Wage Subsidy Extension welcomed but could present further challenges for business

12 June 2020

As part of the 2020 Budget, the Government announced an extension to the Wage Subsidy scheme.

Following on from the Government’s original Wage Subsidy scheme, the Wage Subsidy Extension is designed to support employers, including sole traders, whose revenue remains significantly impacted by COVID-19 after the existing Wage Subsidy scheme ends.

The extension, which opened on 10 June 2020 and is available until 1 September 2020, requires businesses to demonstrate a revenue loss of at least 40 percent for a 30-day period in the 40 days immediately prior to the application date versus the nearest comparable period last year.

This will prove difficult for start-ups and businesses that have just commenced trading and these businesses will likely need to demonstrate a 40 percent decline in revenue against a comparable 30-day period within the current year instead of a year on year comparison.

Every organisation in New Zealand that employs staff or from which a person derives their income is eligible to apply for the Wage Subsidy Extension. This includes businesses trading through companies, partnerships and trusts, sole traders, shareholder employees and self-employed people, charities, incorporated societies, non-governmental organisations and post-settlement governance entities. New and high-growth businesses are also eligible for the extension, as are pre-revenue R&D start-up firms that were recognised by Callaghan Innovation as at 17 March 2020.

How the Wage Subsidy Extension works

The Wage Subsidy Extension will be paid to eligible businesses for each employee from the date an application is submitted. The Wage Subsidy Extension:

  • Covers each employee for a total of eight weeks from the date of application.
  • Pays $585.80 per week for a full-time employee and $350.00 per week for a part-time employee (less than 20 hours a week).
  • Is paid as a lump sum so employers will receive $4,686.40 for full-time employees and $2,800 for part-time employees.

If you received the original Wage Subsidy for an employee, you must wait until their 12-week Wage Subsidy has been exhausted before applying for the Wage Subsidy Extension. The 12-week period starts from the date you submitted your Wage Subsidy application. The Wage Subsidy Extension is not available for any employees that have been given a notice of redundancy at the date of application, unless you withdraw the redundancy notice.

The Wage Subsidy Extension must be passed on to the employees you claim for. If the amount of the subsidy is more than an employee’s usual wages, you can use the surplus to fund other employees’ wages where possible. If your employee's usual wages are less than the subsidy, you must pay them their usual wages. Any difference should be used for the wages of other staff. If there are no other employees to use the subsidy for, then the remaining Wage Subsidy should be paid back to the Ministry of Social Development (MSD).

You can apply for the Wage Subsidy Extension for an employee even if you didn’t apply for the original Wage Subsidy for them.

Withstanding the requirements related to revenue loss, the eligibility criteria for the Wage Subsidy Extension are essentially the same as those for the Wage Subsidy.

Qualifying for the Wage Subsidy Extension

To apply for the Wage Subsidy Extension, you need to meet the following conditions:

  • Your business must be registered and operating in New Zealand.
  • Your employees must be legally working and employed in New Zealand.
  • Your business must have had a revenue loss of at least 40 percent for a continuous 30-day period. This period needs to be in the 40 days before you apply (but no earlier than 10 May 2020) and must be compared to the closest period last year.
  • Your business must have taken active steps to mitigate the impact of COVID-19.
  • You must agree to retain your employees for the duration of the subsidy.
  • You must do your best to pay your employees a minimum of 80 percent of their normal income for the subsidised period.
  • Your business must not receive more than one COVID-19 payment for the same employee at the same time. COVID-19 payments include the Wage Subsidy, the Wage Subsidy Extension, and the Leave Support Scheme (formerly called Essential Workers Leave Support).

Applications for the Wage Subsidy Extension

Applications for the Wage Subsidy Extension can be made here. When you apply, you will need to provide:

  • Business IRD number.
  • Business name as it appears in IRD’s records.
  • Business address.
  • New Zealand Business Number (NZBN): if you do not have an NZBN enter “0”s.
  • Names of your employees and whether they work over or under 20 hours per week.
  • Employee details, that is, name, IRD number, date of birth and whether working hours are above or below 20 hours per week.
  • Contact details for your business, that is, contact name, email address and mobile number.

Like the original Wage Subsidy, you will need to obtain consent from your employees to submit their personal information to MSD.

It is best practice to obtain written consent, however, that may not be practical, especially for large employers. At a minimum, you should advise your employees you are applying for the Wage Subsidy Extension and you will be disclosing their name, IRD number and date of birth to MSD and any other agency that needs to see that information for the purposes of processing your application. Staff should be invited to advise if they do not consent to this and a reasonable period allowed for a response.

When applying for the Wage Subsidy Extension, you will be required to tick the box on the application form that says, “I have read the declaration and understand my obligations for this payment”.

We recommend you work through the declaration and make any necessary file notes on compliance to which you can refer should a question arise. The on-line declarations for the Wage Subsidy changed at times, and as such it would merit printing out the declaration you are agreeing to on the date of filing the application.

40% decline in revenue

Revenue means the total amount of money a business has earned from its normal business activities, before expenses are deducted.

To meet the revenue test under the Wage Subsidy Extension scheme, a business must have experienced a minimum 40 percent decline in revenue for a continuous 30-day period due to COVID-19. This period needs to be in the 40 days before you apply (but no earlier than 10 May 2020) and must be compared to the closest period in the prior year. The 40-day window is to give employers enough time to calculate their revenue loss and engage with their employees before applying for the subsidy.

So, if you apply on 29 June 2020, you must be able to demonstrate a 40 percent decline in revenue for a continuous 30-day period between 19 May and 28 June 2020. But if you apply on 10 June, you must be able to demonstrate a 40 percent decline in revenue for a continuous 30-day period between 10 May and 9 June as the 40 days can't start earlier than 10 May.

Businesses that have been operating for less than a year or high growth businesses, must show a 40 percent decline in revenue against a previous month or 30 days that gives the best estimation of the revenue decline related to COVID-19. For example, showing a 40 percent loss of revenue that can be attributed to COVID-19 in the 30 days before you apply compared to the closest period in 2019.

Demonstrating the decline in revenue will be difficult for some businesses that have recently commenced trading as they will have no prior year’s or month’s trading results. In these cases, other evidence of the impact of COVID-19 on revenue will be required, and people in these situations should discuss with their chartered accountant.

R&D intensive pre-revenue businesses that are recognised by Callaghan Innovation will need to show a 40 percent projected decrease in funding or income from capital due to COVID-19. The Government has released minimal details regarding how such a decrease should be determined. People in this situation should also discuss with their chartered accountant.

To discuss the Wage Subsidy Extension in more detail, get in contact with the Findex / Crowe Tax Advisory team today.

Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.

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