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Government’s COVID-19 wage subsidy scheme

Published: 20th May 2020

Author: Rebecca Neilson, Cruickshank Pryde

Published in: Commercial eSpeaking

Not a ‘gift’, there are employer obligations

Many New Zealand employers are scrambling to maintain solvency while balancing their employer obligations during the COVID-19 lockdown; thousands of businesses accepted the government’s COVID-19 12-week wage subsidy as a necessary lifeline. The subsidy was not, however, a gift. We take a closer look at employers’ obligations when accepting the wage subsidy.

Not all applications were equal
Obligations imposed on an employer are different depending on when the subsidy application, and the associated declaration, was submitted.

For applications submitted up to 4pm on 27 March 2020: you were obliged to use your best endeavours to retain all staff, and to make the best endeavours to pay at least 80% of your employee’s regular wages.

For applications submitted after 4pm on 27 March 2020: you have an obligation to retain all staff during the 12-week period of the wage subsidy and to make best endeavours to pay at least 80% of your employee’s regular wages. You are also unable to make any changes to pay or hours of work without express agreement from each employee.

Best endeavours to pay at least 80% salary
‘Best endeavours’ has previously been considered a very high threshold (1) . It means you may be required to act against your own commercial interests, but not to the extent of financial ruin. This means that while your budget is tight, asking your employees to accept pay cuts to retain a profit margin or protect the year-end result will not be considered ‘best endeavours’ and you will be in breach of your obligations.

As well, before paying your employees less than 100% of their wages you must ensure that you can demonstrate, through thorough financial analysis, that the salary/wage amendments are required to ensure the survival of your business, and you must consult with your employees before making any changes.

Can I reduce all staff to 80% salary?
A common misconception among business owners is that as long as they pay their staff 80% of their regular salary, they may decide to immediately reduce wages. If you submitted prior to 4pm on 27 March 2020, you must still consult with your employees and give them an opportunity to respond to your proposed changes. You must seek agreement to any changes made, and before making any final decisions regarding changes to your employee’s working conditions or potential redundancies.

However, if you submitted your subsidy application after 4pm 27 March 2020 you cannot make any changes to hours, wages, entitlements or working conditions without consultation and agreement from your employees. This means you must propose the measures required, and then ensure each employee has individually agreed to the arrangement (2) .

Considering redundancies?
For applications submitted before 4pm on 27 March 2020, you must apply the same rigour to prove you couldn’t retain your employee before making them redundant during the 12-week subsidy period. The redundancy process must be followed as per any other restructure or redundancy outside of the COVID-19 measures. The process is explained here.

If you submitted your application after 4pm on 27 March 2020 you are not allowed to make your employees redundant during the 12-week period covered by the wage subsidy. If it becomes apparent before the 12-week period ends that redundancies will be required, you may begin the consultation process with your employees before the end of the 12 weeks. This consultation must involve the standard steps for a restructure, and the final decision and subsequent redundancies must only occur after the conclusion of the 12-week subsidised period.

Regardless of when you applied for the wage subsidy you have an obligation to MBIE to notify it of any changes to your staff. As well, all your usual obligations under the Employment Relations Act 2000 still apply despite the extraordinary environment of the pandemic.

Wage subsidy scheme extension
An extension to the government’s wage subsidy scheme was announced in the Budget. This will run from 10 June to 1 September; applications open on 10 June. For more information on this, go here.

Government has good resources
MBIE/Employment New Zealand continues to update its resources for businesses during this difficult time, including checklists and guidelines for redundancies. The subsidies, relief and subsequent obligations are an ever-changing landscape as the impact of COVID-19 continues to unfold. Click here for the latest information.

If you have any questions about your specific circumstances, are concerned you may have breached your obligations as an employer or you have any employment law queries, please don’t hesitate to contact us. 

(1) - Artifakts Design Group v NP Rigg Ltd (1993) 1 NZLR 196.

(2) - Unless your employee has negotiated through their union.

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