employees impacted by COVID-19

The information in this article has been updated. You can read our update here.

20 March 2020

This week, the New Zealand government released a $12.1 billion COVID-19 support package, which included a number of subsidies for businesses and employees impacted by COVID-19.

To assist with your applications for the Government’s wage and leave subsidies, we’ve set out some guidance to make it easier.

Much of the material provided by Government so far is relatively high level and omits necessary detail in areas. That means it is not always possible to be conclusive as to how the rules apply. As such, the following guidance is necessarily general.

Qualifying for a Wage claim

To qualify:

• Your business must be “registered and operating in New Zealand”.
• Your employees must be legally working in New Zealand.
• The business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year, and that decline is related to COVID-19.
• Your business must have taken active steps to mitigate the impact of COVID-19.
• You must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.

Details required for the application

The application is available here. When you apply you will need to provide:

• Business IRD number.
• Business name as it appears in IR record.
• Business address.
• New Zealand Business Number (NZBN).
• Names of your employees and whether they work over or under 20 hours per week
• Employee IRD number and date of birth
• Contact details for your business.

What is a business in this context?

Much of the guidance expressed applies to a “business”. However, we are often asked how this applies to businesses with multiple operations or subsidiary entities.

For example, if a business has four separate divisions and each business has its own employees, such as a department store, is there:

• One overall business or four businesses?
• Does it matter if each business has its own payroll?
• Alternatively, if each of the four businesses is a separate company, will there be four businesses?

In this context, no definition of business is provided in the guidance material. However, the business does have to be “registered and operating in New Zealand”. This term is defined as a business that:

• Is registered with the New Zealand Companies Office.
• Is physically located in New Zealand.
• Has employees that legally work in New Zealand.

As a general rule from this, if a company is carrying on a number of businesses, whether there is one or more business will be measured by reference to the business being registered with the company’s office. Thus, a company with four divisions will likely be one business, but if each division is in a separate subsidiary, they are likely to be regarded as separate businesses.

We note that the terms “business” and “employer” are used interchangeably in Government materials.

30% decline in revenue

A 30% decline in revenue is defined on the work and income website as a business that has experienced a 30% decline in:

• Actual revenue.
• Predicted revenue (e.g. for businesses who have seen a reduction in bookings such as accommodation providers).
• That decline is related to COVID-19.

On the Ministry of Social Development fact sheet dated 18 March 2020, it states that you need to have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year, and that decline is related to COVID-19. The business must experience this decline between January 2020 and 9 June 2020.

Demonstrating the decline in revenue

A key issue for many businesses is how they demonstrate a fall in revenue by 30%. For some businesses, their trading to date will be normal, but is starting to decline. While for others, there has been a rapid decline in revenue.

The application form does not require hard evidence be submitted with the application – although obviously evidence should be captured. Instead, the approach taken is a declaration-based approach that can be followed up with an audit to confirm the accuracy of the application. The declaration employers make can be found here.

The evidence that should be captured and retained would include:

• Bank statements.
• Information from your accounting system (for the corresponding period(s) last year) such as:

- Details of sales revenue

- Cashflow

- Management accounting information.

• GST returns filed.

If you are running a bespoke accounting or cloud-based system this may be relatively straight forward. If you rely on less technology-based means of capturing this data, we can assist with pulling this information together for you.

For recently commenced businesses, the comparatives will be the most recent comparable figures, such as February’s results.

Businesses that have yet to experience a 30% fall but who can predict this with certainty, should capture evidence of how that prediction is arrived at. That could include:

• Recent sales data.
• Loss of expected or known work.
• Loss of contractual arrangements.
• Correspondence from customers if the correspondence demonstrates lost income will arise, such as the cancellation of a forward booking or sales order.

Example 1:

A six-person forestry contracting gang in Gisborne has been severely affected by the COVID-19 impact on logging exports and their revenue is down 90 per cent. Their employer applies for the targeted wage subsidy. The employer is eligible for $42,117 as a lump sum payment and is able to provide just over $7,000 gross (before tax) to each of the employees across the next 12 weeks.

Sourced from https://www.employment.govt.nz/leave-and-holidays/other-types-of-leave/coronavirus-workplace/wage-subsidy/

Example 2

A tourism operator in Queenstown, with 20 permanent part-time employees and 40 casuals, is affected by the decrease in international visitors. Their income is down 50% from the same period last year, forward bookings over the next two months are down 30%, and the casual workforce has already been released. The employer is eligible for $84,000 as a lump sum and uses the subsidy to keep paying all part-time staff their existing (current) income over the next 12 weeks.

Sourced from https://www.employment.govt.nz/leave-and-holidays/other-types-of-leave/coronavirus-workplace/wage-subsidy/

Example 3

A horticulture business employs two permanent employees, one part-time employee and two casual staff. The business also pays its shareholder employee a salary with no PAYE deducted. At the time of application, it had all staff continuing with their duties. However, its biggest customer, a local food wholesaler, advises its sales have fallen well off and the wholesaler’s orders fall by 70%. The employer has faced this decline for a week now and can predict sales for the remainder of March 2020 based on recent sales. The employer applies for $33,660. For these purposes, casual staff are regarded as part-time employees if they work less than 20 hours a week. Additionally, the employer has treated the non-PAYE shareholder employee as a full-time employee for this purpose as that person’s income is also affected.

Example 4

A cinema used to have a steady stream of customers during the day that averages 175 to 200 cinema goers. Following government announcements on public gatherings, cinema attendance has fallen to the point the business owner calculates it will cost more for the business to open its doors than leave them closed. The business engaged four part-time staff and two casuals. The business applies for $25,200 to defray staff costs and remain open.

Types of employment or contractual engagements for your staff

The wage subsidy applies to permanent full-time and part-time staff, as well as casual staff that you employ. These are staff for which you will be withholding tax through the normal PAYE processes. So, even if someone is not paid regularly, such as a share fisherman, if they are in receipt of a wage for which PAYE is deducted, they will be regarded as an employee.

Non-PAYE shareholder employees that are actively engaged in the business should qualify. Having an employment agreement in place with the shareholder employee concerned would assist but is not determinative. If a shareholder salary is declared in the shareholder’s tax return, and a deduction taken in the employing company return, this should provide ample evidence of the employment.

If you have people on your payroll in receipt of withholding payments, such as farm or horticulture contractors, these people should be treated as self-employed and apply in their own capacity. If someone contracts to you through a company, they will be a business and not an employee.

Full time or part time?

The difference between full time and part time (in this context casual staff working less than 20 hours per week will be part time) is whether the employee works 20 hours or more each week. With the subsidy at $585.80 per week for a full-time employee and $350.00 per week for a part-time employee, it is worth checking payroll records to determine whether staff at the 20-hour margin are under or over the 20-hour threshold.

For example, some permanent part-time employees may have hours that fluctuate under and over the 20-hour threshold. If you have staff in this situation an average over the comparative period may assist. Assume a small business pays staff fortnightly and captures hours worked per fortnight. The following approach could be used to determine whether the employee is full time or part time:

Staff Hours worked January & February 2020

Employee retention and the cap

In making the application the employer is required to declare that you agree “you will, using best endeavours, retain the employees named in your application in employment on at least 80 percent of their regular income for the period of the subsidy.”

As the cap only allows 21 full-time employees before it is reached, care needs to be taken when making the application to ensure you use your best endeavours to retain the employees named. There is no obligation to put more than 21 staff in the application and, don’t forget, employees need to agree to their details being provided.

Employees on leave

Employees on paid leave should be included in the employee numbers.

It is not clear if employees at home on maternity or paternity leave (or away on leave without pay) and not expected to return to work within the 12-week period qualify as an employee for the number of employees count. At a high level, if the employer is not paying the employee, or they are not due back within the 12-week period, it is hard to see a case to claim for their costs.

What if my business was already affected by the Southland floods?

Many businesses in Southland, especially in the Te Anau and Milford areas were hit by the weather storm in February 2020 and have enquired about eligibility. Our position is that a business hit by the floods alone will not qualify for the COVID-19 wage subsidy. However, many of these businesses will now be impacted by COVID-19 and should be eligible for the wage subsidy.

Do you have to pass on the wage subsidy?

You are required to make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period. Thus, the payment does not have to be on-paid in full to the employee.

What if an employee’s hours drop?

The employee’s hours are measured at the time the application is made. In this context there is an expectation that a person will continue in employment on 80% of their normal income. However, the declaration is that you as an employer use your “best endeavours” to ensure employment is continued on the same basis. If this is not possible no penalty should arise if this is attributable to events outside your control such as further down turn in business.

Income tax and GST issues

Under current law the wage subsidy is likely to have an income tax impact, either as income or by denying deductions to which it relates. For GST, current law requires GST output tax to be paid on this. However, we understand that an upcoming change to the GST rules will remove this liability.

As the wage subsidy is a subsidy to an employer, there is no PAYE obligations arising. Payroll should continue in the normal manner.

Qualifying for a Leave Payment

Availability

From 17 March 2020 the COVID-19 Leave Payment will be available to support people financially if:

• They need to self-isolate.
• Cannot work because they are sick with COVID-19.
• Cannot work because they are caring for dependents who are required to self-isolate or who are sick with COVID-19.

The Leave Payment will be available for eight weeks from 17 March 2020. Employers can apply for this more than once. It will be paid to employers who have eligible employees.

Unlike the wage subsidy, employers must pass the payment onto their employees in full.

Qualifying people

If you are an employer, contractor, sole trader or self-employed, you may qualify to get the leave payment. The leave payment covers full-time, part-time and casual employees, and contractors who need to self-isolate and have registered as needing to self-isolate with Healthline. Further:

• The person’s employment duties must be such that they cannot work from home, and their self-isolation is not because they left New Zealand since the travel restrictions on 16 March 2020 and have since returned.
• The person cannot work because the person has been diagnosed with COVID-19.
• The person cannot work because they are caring for dependents who are required to self-isolate or who are sick with COVID-19.

As such, employees on sick leave on 17 March 2020 for medical reasons unrelated to COVID-19 are unlikely to be eligible.

Eligibility period

Employers receiving the payment for employees who are required to self-isolate can receive it for 14 days. If people must self-isolate more than once, employers will be able to apply for this again.

The 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.

PAYE issues

The leave payment must be passed onto the employee. As the law sits at present, this will be income from employment and subject to PAYE in the normal manner.

The Findex team are ready to answer specific or more detailed questions. We are also available to assist or make the application on your behalf. Get in touch with us today.

Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.

Findex NZ Limited trading as Findex

While all reasonable care is taken in the preparation of the material in this communication, to the extent allowed by legislation Findex NZ Limited accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex NZ Limited assumes no obligation to update this material after it has been issued.

This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.

The information contained is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider whether the information is suitable for you and your personal circumstances. You should seek personal financial advice before acting on any material.

March 2020