Whatever your business, it’s likely that Covid-19 will be impacting you right now.

 

Hunter Withers Limited are here to help you and your business survive this uncertain time, whether that be with cashflow advice, business continuity or tax planning, please get in touch and we will be there to support you through this difficult time.

IN THIS EDITION:

• Business Continuity - Free Plan and Guide
• Getting Through - Innovation
• Wage Subsidy - FAQs
• Employer Responsbilities

 

GETTING THROUGH

"Innovation is the ability to see change as an opportunity - not a threat" - Steve Jobs

There is no denying that things are rapidly changing at the moment - what can you do right now that can create a new opportunity for you? If you are not online - can you? What else can you offer to your customers right now that doesn't require a physical presence and can complement your current business?

Some ideas could be educational videos to increase your brand awareness, increasing your own education or upskilling, offering remote service to your clients where you can video call and help them through problems (anyone else got a small maintenance issue that a builder may be able to provide guidance over a video call on how to fix?). There are ways to do things differently right now to help you longer term. Take this time as an opportunity.

How do I calculate whether revenue has dropped by 30% or more?

The employer/business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year. That decline must be related to COVID-19.

 

Revenue means the total amount of money a business has earned from its normal business activities, before expenses are deducted. Practically we envisage that income will be calculated on the same basis as it was in the month against which the comparison is being made.

 

As some employers/businesses have only just closed their doors as a result of the upgrade in alert levels, the definition permits a prediction of future revenue.

 

What does it mean to take active steps to mitigate the impact of COVID -19?

Your business must have taken active steps to mitigate the impact of COVID-19 This includes activating any business continuity plan and seeking advice and support from:

• Your Accountant (Hunter Withers Limited)
• Banks
• Chamber of Commerce
• A relevant industry association
• Regional Business Partner programme
   

Do I have to pay my employees 80% of their ordinary wages while receiving the Government Wage Subsidy?

You must make your ‘best efforts’ to pay 80% of the normal income of the employees for whom you have applied for a subsidy.

As part of the application declaration, you must confirm that you have advised employees that you have included them in your application for the wage subsidy, and so you will need to ensure you have done so.

 

If you are unable to pay 80% of their ordinary wages you are required to at least pass on the subsidy.

 

Please note: The wage subsidy does not exclude you from your normal responsibilities as an employer. Therefore, it is important that you discuss any changes or reductions in an employees pay prior to doing so. Please see below section for further information on this.

 

Do I need to pass on the entire wage subsidy, for example, if my permanent part time staff member earns less than $350 per week?

The $350 per week subsidy is payable to the employer in respect of permanent part time employees – defined as those who work up to 20 hours per week.

You will need to consult whether casual employees are permanent part time employees eligible for the wage’s subsidy.

The eligibility criteria stipulate a best effort to pay 80% of an employee’s normal wage.

 

What happens if I cannot continue to employ those for whom I applied for the subsidy?

Businesses should consult their employment lawyers regarding individual employment agreements, and their legal obligations concerning minimum pay and redundancy before terminating employment.

 

The ability to communicate clearly and effectively with employees is crucial during this time.

 

If you have applied for and obtained a wage subsidy in good faith it appears there is no need to pay any wage subsidy back. Be prepared for your entitlements to be reviewed if you terminate an employee’s employment.

 

Terminations within a short time of application for the wage subsidy may be reviewed closely.

 

Does my business or legal structure preclude me from receiving the subsidy?

At the highest level, the intention of the wage subsidy is to keep people employed through these difficult times.

The specific legal structure of your business, or specific employee & contractor agreements, should not preclude you from being eligible.

 

Types of employment relationships and how these might affect eligibility

The below examples give some direction for determining part-time or full time-eligibility for the Wage Subsidy.

• Casual employees - income could be classed as similar to that of ‘variable income self-employed persons’ (who are included for the subsidy per the announcement on 23/03/20). Consideration should be given to expected hours of work, how many hours were worked at the same time last year etc. – further advice may need to be sourced in this area
• Contractors – need to review the contractual relationship and whether there are defined minimum contracted hours in their supplier agreements.
• Seasonal Workers – what are the contractual arrangements in place i.e are these for a fixed term, compare with the hours worked based on last-years season.
• Partnerships and Look Through Companies - Non-passive income that passes through to a person from one of these structures is ultimately self-employment income (for their personal efforts in the business).
• Commission Based Employees will likely still have a contracted minimum hours and pay that can be used to determine their ordinary income.
   

I don’t have any evidence to support my claim for the wage subsidy.  What do I need to do?

When making the application you are signing a declaration that the application has been made in accordance with the eligibility criteria.

If you have provided false or misleading information or receive any subsidy or payment that you were not entitled to receive, you may be subject to an investigation including for offences under the Crimes Act 1961.

 

Given this declaration, it is important that you review the criteria to ensure that you have evidence to support your claim.

 

Evidence will include documentation on how you arrived at a 30% drop in revenue – this should be self-evident for most employers who are unable to carry on their business during the Level 4 COVID-19 lock down period.

 

The active steps criteria will mainly include seeking advice from a third party, but may also incorporate all internal actions that assist with mitigating the impacts of COVID-19.

 

It is crucial you get this information together as all payments made by the MSD are subject to an audit. Payments claimed in error may be subject to repayment.

 

Should I apply for this or ask you to make the application?

We encourage you to complete the application (you need to sign the declaration) and seek guidance from us if you require.

 

I applied for the wage subsidy, but accidentally left off one of my part-time employees. How do I get the subsidy for them now, as it says you can only apply once?

We understand you will need to contact the MSD directly and ask them to add on the additional employee.

 

Does the structure of my organisation matter (assuming I am not a government entity?)

No, this is based on being a NZ employer with NZ employees. So, you can be an incorporated society, trust, charity, etc. A sole contractor will claim for themselves and any staff that they employ

 

How are the subsidies treated for tax?

The receipt of the wage subsidy to the business is not taxable and has no GST included. Please code treat this as exempt income for GST purposes. If you require a new code entered in to your accounting software please let us know.

 

The payments to employees are taxed like normal for PAYE.

 

The payments to employees that are related to the wage subsidy are not tax deductible to the employer. There is nothing that you need to do in respect of this as we can handle this at year end. 

  

How long does it take to receive the subsidy?

WINZ administers the subsidies, and experience so far is that waiting times can be between 2 to 7 working days.

 

 

EMPLOYER RESPONSIBILITIES

There seems to be a lot of confusion regarding the employers responsibilities during this lock down period, especially around topping up employee wages (what to top them up with, and how much to top up).

 

Your employer obligations during this lock down period depends on your employment agreements with your individual employees. It is best to work with your employees to ensure you reach an agreeable solution that is best for all involved. 

 

• If your employment agreements state standard hours per week (i.e. 40 hours per week), you are required to pay them for 40 hours per week if they are available to work. You can negotiate with them a different amount (i.e. to only pay 50% of their wage if they are not working etc).
• You can apply for the wage subsidy to assist with meeting wage costs, but you have to prove a reduction in income, act in the best interest of employees and trying to keep them retained, and you need to pay them at least 80% of their wage. If you do struggle to meet 80% of their wage you can still obtain the subsidy and pay them less, but you cannot pay any less than the subsidy amount. This was confirmed during the speech on 27 March 2020.
• You cannot force employees to use sick leave or annual leave to top up their wage – however, they can agree to this.
• You can give notice for employees to take annual leave during this period, provided there is at least 14 days’ notice. This is a good option to help reduce your liabilities during this time, especially if people are not working.
• Statutory Holidays should be paid at their full rate, unless agreed otherwise.
• For employees on irregular hours, you would need to look at what an average day consists of to determine what they should be paid over this time (unless it can be accurately estimated based on a shift pattern or roster).
• For casual employees you may choose whether or not you provide any payment to these employees. As they are causal they are not required to be provided work, and therefore, no payment is required during this period. However, it is important to consider your relationship with the employee and their position during this period. Compassion and kindness are important during this difficult time.
• You can agree with your employees to have their employment on hold (essentially leave without pay). This means that they are still an employee but are not entitled to any payment.
• There is talk that if your employment agreement includes a Force Majeure clause (i.e. something happening outside of your control) you do not need to pay your employees and can choose to end the employment immediately. We would recommend seeking legal advice if you need to act on this clause, but please keep in mind your relationship with your employees and their ability to continue through this hard time as well. You can use this to tell employees what is happening, along with the “Frustration of Contract”. Please note: None of this has been tested in court which is why we recommend seeking specific legal advice if you wish to use this. We recommend working through some of the more compassionate options below if possible. 

 

For most employers who have applied for the wage subsidy they will need to review employment agreements and discuss with employees if they want to only top up to 80% of the wages. Employees do not have to agree to this but it is worthwhile highlighting to them that for business continuity it may be in their best interest to ensure the business survives this period too.  The purpose of the wage subsidy is to keep as many people employed as possible.
 
Please remember it is up to the employer to top up the employee in the first instance, and employees do not HAVE to agree to topping up using annual leave. Annual leave can only be used if you are requiring an employee to use annual leave with at least 14 days’ notice. 
 
If you need to consider redundancies it is best to get in contact with us or speak to your employment lawyer.
 
For any communications with employees during this time please ensure there is a clear paper trail that any temporary changes to employment agreements are agreed and not pressured (duress). 
 

PO Box 13, Pukekohe 2120

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