COVID-19: Update for businesses 24 March 2020
Yesterday, the Government announced significant economic decisions as New Zealand readies for COVID-19 Alert Level 4. We have set out details of these announcements, as they relate to the expansion of the Wage Subsidy below. The Government has also stated we will see details of further relief packages for workers, support for mortgage holders and a business finance guarantee scheme in the coming days.
The Government’s Leave Payments Scheme remains in place; however, we note that this continues to be restricted in its application. The Leave Scheme only applies to those who are in self-isolation due to exposure to COVID-19, where the person cannot work from home. The lock down of New Zealand does not now make people eligible for both the Leave Scheme and the Wage Subsidy (this is a common question we are receiving).
Following Prime Minister Arden’s announcement on 23 March 2020, there have been important changes to the Wage Subsidy Scheme. Our working understanding is:
- Every organisation in New Zealand is able to apply for the Wage Subsidy including employers, contractors, sole traders, self-employed people, registered charities, incorporated societies, non-governmental organisations and post-settlement governance entities;
- The Wage Subsidy can be applied in respect of all employees for the 12-week period starting 17 March 2020, (there is no longer a cap of $150,000 per organisation);
- New businesses (e.g. that are less than one year old) and high growth firms (e.g. firms that have had significant increases in revenue) will be eligible. They will need to demonstrate the revenue loss assessment against a similar time period, for example comparing March 2020, to January 2020; and
- The other conditions of eligibility remain the same as before.
For total clarity, this means that an organisation can claim NZ$7,029.60 for a full time employee and NZ$4,200 for a part time employee (less than 20 hours per week). The total amount is paid out in a lump sum that covers a 12-week period, and there is no longer a cap of NZ$150,000 per organisation.
If an organisation has already applied for, and been granted, the Wage Subsidy for all its employees and the Ministry of Social Development (MSD) has capped the amount paid, it doesn’t need to do anything further because MSD will top up the difference.
Those that have applied for the Wage Subsidy and filled in only enough staff details to meet the previous NZ$150,000 cap will be able to reapply for a top up in relation to additional employees once the first round of subsidy has been used up.
How to apply for the Wage Subsidy and Leave Payment Scheme
To prepare for the application process, you will need to:
- Have proof that you are registered and operating in New Zealand, and that your employees are legally working in New Zealand;
- Be comfortable that you meet the eligibility criteria and can agree to the declaration with MSD;
- Collect your bank account, IRD number, New Zealand Business Number (NZBN) and organisation contact details; and
- With employee consent, collect employees’ names, dates of birth, IRD numbers and employment types (i.e. more or less than 20 hours of work per week).
A reminder on eligibility
The other eligibility criteria remain in place. Organisations must:
- Confirm a minimum revenue decline of 30% (actual or forecast) for any month between January 2020 and 9 June 2020, compared to the same month in 2019 (or a recent month for those operating for less than a year or high growth businesses).
- Confirm that you are taking active steps to mitigate the financial impact of COVID-19 on your business.
- Active steps might include activating a business continuity plan and seeking advice and support from a bank, financial advisors, the Chamber of Commerce, a relevant industry association, or a Regional Business Partner programme.
- Commit to making best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.
Blue Sky Limited has 40 full-time employees. It applied for the Wage Subsidy when it was first announced on 17 March 2020, filling in the details of all 40 employees. Blue Sky Limited received a payment from MSD on 19 March, for $150,000. Because Blue Sky Limited is now eligible for a Wage Subsidy of $281,184 the MSD will make an additional payment of $131,184 to Blue Sky Limited.
Green Grass Limited has 40 full-time employees. It applied for the Wage Subsidy when it was first announced on 17 March 2020. Green Grass Limited only entered the details of 22 employees in its application form, in order to reach the $150,000 cap. When the Wage Subsidy has been spread over all 40 employees (at $585.80 per week per employee) the original $150,000 is used up after 6 weeks. After 6 weeks, Green Grass Limited should apply for a Wage Subsidy top up, providing the details of the additional 18 employees.
Calm Seas Limited has 100 full-time employees and 50 part-time employees. Calm Seas Limited is potentially eligible for a Wage Subsidy of $912,960. Calm Seas Limited implements its business continuity plan and establishes that it is able to commit to retaining all 150 employees for the next 12 weeks. Calm Seas Limited makes an application for all 150 staff.
Rolling Hills Limited has 500 full time employees who are on average paid $52,000 each per year. Rolling Hills Limited anticipates it will suffer over a 50 percent reduction in revenue. Rolling Hills Limited has activated its business continuity plan and undertaken forecasts based on its cash reserves and available credit lines. Rolling Hills Limited believes that it could afford to retain its full workforce if its salary costs were halved; that is, it is only able to pay each staff member a maximum of $500 per employee per week if the business is to survive. Rolling Hills Limited applies for the Wage Subsidy and receives an additional $585.80 per employee per week. Over the 12 week period, Rolling Hills Limited continues to pay all employees their full weekly salary of $1,000; being funded $585.80 using the Wage Subsidy and $414.20 from its own funds.
White Cloud Limited has 10 full-time employees, each earning $104,000 per annum. White Cloud Limited therefore has a weekly salary cost of $20,000. White Cloud Limited is anticipating a sharp reduction in revenues and is potentially facing having to make 4 staff members redundant. After discussing the situation with all its staff members, all staff members agree that they would each be prepared to take a 20 percent reduction in salary for the duration of the COVID-19 issues, in order for all staff to keep their jobs. With the agreement of staff, the weekly salary cost reduces to $16,000 (or $192,000 over twelve weeks). White Cloud Limited is able to apply for the Wage Subsidy; it receives a Wage Subsidy of $70,296 for the 12-week period. White Cloud Limited pays its staff using the Wage Subsidy of $70,296 and $121,704 of its own funds.
*Please note in respect of all examples that these are gross amounts. All payments to employees remain subject to PAYE and other usual deductions.
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 we enter self-isolation as a nation. This includes aiding businesses as they access government supports and entitlements. In short, while our physical offices are closed to aid in the fight against COVID-19, we are still open for business.
Should you need support during this challenging time, please get in touch with your usual Deloitte contact. 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.
Robyn is a Partner within the Tax Team at Deloitte in New Zealand. This involves many things, including preparing submissions on behalf of Deloitte and developing thought leadership in the area of tax. She likes to think about how tax developments really impact on Deloitte's clients and has a particular interest in tax policy and keeping up to date with all the many tax developments.