COVID-19 Alert Level 4: Questions and Answers

With New Zealand being elevated to Level 4 with a lockdown from 11:59pm tonight (Wednesday, 25 March 2020), these unprecedented circumstances have resulted in frequently asked legal questions from employers.  We set them out in this newsletter.

Q. Can my business access the Wage Subsidy?

The Government has lifted the $150,000 limit that can be paid as a wage subsidy to employers affected by COVID-19.

All New Zealand employers, contractors, sole traders, self-employed people, registered charities and incorporated societies may apply for the wage subsidy. 

If you have already applied for and received the wage subsidy, but the Ministry of Social Development (“MSD”) capped the amount paid, then the employer will not need to re-apply, as MSD will top up the difference between what the employer applied for and what was granted.

If an employer has applied for a wage subsidy and their application was for less than $150,000, the employer can re-apply to MSD. 

Applications for the wage subsidy can be made at:

To qualify:

  • your business must have experienced a minimum 30 per cent 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; and
  • you must provide an undertaking (which is in the form of a declaration on application) that you will, on your “best endeavours”, continue to employ the named staff at a minimum of 80 percent of their income for the duration of the subsidy period. 

 If you qualify, the wage subsidy will be paid at a flat rate of:

  • $585.80 (gross/pre-tax) for employees working 20 hours or more per week; and
  • $350.00 (gross/pre-tax) for employees working less than 20 hours per week. 

Q. What obligations do I have to my staff during Alert Level 4?

Alert Level 4 constitutes a rare unforeseeable event outside the control of both the employer and employee, which prevents the parties from fulfilling their mutual contractual obligations. 

In light of the Government’s announcement, employers’ options are as follows:

For those employees working from home: they should remain on full pay.  If there is a business need to reduce hours of work/wages during the lockdown period, this must be done by way of consultation.

If you have been granted a wage subsidy for these employees, there is an obligation to use your “best endeavours” to retain them on at least 80 percent of their normal income for the period of the subsidy (12 weeks). 
Employers are entitled to utilise the employee’s annual leave entitlements to top-up the wage subsidy payment, on agreement (or otherwise directed on 14 days’ notice).  When the employee’s annual leave entitlements are exhausted, employers have the option of paying out the employee’s sick leave entitlements in good faith to top-up the wage subsidy, however this is not mandatory.
Once an employee’s leave entitlements have been exhausted, the employer may need to consider to what extent further top-ups can be made.  If topping-up is no longer commercially viable, despite the company’s best endeavours to do so, then at a minimum, the employer must continue to pass on the wage subsidy to the employee for the remainder of the subsidy period, with no additional payments made.  Employees should be consulted with before deciding on how to deal with top ups.

For employees not able to work from home (with no wage subsidy granted): they will be entitled to take annual leave.  You may also allow employees to use their sick leave, but this would be a good faith gesture (it is certainly not mandatory).  Once an employee has exhausted their annual leave entitlement, leave can be without pay for the duration of the Government enforced closedown.  

For employees not required to work, for which you have been granted a subsidy: the subsidy should be passed on and can be topped up.  As explained in detail above, the obligation is to use your best endeavours to reach at least 80 percent of the employee’s normal income.  What constitutes ‘best endeavours’ will be a commercial decision by the employer and will depend on the employer’s financial position, and whether topping-up would be sustainable or would compromise the financial position/commercial viability of the business.   

Q. Some of our employees’ hours of work fluctuate week to week, therefore their income changes.  What is their “normal income” for the purpose of fulfilling our obligations under the wage subsidy?

As above, if you have been granted a wage subsidy, there is an obligation to use your “best endeavours” to retain your employees (to which the subsidy applies) on at least 80 percent of their “normal income” for the period of the subsidy (12 weeks). 

The Government has not provided any guidance on what constitutes “normal income” for the purposes of the wage subsidy.  In the absence of official guidance, it is our view that “normal income” should be interpreted as the base salary or hours/wages provided for under the employee’s employment agreement.

Q. Do I have to pay the employee the full amount of the wage subsidy if their normal income is less than the wage subsidy?

Where an employer receives wage subsidy payments, and these payments exceed the employee’s normal income, employers are entitled to pass on the wage subsidy only to the extent that it meets the employee’s normal income.  Employers would then retain the excess wage subsidy payment.

We note that this situation is constantly evolving, and the Government is providing additional guidance daily.  The Government may define “normal income”, which might require employers who have treated it as a base salary/wage payment on the contracted rate to pay arrears to the employees at some stage in the future.

Q: What if my commercial operations suffer a catastrophic financial impact over the enforced closedown period?

If an employer’s business suffers a severe financial downfall, and the Government’s financial support incentives are not sufficient to maintain current employment levels, an employer has the following options:

Reduced hours of work/wages or reduced salaries:
To cushion the economic effect of COVID-19, the employer could set out a proposal for consultation with the employees to reduce the employees’ hours of work/pay.  This means the employer could still qualify for the wage subsidy, which should be passed on to the employee. 

Implement redundancies:
The last and most terminal course of action that an employer can take is to make staff redundant.  A procedurally fair restructure process must be undertaken in good faith.  In this COVID-19 context, a brief truncated consultation process would be appropriate in these circumstances. 

Employees are no longer entitled to wage subsidies once they have been made redundant.  However, in compliance with its obligations and the proper process, an employer is still required to give notice to the employee and may use the wage subsidies to pay this.

If an employer’s business is restructured after wage subsidies are received, we expect that the employer will be asked to pay back the excess weeks of wage subsidy payments following the employee’s termination date.  This said, at this point in time, there has been no firm guidance from the government on how this situation will be addressed.

If you have any questions regarding the impact of COVID-19 on the workplace, you can contact us on:

Auckland: (09) 953 9757
Hamilton: (07) 981 3140

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