The Government has established the wage subsidy package to assist employers and employees in getting through the COVID-19 pandemic in New Zealand.
BDO has formulated this factsheet with a view to direct you to the most up-to-date sources of information, and to assist you with the interpretation of this new package.
This document is based on our understanding of the Wage Subsidy at today’s date (1 April 2020), and we recognise that this situation is evolving rapidly.
Wage Subsidy
The purpose of this subsidy is to support businesses whose revenue has been impacted by COVID-19 and who face laying off staff or reducing their hours as a result.
It is designed to help keep staff employed while businesses consider their future viability and make changes to overcome these difficult times.
This applies to all New Zealand employers. (irrespective of entity type), shareholder employees, contractors, sole traders, self-employed people, registered charities and incorporated societies.
The wage subsidy is not available to state sector employers. Please refer to our FAQ’s for a list of which entities these include.
To be eligible for the wage subsidy, the employer must meet the eligibility criteria specified by the Work and Income New Zealand (WINZ) and sign a declaration to this effect.
Any amendments to an employee’s individual employment agreement is not a matter of right under these new rules (e.g. A reduction of wages to 80%). We recommend you talk to your lawyer regarding your legal obligations.
The eligibility criteria for the Wage Subsidy can be found on the MSD website, and employers should aim to be familiar with the core criteria:
- The business must experience at least a 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year, and that decline is related to COVID-19 (there is a separate rule for new businesses that do not have a prior year comparative – see our FAQs.
- Employers must retain the employees named in their application for the entire period of the subsidy and use best endeavours to pay them at least 80% of their normal wages.
Wage Subsidy FAQ and Calculator
The Government wage subsidy package is evolving and due to the speed of its release, has left a number of unanswered questions.
- BDO has prepared a Wage Subsidy FAQ sheet, which aims to provide guidance to employers and employees around their eligibility for this package.
- We have also prepared a simple calculator to assist in understanding the value of the subsidy that could be received.
Tax Treatment
The tax treatment is based on our understanding of the information today, and we advise you to seek independent advice regarding the tax treatment of these amounts.
Please refer to FAQs for an example of the tax treatment in the hands of both the employer and the employee.
The table below still includes the tax treatment of the old Leave Subsidy as guidance for those who previously applied for and received this subsidy
| Subsidy Type | ||
| Wage | Leave | |
| Taxable income for employer? | No | No |
| Subsidy attract GST for employer? | No | No |
| When employer pays employee, is the employee subject to tax? | Yes | Yes (i.e. Employer deducts paye/KS etc when they pay staff as normal but it will be tricky to separate things in the normal payroll. |
| Is the subsidy deductible to employer when paid to employee? | No | No |
At this stage we are not aware of any announcement made confirming the tax treatment of the receipt of the wage subsidy by a self-employed person, but we envisage it will be taxable.
What other key items should you be considering?
It is crucial to look beyond the Government package and understand what else you can be doing to support your businesses.
BDO can provide assistance to you with any of the following items, so please ensure that you ask yourself these questions over the coming weeks.
- Do you have revised budgets and cashflows forecast over the next 4-8 weeks?
- Have you prepared a critical cash flow of your receipts and payments in the next 90 days?
- Have you liaised with your bank about what financial assistance and suitable facilities would be available?
- Business Finance Guarantee Scheme
- Interest only periods
- Mortgage holidays
- Working capital requirements
- Have you reviewed your outgoings and payment obligations, and taken steps to mitigate or reduce these? Have you discussed payment holidays with your suppliers?
- Have you spoken to your accountant about IRD instalment arrangements, tax pooling, or estimating provisional tax?
- Have you considered the impact of WFFTC or Child Support for individuals on lower income as a result of COVID-19?
Also, please check out BDO’s Risk Response Guide
Information included in this insight was last updated on 1.04.2020