This article was published on 30 March 2020 and represents the legal position on this date. Due to ongoing developments, this guidance may no longer represent the correct position as of today. If you would like assistance on the below matter please get in touch with the contacts listed or your usual Bell Gully adviser.
The government's COVID-19 Wage Subsidy Scheme (Scheme) continues to evolve.
Further significant clarifications and updates were announced on 27 and 28 March 2020, which are relevant to any New Zealand employer that has not yet (as at 4pm on 27 March 2020) applied for wage subsidy relief under the Scheme.
We summarise below the updates that are most important for employers to consider.
Where can I get information about the Scheme?
We are encouraging our clients to continually check the relevant government webpages:
The messages across these pages are not entirely consistent, reflecting the fast pace at which changes are being made to the design of the Scheme. In addition, the information on these pages has changed several times each day over the past week.
It is important to note that the new rules do not apply retrospectively, the rules only apply to new applications made after 4pm on 27 March 2020.
Objectives of the Scheme
The 27 March 2020 changes appear to be intended to emphasise that the Scheme is about job retention and the maintenance of some level of income for all New Zealanders, even if they are unable to perform work.
This is reflected in the fact that employers who have terminated their employees for redundancy just prior to 27 March 2020, when the latest updates occurred, are encouraged to re-hire those employees and then apply for the wage subsidy on their behalf.
It seems that the intent is to create something broadly similar to the “temporary" redundancy / furlough concept applicable under the
UK equivalent scheme. That scheme is more overtly described as a “job retention" scheme (rather than “wage subsidy", which is the terminology here) but has many similarities to the Scheme that applies in New Zealand.
Requirement to pay at least 80% of regular pay
There is a requirement to exercise best endeavours or “try your hardest" to pay at least 80% of an employee's regular pay during the wage subsidy period.
“Best endeavours" is usually understood to be a high legal test. However, in some places, the government guidance suggests that there will be some flexibility to just pay the wage subsidy to an employee (particularly if the employer's business is not operating and/or the employee is not actually performing any work). Whether it is appropriate to do so will require consideration of the particular circumstances of the employer.
If an employer is considering paying its employees less than 80% of their regular pay, the employer should document its rationale as to why it was “not possible" to pay up to 80% (given that there is the possibility of later review or audit of the payments made).
Redundancy during the 12-week period
Whilst it is not impossible (as a matter of employment law) that an employer could terminate an employee for redundancy during the 12 weeks of the subsidy (even if the subsidy was applied for after 4pm on 27 March when the new rules applied), the clear message is that employees should still be retained or else the employer risks being treated as in breach of the Scheme rules. An employer who has ceased to require an employee during the 12 weeks would therefore need to undertake consultation in the ordinary way, but one of the alternatives to termination would presumably be that the employee is retained and continues to receive the wage subsidy (but does not perform any other work from that point). The existence of the wage subsidy scheme would be a factor to take into account in assessing justification for dismissal during this period. We note that there may be situations where redundancy is impossible to avoid (for example, where the employer's business ends operation in its entirety during the subsidy period).
Putting that into effect, if an employer considers that they no longer require an employee during that period, the employer should undertake consultation in the ordinary way, but one of the alternatives to termination would presumably be that the employee is retained and continues to receive the wage subsidy. The existence of the Scheme would be a factor to take into account in assessing justification for dismissal during this period.
Other termination of employment during the 12-week period
There does not appear to be anything in the Scheme which removes an employer's right to manage its business and terminate employees for other reasons during the subsidy payment period, provided that the employer acts in accordance with the Employment Relations Act 2000.
How do I determine the number of hours worked by an employee if their hours vary from week to week?
In this scenario, the Ministry of Social Development (MSD) has advised that employers can use the average hours worked by an employee each week over:
If the average hours are:
20 or more hours per week, the full-time wage subsidy rate (NZ$585.80) will apply.
Less than 20 hours per week, the part-time wage subsidy rate (NZ$350) will apply.
Can the subsidy be put towards paid leave?
Our interpretation of MSD’s current guidance is that the wage subsidy can be put towards paid leave, but that leave should occur by agreement or by lawful direction (i.e. the employer should comply with its legal requirements concerning directing leave). However, MSD’s position on this issue is not clear and we expect further clarification from MSD in this regard.
Treatment of the subsidy where it is more than an employee's normal pay
The scheme was further updated on 28 March 2020 to clarify that the employee should in those circumstances receive their normal pay, and not the full amount of the subsidy. The difference between the normal pay and the subsidy should be used for the wages of other affected staff.
What are the consequences of getting it wrong?
The consequences for providing a false declaration were previously unclear.
The employer declaration, which must be given to receive money under the Scheme, now requires the employer to acknowledge that they may be subject to:
civil proceedings for recovery of any amount that they receive that they were not entitled to, and/or
prosecution for offences under the Crimes Act,
if they provide false information, fail to meet their obligations regarding use of the subsidy, or receive any subsidy to which they were not entitled.
Broad consents required from employees
Employers must tell their employees that they are applying for the wage subsidy on their behalf, and there are some specific consents required for the provision of the employees' information to the Ministry of Social Development, the use of that information by the Ministry and sharing of information by the Ministry.
These requirements are set out in the declaration that needs to be completed. As noted earlier, these requirements apply only to applications made after 4pm on 27 March 2020.
More difficult questions
Some additional guidance has been provided regarding the application of the Scheme in the last few days although there are still aspects of the Scheme which are unclear. This includes:
What happens if an employee's employment ends before the end of the 12-week period? The design of the Scheme has been clarified to suggest that termination should be avoided if at all possible. However, if it happens, it appears that the employer would be expected to retain the balance of the subsidy and repay it to MSD; but that is not clear at this time.
What about “vulnerable" or “higher risk" employees? The announcement on 27 March 2020 suggested that there will still be further updates for employees in the “at risk" or “vulnerable" group1, as well as further protections for workers in essential services. We therefore expect further changes to come this week.
The Scheme continues to be described as a “high trust" model, and employers need to be careful to ensure that they can satisfy all of the criteria.
Employers who applied for the wage subsidy prior to 3pm on 27 March 2020 will be subject to the previous rules and do not need to re-apply.
If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual
Bell Gully adviser.
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This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.