COVID 19 – Frequently Asked Questions

Things are still moving at a fast pace and the Government continues to update the COVID-19.govt.nz website providing further information about its employer financial support. The information below is current  as at 30 March 2020, however, it is essential to keep a regular eye on the COVID-19 website for updates.

What are essential businesses for the purposes of COVID-19?

Essential businesses are those that provide the necessities of life, or those that support them.

https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses/

If you consider your business to be an essential business, we recommend emailing [email protected] or calling 0800 22 66 57 or [email protected]  to confirm it fits into one of the essential business categories.

Essential businesses must restrict their activities to what is essential during Alert Level 4 and still operate best practice in ways that minimise the risk of spread of COVID-19 by:

• minimising human contact;
• observing social distancing; and
• adopting appropriate hygiene practices.

What is an employer required to pay its employees during the lockdown period?

The COVID-19 leave payment is no longer available if application has not been made by 3.00pm 27 March 2020. Applications made prior to this will be processed and paid to employees in the normal way.

Both the leave payment and the wage subsidy are paid at a flat rate of $585.80 per employee per week for employees working 20 hours or more per week, and $350.00 for people working less than 20 hours per week. They are paid in the employees’ normal pay cycle during the 12 week subsidy period.

If operations have been shut down and there is no work for employees to do, the employees may be ready and willing to work, but they are not able to work.

In these circumstances, an employer must act in good faith in exploring all options available to it including reduction in remuneration and corresponding hours, use of leave (paid and/or unpaid) and annual holiday (by consultation and written agreement with each individual employee) and applying for the COVID-19 wage subsidy.

Any reduction in an employee’s normal pay and/or hours must be by agreement, following consultation.  Consultation in the lockdown is likely to be short.  If an employee does not agree to a reduction in their wages, it may put their employment at risk or other employees’ employment at risk.

Applications for wage subsidies made after 4.00pm 27 March 2020 require the employer to:

• Employ the employees for whom the subsidy has been made for the 12 week period, and to pay them at least the subsidy amount;
• Pay the whole of the subsidy amount, unless it exceeds an employee’s “usual wage”, in which case pay the employee their usual wage and apply the balance of the subsidy to the wages of other workers;
• Do everything they can to pay employees 80% of their pre-COVID-19 income.

What is the 80% based on?

The obligation is based on “usual wages”. For those employees who worked variable hours, for example doing irregular overtime and/or on call, the requirement is to average the employee’s income over the previous 12 months, or over the period of their employment, if employed less than 12 months.

So far, there is no guidance on what that means for employees on regular hours, but we recommend applying the same averaging formula.

Is the wage subsidy and leave payment taxed?

Yes and no. The wage subsidy and leave payments are not taxable in the hands of employers and do not attract GST.  However they do attract compulsory employer KiwiSaver contributions.  They are subject to PAYE and other statutory deductions for employees such as employee KiwiSaver contributions, and other deductions such as child support, fines and student loan repayments in the normal way.

What if the employer cannot afford to pay its employees 80% of their normal remuneration, even with the wage subsidy?

The employer must pass on at least the amount of the wage subsidy and/or leave payment received for each employee. The obligation on the employer is to use best endeavours – do all it can – to pay at least 80% of the employee’s pre-COVID-19 pay. What the employer does pay needs to be justifiable – what the fair and reasonable employer could do in all the circumstances at the time (see s103A Employment Relations Act 2000). Not only will payments be scrutinised by the Auditor, they may be subject to challenge by employees by way of personal grievance or wages claims.

Does the employer need to get the employee’s consent to a reduction in working hours/days and reduction in pay?

Yes, normal employment law rules apply. Any deviation from normal hours of work and pay requires written agreement between the parties. The employer must make best efforts to consult with the affected employees, using whatever channels available to it explain the proposal and ramifications for ongoing employment. An exchange of emails or even texts may suffice so long as they cover the specifics of the agreed variation.

If an employee won’t consent to the variation, then the employer must pass on at least the wages subsidy and pay whatever else it can justifiably pay in all the circumstances, in the knowledge the shortfall is likely to be challenged.

What if an employee earns less than the applicable subsidy, does the whole subsidy have to be passed on?

No, the employee is to be paid their usual wages, and the remainder paid to other employees during the twelve week period. Employers will need to pay this equitably and be able to justify how they have applied the surplus is fair and reasonable.

Can employees take sick leave?

Statutory paid sick leave is for employees sick or injured or caring for a dependant who is sick or injured. However, it is open for the parties to agree to taking paid or unpaid sick leave, but employees cannot be compelled to do so.

How does annual holiday work in connection with the wage subsidy?

Using annual holiday to top up any shortfall in normal wages is a matter for agreement between the parties.  If an employer and an employee can’t reach agreement to use annual holiday, an employer can give 14 days’ written notice to require the employee to take annual holiday entitlement.  Entitlement is unused holiday since their last anniversary.  It is not what is “accruing” since their last anniversary. However, some employers are allowing employees to take annual holiday in advance if they do not have sufficient entitlement.

Annual holidays taken must be paid as normal under the Holidays Act 2003, inclusive of subsidy.

Can an employer make redundancies during the lockdown period if they have obtained the wage subsidy?

An employer can still conduct redundancy consultation during the 12 week subsidy period.  However, a condition of the wages subsidy pre- 4.00pm 27 March 2020 is an obligation on the employer to use best efforts to keep employees in work, even if it means they are only in work during the subsidy period. The obligation for applications made post 4.00 pm 27 March 2020 is to keep the employees, for whom a subsidy has been paid, in employment for the duration of the subsidy.

Can an employer use it to pay redundancy compensation?

No, the wage subsidy is for wages only (including pay in lieu of notice).  The COVID-19 website currently states the wage subsidy must be repaid if the employer is not meeting its obligation to retain and pay its employees covered under the subsidy. Our understanding is that this applies to post 4.00pm 27 March 2020 applications for wage subsidies, but it could also apply to earlier applications.

When does the wage subsidy need to be repaid?

Refer to the COVID-19 website “Repaying the Subsidy” for guidance on the different obligations, pre and post 4.00pm 27 March 2020 as they are detailed.

Can disciplinary consultation processes continue during the lockdown?

Yes, but the normal employment law obligations including good faith and fair dealing apply.

For further advice

The above is intended as general information only and does not constitute legal advice. If you require specific advice about your circumstances, you are encouraged to get in touch with:

Alexandria Till [email protected] 0224574021.

© Harkness Henry

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.