Summary of the Wage subsidy and Leave Payment available to support employers affected by COVID-19
Refer to the table below and consider your situation.
Below is a summary of the Wage subsidy available to support employers affected by COVID-19. For full details see this page on the Work & Income website.
Note: the leave subsidy has been folded into the wage subsidy scheme to prevent employers double-dipping. Government are working on arrangements for those in essential work who require sick leave due to COVID-19
Wage rates for employees
Employers are expected to pay their employees:
their usual wages or salary as per employment agreements, OR if this is not possible
at least 80% of their usual wages or salary, where it is reasonably possible to do so, OR if this is not possible
pay the employee for every hour worked based on their usual wage rates or salary.
If the wages or salary paid for the hours worked are below the amount of the subsidy provided for that employee, employers must pay the employee the full subsidy.
So in a nutshell, every employee must be paid the full subsidy whether full-time or part-time. But, you are allowed to POOL the subsidy meaning a part timer working only 10 hrs per week may be paid only 8 hrs but you get a $350 subsidy. A full timer paid for 80% is likely to need more than the full subsidy of $585.80.
The subsidy is -
$585.80 for full timers (defined as 20 hrs per week or more)
$350 for part timers (less than 20 hrs per week)
Apply the case studies to your situation
Case study (from MBE)
Non-essential business + Minimum waged worker
James is a barista at a Wellington café. James earn the minimum wage. The café is closed for the lockdown and has had a 30% loss in revenue. James’ employer cannot afford to pay any wage to James, but wants to keep him on. James does not want to use his annual leave entitlements.
James’ employer can access the wage subsidy and pay $585.80 per week to James, without James being required to do any work. James retains his annual leave entitlements to use at a different time.
Able to do some work from home + Full-time worker
Sam is a civil engineer. He usually works 40 hours per week at $30 per hour, with a usual gross income of $1200 per week. The business is non-essential and closed for the lockdown and has had a 30% loss of revenue. Sam can do some work from home over this period. He works 30 hours per week over the lockdown period.
Sam’s employer can access the wage subsidy and pays Sam his usual salary at the agreed reduced hours, which is $900. Sam’s employer can use the $585.80 per week to subsidise Sam’s wages, this means Sam’s employer will top up the wage subsidy with $314.20 to compensate the hours Sam worked.
Non-essential business + Can do some work from home
Phil is a HR advisor in a medium-sized business and works full time. The business is non-essential and closed for the lockdown and has experienced a 30% loss of revenue. Phil can do some work from home. He does 8 hours per week. His hourly rate is $25 per hour.
Phil’s employer can access the wage subsidy. Their revenues have dropped so much that they are worried as they will be unable to retain their staff. Under employment law, Phil must receive $200 per week for the hours worked, but as the wage subsidy for a person working part time prior to the shutdown is $350 (and the employer is able to access that payment), the employer must pass that total amount to Phil.
Non-essential business + Unable to work
Craig is a waiter at a successful restaurant chain that also needs to close during the lockdown. Craig was getting paid $1,000 per week. Craig’s employer has committed to paying full wages to their staff as they know that such workers will be in demand as the lockdown ends. The restaurant has suffered a 30% loss in revenue due to COVID-19.
Craig’s employer can access the wage subsidy scheme to pay Craig $585.80 per week, and the employer can then top that up with $414.20 per week to ensure Craig receives his full income.
Essential business + Able to work
Steve is an essential services worker, ensuring certainty of electricity supply. Steve is really busy, working his normal hours and getting paid at his normal rate, and his business has not been affected by COVID and does not require support to pay or retain its staff.
Steve’s employer does not need to apply to the wage subsidy scheme.
How to implement these subsidies to your MYOB payroll
- Decide what your business can afford to do?
- Pay 100% of the employees’ normal wage
- Pay 80% of the employees’ normal wage to work a 4-day week
- Where the above is not possible – in particular where a business has no activity whatsoever due to the shut-down and workers are not working any hours – you must pass on at least the whole value of the wage subsidy to each affected worker.
- Redundancy (no subsidy available if you do this)
- The wage subsidy is a grant for the employer. It comes as a lump sum (no GST) and will get coded in MYOB to 8-xxxx Other Income.
- The subsidy means you must endeavour to keep your employees on your payroll for 12 weeks.
Examples of how to Process
We recommend you create a pay code in your payroll called Covid-19. This helps you track the payments out.
NB: If employees work variable hours, work out the normal weekly hours to pay using a 52 week average.
The Tax Treatment (this is confusing!)
- It is not subject to GST.
- The wage subsidy paid to the employer is not taxable.
- It is not deductible when paid by the employer as part of wages to employees.
- Therefore the subsidy and the employee payment nets off.
- It is taxable for the employee. It is included as part of their normal wages and subject to PAYE, Student Loan, Kiwisaver deductions.
- If you receive more for Covid 19 than what you pay out to employees for Covid 19 you will need to pay this BACK to the government.
- We recommend a separate General Ledger code to track the money in and out for Covid 19.