The COVID-19 Wage Subsidy has been in place for a few weeks now and the Government/MSD are refining the application process, we are starting to see commentary coming through regarding the obligations of employers who receive the subsidy and what options are available to employers during the lockdown period.
COVID-19 Wage Subsidy Declaration
The Declaration that is provided by employers when they apply for the Wage Subsidy has been refined as the first version of the declaration was vague and subject to interpretation. The second version of the declaration addresses many of those issues and applies to all applications that were made after 4pm on 27 March 2020. A full copy of the second version of the declaration is available here.
It is important to note that there have not been any changes to employment law and the second version of the declaration specifically states that “your receipt of the subsidy does not override your existing obligations under the Employment Relations Act 2000”.
Technically you can still be held accountable to abiding by the terms of your employment agreements (ie if your employment agreements state that the employee will be paid a salary of $xx,xxx in equal monthly instalments then arguably you still have to pay that salary). The current situation does give a level of defense to not abiding by this term. However, it is recommended that you ensure that you have the necessary paperwork in place in respect of payments made during the lockdown period. You will also need to ensure that your employment agreements align with the new reality once the lockdown protocols are lifted.
All usual employment deductions and contributions are still payable. There are no changes to any of the following employment related levies or deductions:
ACC Employer and Earner Levies are still payable on all earnings;
Kiwisaver employer and earner contributions still apply – Unless the employee has applied for and been granted a contribution holiday;
Statutory deductions ie fines and child support deductions still need to be made.
You can ask employees if they would like to take annual leave over the lockdown period or top up their earnings with their annual leave but you cannot compel them to use their annual leave. Any annual leave entitlement payments should be made on agreement of both the employer and employee.
In terms of public holidays, you must pay the employee what they are usually entitled to under their employment contract, unless you have come to another agreement with them.
Changes to Employment Terms
The declaration states that “You will not make any changes to your obligations under any employment agreement, including to rates of pay, hours of work and leave entitlement, without the written agreement of the relevant employee”. It is highly likely that changes have been made to employment terms as a result of the lockdown and most businesses will not have “written agreement” for these changes. HR Toolkit has a great template that you can use to document the changes to employment terms within your business and we recommend that this is implemented as soon as possible. The template is available here.
Paying your Employees
The declaration also now clarifies what you should be paying your employees. It states that “You will for the period you receive the subsidy:
use your best endeavours to pay at least 80 per cent of each named employee’s ordinary wages or salary; and
pay at least the full amount of the subsidy to the employee; but
where the ordinary wages or salary of an employee named in your application was lawfully below the amount of the subsidy before the impact of COVID-19, pay the employee that amount.”
“Best endeavours” is not a term that is defined in legislation or the subsidy guidelines so it is expected that this is an area where there may be a significant amount of debate over the coming months. Each business owner will have to make their own assessment of what “best endeavours” means and you will need to keep a record and supporting documentation for the actions that you have taken so that you can support your position if you are challenged by either WINZ or your employees at a later date.
Our view is that documentation on the actions that you have taken to mitigate the impact of the lockdown on your business and the ability to continue to pay your employees should include the following at a minimum:
Documented Business Continuity Plan;
Cashflow forecast for the business for 12 months, including scenario analysis if necessary to demonstrate the most viable approach for the business;
Cashflow analysis tracking actual and forecast cash flows on a daily or weekly basis depending on the nature of your business;
Record of discussions with key suppliers of the business, including landlords, regarding ongoing obligations and relief;
Record of discussions/applications for assistance with the businesses’ funders ie banks and finance companies showing steps taken to minimise cash outgoings over coming months and availability of funding to meet operating cash flow requirements.
Document actions taken to minimise the amount that you as a business owner need to draw from the business to survive, such as applying for a mortgage repayment holiday.
It is important that you are able to demonstrate that you have taken all steps necessary to minimise the impact of the lockdown and the cash flow drain on the business. The information detailed above will satisfy this requirement.
If best endeavours mean that you can’t pay anything more that the subsidy then the statement from the Finance Minister on Saturday 28th March was “We still want employers to use their best endeavours to pay 80% of their employee’s normal salaries. Where this is not possible, we want the value of the subsidy to be passed on”.
Way forward
This situation will continue to evolve and future developments will be dependent on the Government’s decisions regarding the way forward at the end of the initial lockdown period. Even if a decision is made to change COVID-19 alert levels, it will take some time for business to get up and running again. This will require flexibility from everyone and is likely to result in further changes to employment terms.
If you don’t already have this in place, ensure that you document and get written agreement from your employees regarding the employment terms that are in place over the initial lockdown period.
We then recommend that you hold all other actions in respect of employment agreements until we have clarity on how long the lockdown will last and what the exit from lockdown will look like for business. Once we have this information it will be possible to re-evaluate the way forward and communicate with your employees regarding what these changes mean for your business.
Disclaimer
This information is a summary of information available from the NZ Government, HR and Employment Law specialists regarding the implications of the COVID-19 Wage Subsidy and Lockdown on employment obligations and best practice during this time. If you have any questions or need assistance with a specific issue within your business, please seek assistance from an employment law specialist.