Update to COVID-19 wage subsidies

Last updated: 2.30pm on Wednesday 25 March 2020

The Government has updated its Economic Response Package (Package) for organisations in New Zealand, in light of the move to Alert Level 4 from Wednesday 25 March 2020.

Alert Level 4 means that all New Zealand non-essential businesses are required from Wednesday to work from home where possible, and otherwise not operate if working from home is not an option.

For employers and employees, the key change to the Package is the removal of the $150,000 cap for the wage subsidy scheme.  This means that all businesses that meet the criteria can now access the scheme to subsidise the wages of all employees for the next 12 weeks.

Payments of $585.80 per week will be available for full-time employees (20 hours a week or more) or $350 per week for part-time employees (less than 20 hours a week).

To be eligible, employers must meet the following criteria:

  • their business is registered and operating in New Zealand;
  • their business has experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared to the same month last year (or a reasonably equivalent month for a business operating less than a year) and that revenue loss is attributable to the COVID-19 outbreak;
  • they have taken active steps to mitigate the financial impact of COVID-19 on their business activities; and
  • they will make best endeavours to retain the named employees and pay them a minimum of 80% of their normal wages or salary for the duration of the subsidy.

Applications can be made on the Work and Income New Zealand website.  Employers must declare that that the information is true and correct, and they have discussed the application with the named employees and those employees consent to the information being provided and used by MSD and other agencies.

If you have already applied:

  • MSD will automatically top up the difference if you applied for all staff and MSD capped the amount paid; OR
  • you will need to reapply if you only claimed for enough staff to meet the cap.

Inland Revenue has released details here confirming the tax treatment that will apply to payments made under the wage subsidy and self-isolation leave subsidy schemes.  In summary:

  • Employees will be taxed on a subsidy payment.  The subsidy will be passed on by employers to employees as part of their normal wages, which means it will be subject to all usual deductions including PAYE, KiwiSaver, student loan repayments and any child support.  If an employees’ wages under the subsidy do not equal their usual wages, employers are able to top up the subsidy with cash payments or annual leave.
  • Employers are not liable for GST or income tax on subsidies they receive and then pass on to employees.  The subsidies are treated as exempt from GST pursuant to an Order in Council (link here) that was made on Monday 23 March.
  • Employers are not entitled to an income tax deduction for wages paid out of the wage subsidy.

The Government is continuing to encourage employers to talk with employees, and make plans for at least the next four weeks that will be in Alert Level 4.

We are happy to assist with any questions you may have about the Government’s announcements or generally as you navigate what these changes mean for your business.

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