We have recently had a high number of questions relating to the wage subsidy, holiday pay during lockdown (Easter), reconciling Xero and taxes related to the Covid-19 subsidy.
Our Frequently Asked Questions (FAQ) below contain answers based on the information available now.
We have previously outlined key information on the leave scheme and wage subsidy already and this article continues to elaborate on some of the details.
I received a lump sum for the wage subsidy on 31 March 2020. Do I need to pay GST on this? Is the wage subsidy taxable income? Is all the wage subsidy going to be included as income in the 2020 financial year?
The wage subsidy is not subject to GST
If you are an employer:
- The wage subsidy paid to the employer is not taxable. It is excluded income. We recommend coding it to Other Income with no GST.
- It is not a deductible expense to the employer when paid to the employee as part of wages to employees.
- However, it is taxable income for the employee. It is included as part of their normal wages and the employer must deduct PAYE, Kiwisaver, Student Loan etc.
If you are a partner in a partnership or a self-employed person who receives the payment in their personal capacity (rather than as an employer), or if received as a shareholder employee:
- It is taxable to you as it replaces a loss of income
- The wage subsidy can be apportioned over the 12 week period. For example, if received on 31 March 2020, then 1 week is related to the 2020 financial year, and 11 weeks related to the 2021 financial year.
I applied for the wage subsidy last Friday, when can I expect to be paid?
Payments are taking between 5 – 10 working days to process. We have heard from unconfirmed sources that they have experienced extremely high call volume. Ministry of Social Development will text message or email you once the payment has been made.
Am I expected to still top up my employee’s wages to 80% even though my business is closed, and I have no income? The wage subsidy only covers $585.50 per week, how do I cover the additional wage amount to 80% of my employee’s ordinary wages?
As part of applying for the wage subsidy, the declaration stated that employer's must continue to use their “best endeavours” to pay employees a minimum of 80% of their ordinary wages or salary.
If you are unable to pay your employees 80% of their ordinary wage you must pay them no less than the amount of the subsidy received minus PAYE and KS.
How do I pay my employees for working on the Public Holiday? What about employees who are working from home?
Good Friday (10th April) and Easter Monday are public holidays which fall during the current lockdown period. Easter Sunday is not a public holiday and employees are only entitled to their usual Sunday payment (per their employment agreement).
Employees working the public holiday (essential businesses)
If it is a normal day of work for the employee (they normally work this day each week), they are entitled to time and a half for each hour work, and a day in lieu is to be taken at a later date.
A casual employee working on a public holiday will be entitled to time and half pay per hour, but no day in lieu.
Employees working from home:
Because an employee may do their required work at their own discretion, employees should be advised by their employers not to work on the public holiday without prior agreement. This prevents the employer from being required to pay time and half per hour of work and the employee being entitled to an alternative holiday.
If the employee normally works the day the public holiday falls on, the employee will be entitled to be paid at their relative daily rate of pay.
What if I am paying the employee a reduced wage or salary due to the lockdown period?
You need to pay employees their full pay for the public holiday. It is important to still show that the public holiday has been taken (as non-worked) and that the employee has been paid their relative daily rate of pay.
If you are only paying your employees, the wage subsidy amount ($585.50 per week gross) you can either:
- Pay the full relevant daily pay for the public holiday (show this on their timesheet) and make up the balance to $585.50 (gross per week) as a separate taxable payment. The employee still receives $585.50 gross and the public holiday is shown separately on the payslip.
- Continue to pay the full wage subsidy ($585.50) and pay the full relevant day for the public holiday. In this situation the employer is still paying the public holiday pay out of their own pocket.
The wage subsidy from the government is a contribution (subsidy) towards the ongoing employment payments. You can use the subsidy to contribute towards annual leave, sick leave, public holidays.
If you are paying your employees greater than the subsidy amount:
- Pay the relevant daily pay for the public holiday and make up the balance to the agreed weekly wage or salary leave as a separate taxable payment.
How do I pass on the wage subsidy to my employees?
You will continue to pay your employees as you normally do, and the payments are subject to PAYE, Student Loan and KiwiSaver deductions. If family support or court fines are required to be deducted the Wage Protection Act 1983 provision to ensure that the employee still receives not less than 60% of their weekly earnings remains.
If the amount of required deductions takes this below the 60% threshold you will need to contact the relevant Government Department to discuss a variation to the deduction requirements.
What is the difference between the leave payment and wage subsidy?
The leave payment scheme has been ceased from Thursday 27th March. If you applied before the date, your payment will be processed as normal.
The self-isolation leave payment was available for employers whose business remained open as an essential service but have employees unable to work due to the self-isolation requirement. For example, a supermarket employee but has recently returned from overseas holiday and must self-isolate for 14 days, or an employee over the age of 70 who needs to self-isolate.
The wage subsidy is available for employers (and contractors and self-employed) who businesses are or predicted to have a 30% decrease in turnover.
My employee works 25 hours per week for $20 per hour ($500 gross per week). I have received the full wage subsidy $585.50 per week for this employee as they work more than 20 hours. It appears I am better off $85.50. Do I need to repay this amount?
You should continue to pay your employee their usual wage amount. At this stage, it appears there is no requirement to repay the balance of the subsidy. We do expect further clarification regarding the ability to use the excess for another employee (to meet the difference between the wage subsidy and 80% of their normal wage as outlined above).
If the lockdown continues for longer than four weeks, I am unsure if I am going to be able to keep all my employees. What happens to the wage subsidy if I make them redundant?
The wage subsidy declaration outlines that you must commit to continuing to employment of the employees named for at least 12 weeks (the length of the scheme). This means that the full amount of the wage subsidy is passed directly on to the employee. You cannot terminate their employment before the end of the 12-week period. If you do, you are required to contact MSD and we expect there will be a requirement to pay back to the wage subsidy for that employee.
Can I make my employees use all their leave entitlements during this period?
No, an employer cannot unlawfully compel or require an employee to use their leave entitlements during the period in which they are accessing the Wage Subsidy Scheme. Leave can be used with agreement between employee and employer and the appropriate notice periods (14 days).
Changes to contracts and employment agreements
The wage subsidy declaration outlined that employers will not make any changes to employment agreements, including hours of work, rates of pay or leave entitlements, without the written consent of the relevant employee.
If an oral consent regarding temporary changes to employment agreements have been meet, we recommend you seek specific guidance on how to respond to this new development.
Minimum Wage Increase
The Minimum Wage increased to $18.90 per hour effective as of 1 April 2020.
Contact Tim Doyle or Jane Evans today for a no obligation phone call or meeting on 07 823 4980 or email us. Our office is in Cambridge, NZ, but we are currently working from home. We have many international and national clients.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.