COVID-19 – Government Stimulus Package – Guidance and Comment
Important update 31 March 2020.
On Friday 27 March 2020 the government announced:
- significant changes to the Wage Subsidy, and
- that it has ended new applications under the Leave Payment Scheme.
On Saturday 28 March 2020, the government published a further clarification to the changes it introduced to the Wage Subsidy.
These changes render some of the information in our 24 March 2020 update (further below) void for new applications.
Most significantly, a revised declaration now applies to the Wage Subsidy for applications made after 4pm on Friday 27 March 2020. You can review the revised declaration here: https://workandincome.govt.nz/online-services/covid-19/declaration-wage-subsidy.html
These changes will have a significant impact on how some businesses may use the Wage Subsidy and how it fits in with wider coping strategies compared to businesses who applied before the cut-off. Changes include (but are not limited to) applicants agreeing to:
- not make any changes to any obligations under an employment agreement (e.g., remuneration, hours of work and leave entitlement) without the written agreement of the employee;
- retain the employees named in the application as employees for the period the employer receives the subsidy in respect to those employees;
- not unlawfully compel or require any of the employees named in an application to use their leave entitlements for the period the applicant receives the subsidy in respect of those employees;
- only use the subsidy for the purposes of meeting the named employees’ ordinary wages and salary (and the employer’s obligations in relation to the subsidy);
- remain responsible for paying named employees’ ordinary wages and salary for the period the employer receives the subsidy;
- for the period the subsidy is received:
- use 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 named employee; but
- where the named employee’s pre COVID-19 remuneration was ordinarily less than the subsidy (i.e. less than $585.80 or $350), pay the named employee that amount.
Other new aspects of the declaration include some strict requirements about:
- needing to discuss the application with named employees before making the application;
- obtaining named employees’ consent to including their details in the application for MSD to use and share (ideally in writing); and
- advising named employees that they have the right to request access to all information held about them under the Privacy Act, and that they can contact email@example.com to make a request.
Maintaining good processes and record keeping will be critical. The increased requirements in the declaration must be carefully worked through before submitting an application. Businesses should pause and ensure they can established that they comply. Businesses may be subsequently audited. If a business cannot establish that it was eligible, or that it adhered to the conditions set out in the declaration, the business risks being required to repay the subsidy and potentially criminal sanctions.
Lastly, payment-processing times have reportedly slowed. If your claimed amount has not been paid within a week, it is worth calling MSD.
This blog was last updated 24 March 2020. It focuses on the government’s COVID-19 Wage Subsidies and Leave and Self-Isolation Payments for New Zealand’s high-growth companies and angel investors.
- What support has been introduced (as at 23 March 2020);
- How changes announced by the Beehive on 23 March 2020 expand the schemes to address some of the previous limitations for start-ups, growth companies, businesses with more than 21 FT employees, contractors, sole traders or self-employed.
- Practical things to note about the process for applying and receiving support payments.
We will also be in touch again in the coming days with updates on our online events. These include:
- rescheduling The Runway for angel-backed founders and active angels to be over four mornings 14-17 April from 9am to 10.30am each day,
- running the professional development course on portfolio management and capital strategy on Wednesday 22 April from 9am to 11.30am; and
- setting up a weekly 45 minute zoom drop-in for angel-backed founders and investor-directors with an experienced lawyer, accountant and a couple of experienced angels to support you.
Kia kaha, our thoughts are with you all.
Suse … and Bruno, Murray and David from Avid Legal.
Eligible employers will be paid $585.50 per week for each full-time employee (20 hrs or more) and $350 per week for each part-time employee (less than 20 hrs).
Support from this subsidy is available for 12 weeks, and can be paid in a lump sum.
Evidence is that payments are being made within 48 hours at present, and many businesses have already received payments. That’s impressive speed from the relevant government agencies at this time.
Pleasingly, the scheme was expanded on 23 March 2020 in a manner that is of significant benefit to high-growth companies and employees/contractors:
- Start-ups (less than one year old): Start-ups do not need to establish a 30% revenue decline based on the same time last year. They must see a 30% decline based on a comparable period (e.g., March versus February or January).
- Growth companies: Growth companies do not need to establish a 30% revenue decline based on the same time last year. They must see a 30% decline based on a comparable period (e.g., March versus February or January).
- No $150,000 cap: The previous cap of $150,000 per business (approx. 21 full time staff) was scrapped. If you have already applied for and been granted the wage subsidy and the payment was capped, the Government will automatically top up the difference – you should not need to do anything further. Some businesses will not have lodged applications for all employees because of the cap (and time involved in entering details of all employees!). Those businesses will need to re-apply for remaining employees.
- Types of applicants: The scheme now applies to employers, contractors, sole traders or self-employed.
So currently, to be eligible to receive this subsidy, a business must:
- be registered and operating in New Zealand;
- have employees legally working in New Zealand;
- must have experienced a minimum 30% decline:
- in actual revenue; or
- predicted revenue (e.g. for businesses who have seen a reduction in bookings such as accommodation providers);
over the period of a month when compared with the same month last year*, and that decline is related to COVID-19;
- show that they have made efforts to mitigate the impact of Covid-19 (e.g. engaged with their bank, relevant industry association, etc if applicable) and signed a declaration to that effect; and
- make best efforts to retain employees and pay a minimum of 80% of their normal salary for the subsidised period.
* As noted above, the scheme has expanded so start-ups and growth companies do not need to establish a 30% revenue decline based on the same time last year. They must establish a 30% decline based on a comparable period (e.g., March 2020 versus February 2020 or January 2020).
AANZ will continue engaging with the Government regarding any further gaps in the scheme that become apparent in the coming days.
LEAVE AND SELF-ISOLATION PAYMENTS
This subsidy supports employers, sole traders, and self-employed persons who are unable to work because they are sick with Covid-19, in self-isolation, or are caring for dependants who are in one of these situations.
The payments received match those provided to full-time and part-time workers under the Wage Subsidy, but (at this stage) will only be available for 8 weeks from 17 March. Payments are made for up to 14 days for those in isolation – but may be paid more than once if multiple periods are spent in isolation.
The entitlements only cover workers who self-isolate in accordance with the public health guidelines and for workers who contract COVID-19.
Employers will also be obliged to meet all their sick leave and other employee entitlements. Employers and employees can agree to use any form of paid leave (eg annual leave) to cover their period of self-isolation. However, employees are not required to have used any or all their paid leave entitlements before they can receive this payment.
PRACTICAL THINGS TO NOTE
How to apply
Employers apply for the Self-Isolation subsidy on behalf of employees.
No email confirmation once application is made
There have not been instant confirmation emails issued after applications have been received, adding to already elevated stress levels. So if you are yet to apply, please don’t panic if you don’t get an email response. Set your expectations accordingly.
This subsidy is being issued on a high trust model and employers will not be asked for verification before the subsidy is approved. However, the provision of false or misleading information could result in a fraud investigation. Therefore – make sure you retain thorough records.
Your business will be paid a lump sum for the 12 week period calculated by how many employees your company has. The business will be paid $7,029.60 per full-time employee and $4,200 per part-time employee.
Payment under the Leave and Self-Isolation Payment will be passed on weekly from the employer to the employee during the period of sickness with COVID-19 (if that applies) or for the 14-day isolation period (if that applies).
Keeping payments separate
Employees are not themselves directly entitled to the payments made by the Government. They are accessed through their employer. Whilst leave payments must be passed on by the employer to the employee, it is not clear if employers are under a legal obligation to pass on sums received under the wage subsidies. This makes those sums vulnerable to creditors in an insolvency situation, which is a reality for many businesses in the coming weeks and months.
Directors are therefore encouraged to consider it best practice keep subsidy funds and general company funds separate – or at a minimum, to account for them separately. Whilst this may not guarantee the subsidy funds will be protected for employees in an insolvency situation, it will give a liquidator or receiver the opportunity to pause before dissipating subsidy funds to other creditors.
The receipt of the subsidy is not classified as income to the employer. Therefore, it is not subject to GST.
Any payments made to employees out of the subsidy are to be treated as normal payroll payments which are subject to PAYE, KiwiSaver, student loans, child support and ACC etc.
OTHER RELEVANT FORMS OF RELIEF TO NOTE
From April 2020, the threshold for provisional tax will lift from $2,500 to $5,000. This will have the effect of reducing cash flow pressure and compliance costs for small businesses by allowing an estimated 95,000 businesses to defer their payments. Something only applicable to presently profitable businesses in the high-growth eco-system.
Interest usually accrues when tax payments are late. The IRD have now been given the discretion to remit interest if a taxpayer’s ability to pay tax has been significantly affected by Covid-19.
While this is a supportive step, directors will need to keep a sharp focus on director duties generally, and duties against reckless trading in particular.
Deductions of Low-Value Assets
This change will allow businesses to fully deduct the cost of low-cost assets when they are purchased. The threshold has been increased from $500 to $5000 for one year. After one year, it will then be reduced to $1,000.
The purpose of this publication is to give an overview of the Government’s stimulus package in response to the COVID-19 crisis. It does not constitute legal or tax advice. If you need advice as to how this package may affect you and the businesses you’re involved with, please contact the relevant government agency (e.g., MSD or IRD) or your professional advisers.