Following on from last week’s four publications of Covid-19 Advisory Information, we are continuing to keep you informed of developments as much as possible.

We hope that you find the information useful in dealing with the necessary changes that are upon us.

If you have any questions regarding the information in this Advisory, or any of our previous ones, we ask that you contact us as soon as possible so we can assist you.

We are aware that a lot of us are suffering a case of “information overload”, largely as a result of the changing rules and regulations being issued by government. But we will continue to do our best by giving you the current interpretation and application of the regulations supported by working examples to assist with interpretation.

We are still awaiting official release of the banking industries assistance packages. As soon as these are available, we will provide you with the details.

Again, if you have any questions regarding the content of this Advisory or any other matters, please contact your Client Advisor or Client Manager.

The Strawbridge Team

Contents:

  1. Wage Subsidy Changes from 27 March 2020
  2. Wage Subsidy Changes

Reflecting our recent view, as of 4 pm Friday 27 March 2020, the Wage Subsidy criteria has changed to specifically allow only the $585.80 to be passed on to employees in certain circumstances.

After Monday’s announcement, clients wanted to know if they could get the Leave Payment for the lockdown period, to which the answer still seems no.

We had many clients tell us that with no revenue coming in for at least 4 weeks, and the complete uncertainty beyond, that the Wage Subsidy is not going to be enough because they cannot afford to top their staff wages up to the required 80% of normal pay. This of course means that many of our clients are, sadly, exploring their options which may include making some or all of their staff redundant.

The Minister of Finance and the government generally has been advised by many businesses and organisations of the inadequacy of the support package in light of Monday’s lockdown announcement.It has been suggested that either the amount of the subsidy needed to be raised, or the criteria for the leave payment extended. They have been advised that tens of thousands of jobs would be lost if urgent measures were not taken.

We had been expecting an extension to the support package this week, but we now wonder whether the Government is holding off in case the lockdown needs to be extended and they need to keep some powder dry.

While no further Government support has been announced, the Government rhetoric about the 80% requirement for the Wage Subsidy changed on Thursday (26/03/2020) afternoon. Around 3pm, Finance Minister, Grant Robertson gave a speech that reiterated that the purpose of the Wage Subsidy is to support businesses to keep their staff in work. He then repeatedly stressed that the 80% requirement only requires best endeavours and that the Government does not want people to be laid off.

You can see the Minister’s comments here. Skip to about 8 mins through the video.

What does this mean? It seems the door is now been left firmly ajar for pay employees less than 80% for the lockdown period in certain circumstances. This contrasts our previous guidance, but as we all aware, this is a fluid situation.

At the time of writing, the WINZ guidance has not dramatically changed its guidance around the best endeavours. This is what the guidance said as at 27 March, 7:30am:

“To receive the COVID-19 Wage Subsidy, the employer must agree:  …            the employer will make best endeavours to retain the named employees and pay them a minimum of 80% of their normal wages or salary for the duration of the subsidy”.

We must stress that this is an employment law mine field, so seek advice before taking such action, but if your finances are such that paying employees at 80% or more of their normal pay threatens the viability of your business and the jobs of some or all of your employees, then we now suggest that it may now be possible to explore paying your employees less than 80% for the lockdown period without jeopardising the Wage Subsidy. This could mean only passing on the subsidy amount, or perhaps an amount in between the subsidy amount and 80% of the normal pay.

Again, we stress that this is not going to be a one size fits all approach, you will need to carefully consider your circumstances and tread very carefully. On that point, we are aware of some communications from Union-aligned Labour MPs encouraging workers to dob in employers paying less than 80%, albeit these were from before Thursday’s speech.

Further, ignoring finances for a second (and we appreciate that is no easy task right now), it is worth bearing in mind the people side. This is an equally tough time for employees and if you try and do the right thing by them, they ought to reciprocate and try their best to do right by you. Therefore, we suggest that you communicate with your employees, and seek their ideas before considering dropping their pay further.

If possible, we would suggest getting employers try and get their employees to agree to using sick leave before reducing their pay further. Although this does not relieve the cashflow burden, it does use up the leave liability you are carrying on your balance sheet.

Finally, if you are considering paying less than 80%, you must be prepared to defend it. At a minimum, we would suggest some form of cashflow or budget showing the plight of the business if this did not occur.

Details – 27 March changes to the scheme

The Government’s messaging on the 27th of March was a bit muddled and this has created some major confusion. What remains the same is that the scheme is designed to help keep staff employed and that employers are supposed to use best endeavours to retain staff at 80% or more pay.

Like many others, we have struggled to make sense of what the changes mean practically. For most businesses, there is no significant change. The differences are at the margins where a business is really struggling due to the lockdown. This is how we have reconciled the difference:

• From 27 March a business can apply for the scheme knowing that it can only pay out the $585.80 subsidy amount ($350 for part time) while their business is interrupted;
• Before 4pm on 27 March a business or employer was applying on the basis that they would use their best endeavours to retain the named staff on 80% or more pay, if it transpires that this cannot be reasonably achieved, they can go below that.

Practically, we see the difference is that a business that knew it could not pay its staff 80% could not in good faith apply before 27 March, but now they can. This of course, will save jobs and that is the purpose of the scheme.

While the requirements of the scheme were relaxed somewhat, the obligations on employers were strengthened and are far more prescriptive.

Below are links to both sets of terms.
Here is our comment on some of the additions to the 27 March terms:

Change to the terms:
“You acknowledge that the granting of your application and your receipt of the subsidy does not override your existing obligations under the Employment Relations Act 2000”

Our Comment:
Employment law has always continued to apply, it is now just an express condition of receiving the subsidy. To a certain extent this is a clarification, although a breach in employment law.

Change to the terms:
“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”

Our Comment:
Employment law has always continued to apply, it is now just an express condition of receiving the subsidy. To a certain extent this is a clarification, although a breach in employment law would have solely been an employment issue and would not affect an application lodged before 4pm 27 March.

Change to the terms:
“You will retain the employees named in your application as your employees for the period you receive the subsidy in respect of those employees”

Our Comment:
This is a change. Previously an employer only needed to use best endeavours. This can be explained by the fact that an employer can now apply for the amount with the knowledge that they are only going to pay them the subsidy amount.

Change to the terms:
“You will not unlawfully compel or require any of the employees named in your application [4] to use their leave entitlements for the period you receive the subsidy in respect of those employees” (emphasis added).

Our Comment:
Employment law has always continued to apply, it is now just an express condition of receiving the subsidy. To a certain extent this is a clarification, although a breach in employment law would have been solely an employment issue and would not affect and application lodged before 4pm 27 March.

Change to the terms:
“You will only use the subsidy for the purposes of meeting your named employee’s ordinary wages and salary and your obligations in relation to this subsidy”

Our Comment:
This is a change, there was no requirement to set aside the funds for the purpose of paying employees before 27 March. We suggest that this reflects the drastic change in trading conditions due to the lockdown and due to the fact that tens of thousands of jobs are now at risk.

Change to the terms:
“You will notify the Ministry of Social Development within 5 working days if anything changes that may affect your eligibility or entitlement to the subsidy, including if any of the employees named in your application end their employment relationship with you.”

Our Comment:
This is a change that can be explained by the fact that subsidy amounts are now specifically to be used for the named employees. Therefore it follows that there is a duty to notify WINZ if the situation changes. We are not sure how someone would notify WINZ at present, given that it is near impossible to reach them.

For clarity the above applies only to applications made from 4pm on the 27th of March.