Last updated: 11 June 2020
On this page:
- About the Wage Subsidy Scheme and Wage Subsidy Extension
- Subsidy rates
- Wage subsidies and employment law
- Wage subsidies and pay
- Payment frequency
- Tax treatment
- Wage subsidies and labour on-hire and temping agencies
- Wage subisides and redundancies
- Complaints about employers
- Wage subsidies case studies
About the Wage Subsidy Scheme and the Wage Subsidy Extension
The Government’s Wage Subsidy Scheme was designed to support employers and their staff to maintain an employment connection and ensure an income for affected employees during the initial impact of COVID-19.
A Wage Subsidy Extension payment is available to businesses that are significantly affected by COVID-19. This includes the self-employed, contractors and sole traders, registered charities, incorporated societies and post-settlement governance entities. State sector organisations are generally not eligible to receive the Wage Subsidy Extension.
Applications for the Wage Subsidy Extension are open from 10 June 2020 until 1 September 2020. Eligible employers will need to reapply through Work and Income once their current 12-week subsidy has come to an end.
The Wage Subsidy Extension applies to businesses, not individuals, so multiple applications are accepted. For example:
- If a worker is both self-employed and an employee, the worker can apply for the Wage Subsidy Extension using the self-employed application and their employer can also use the employer’s application to apply for the same worker.
- If an employee works in two businesses both of which are eligible for the Wage Subsidy Extension, then both businesses can apply for that employee, who can then receive both subsidy payments.
See the Work and Income website for the full criteria and how to apply for the Wage Subsidy Extension.
To be eligible for the Wage Subsidy Extension, businesses must have had a revenue loss of at least 40% for a 30-day period in the 40 days before they apply, compared to the closest period last year (eg June 2020 compared with June 2019).
Businesses must sign a declaration about their circumstances including that they:
- will retain the employees named in their application for at least the duration of the Wage Subsidy Extension (8 weeks)
- acknowledge that receiving the subsidy does not override the employer’s existing obligations under employment law
- will remain responsible for paying their employees’ wages or salaries and for the period they receive the subsidy they will:
- use their 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 employee; but
- where the ordinary wages or salary of an employee named in their application was lawfully below the amount of the subsidy before the impact of COVID-19, pay the employee that amount.
Under the Wage Subsidy Extension, an employee’s normal or ordinary wages or salary are the wages or salary specified in the relevant employment agreement on the date the employer applied for Wage Subsidy Extension.
The subsidy rates under the Wage Subsidy and Wage Subsidy Extension are:
- $585.80 (gross) per week for full-time employees, where full-time is 20 hours or more per week
- $350.00 (gross) per week for part-time employees, where part-time is less than 20 hours per week.
Employers must pass the full value of the relevant subsidy received onto the employee, except where a person’s wages or salary are normally less than the relevant subsidy rate. In which case, employers must pay them at least their normal wages. Employers can use any excess subsidy to help pay the wages of other affected employees. Any remaining subsidy should be paid back to Work and Income.
Employers can apply for the Wage Subsidy Extension for casual employees if they are employed at the time of the application and who would have been expected to work during the time the employer receives the Wage Subsidy Extension. To determine casual employees’ subsidy rate, employers should use the average hours worked each week over the last year, or over the period of time they have worked for the employer (if it has been less than 12 months).
Wage subsidies and employment law
Employment law has not changed. The Wage Subsidy and Wage Subsidy Extension operate alongside existing employment law. Employment obligations have not been removed or changed by employers accessing the wage subsidies.
Employers and employees must discuss in good faith the implications of COVID-19 on their working arrangements.
Employers and employees may be considering changes that involve impacts on the continuity of employee’s work, such as changes to job descriptions, reducing hours of work or, where no alternative arrangements can be found, redundancy may be considered. These changes must be discussed in good faith and use agreed consultation processes.
Wage subsidies and pay
Employers must ensure that they are meeting their pay obligations under both employment law and the requirements they agreed to when applying for the Wage Subsidy or Wage Subsidy Extension.
Employees must be paid the higher of the amount that they are entitled to under employment law or the relevant wage subsidy requirements:
- Under employment law, employees must be paid for each and every hour that they work at their agreed wage rate. Employers and employees can temporarily or permanently agree to vary the agreed wage rate. This rate cannot be below the minimum wage rate. Any change requires good faith consultation and written agreement.
- Under the Wage Subsidy and the Wage Subsidy Extension, the employer must make their best endeavours to pay employees at least 80% of their normal salary or wages. They must pass on at least the full value of the relevant subsidy rate except where the employee’s normal wages are less than the relevant subsidy rate. In this case, the employee should be paid their normal wages and employers can use any excess subsidy to pay the wages of other affected employees.
See the case studies at the bottom of this page for examples on how to calculate an employee’s wages and salaries when receiving the wage subsidies.
The subsidy will be paid to employers as a lump sum and covers each employee for 12 weeks for the Wage Subsidy and 8 weeks for the Wage Subsidy Extension.
Employers should pass on the subsidy and additional wages through their usual pay cycles, or at other intervals agreed with the employee.
If employers decide to pass the full subsidy to their employees as a lump sum, ideally they will have an agreement in writing between the employer and the employee. This agreement should state that the lump sum includes an advance of a portion of the back-to-work wages, and once the employee returns to work, the subsidy amount already paid in advance will be deducted from the employee’s normal wages.
Before an employer makes a deduction from an employee’s wages or salary, the employer must have a specific authorisation from the employee to make the deduction. Without the specific written authorisation from the employee, the employer will not be able to make the deduction and must pay the employee’s wages or salary in full when it becomes due.
If the employer is not able to reach an agreement with their employee for a deduction from their wages to account for the subsidy paid in advance for the period since they have returned to work, employers can seek help from Employment Mediation Services or the Employment Relations Authority to resolve them.
The Wage Subsidy and Wage Subsidy Extension are considered excluded income to businesses and are also GST exempt. When passed on as wages, businesses don’t get a deduction for income tax purposes.
Payments to employees using the Wage Subsidy or Wage Subsidy Extension are wages. Therefore, they are subject to standard deductions like PAYE, ACC levies, KiwiSaver contributions, Child Support and student loan repayments.
Wage subsidies and labour on-hire and temping agencies
Providing they met the eligibility criteria, labour on-hire and temping agencies could apply for the Wage Subsidy until 9 June and the Wage Subsidy Extension from 10 June for all on-hire workers who are employed by the agency whether or not they are working for a client at the time of application. The subsidy is also available to employers who have already let employees go because of COVID-19 provided they re-hire those employees before they apply for the subsidy.
The Wage Subsidy Extension can be accessed by labour on-hire and temping agencies for any employees (eg casual, fixed-term, and permanent). Independent contractors can apply directly for the scheme, if they meet the eligibility criteria.
Wage subsidies and redundancies
The Wage Subsidy and Wage Subsidy Extension require employers to retain the employees named in their subsidy application for the entire period they are receiving the subsidy (12 weeks for the Wage Subsidy and 8 weeks for the Wage Subsidy Extension).
If an employer has to make an employee redundant during the subsidy period:
- they can use the subsidy to pay the employee any notice period arising from the redundancy, and
- they must repay any balance of the subsidy to Work and Income that’s left after the notice period has been paid.
An employer cannot use the subsidy to make any contractual redundancy payments to an employee. Redundancy payments should be made in accordance with the provisions in the relevant employment agreement.
The Wage Subsidy and Wage Subsidy Extension obligations are in the declaration that employers agreed to when they applied through Work and Income.
Complaints about employers
If employees have questions about how the subsidies are being applied to them, such as whether the employer has applied for a subsidy or when and how much they will receive, employees should contact their employer in the first instance.
If talking to employers doesn’t resolve the problem, or employees think their employer has acted unlawfully, employees can make a complaint with us.
Wage subsidies case studies
The case studies below apply to the 12-week Wage Subsidy Scheme and the 8-week Wage Subsidy Extension.
Accessing the wage subsidy does not change existing legal employment obligations. More information about the wage subsidy schemes is available on the Work and Income website (external link)
Case study: Employee returning to work with reduced hours at a rate higher than the relevant subsidy rate + not eligible for the Wage Subsidy Extension
Ajay is a barista who works 40 hours per week at a café, earning $20 an hour. The café was closed during Alert Levels 3 and 4 and Ajay’s employer was eligible for the 12-week Wage Subsidy Scheme.
As Ajay’s employer was unable to afford to pay 80% of Ajay’s normal wages, Ajay and his employer agreed that Ajay would receive the full-time wage subsidy rate of $585.80 a week. Ajay would not be required to work, and would retain his annual holidays entitlements.
Ajay’s employer reopens the café at the start of Alert Level 2 and implements a COVID-19 Safety plan to allow proper social distancing between customers. Because the café has less capacity than usual, staff are needed to work fewer hours during Alert Level 2. Ajay and his employer agree to a five hour a week reduction in his hours of work. Ajay is paid for every hour that he works at the wage rate in his employment agreement, earning a weekly wage of $700. His employer uses the wage subsidy payment to offset the cost of these wages for the remainder of the 12-week subsidy period, paying $114.2 alongside the subsidy amount.
While the café has reduced capacity, reopening results in an increase in revenue. At the end of the initial 12-week subsidy period, the café does not meet the criteria to be eligible for the Wage Subsidy Extension (available from 10 June), as they do not have a 40% revenue loss. Ajay’s employer resumes paying Ajay’s wages of $700 a week independently.
All of the above variations have been recorded in writing.
Case study: Employee returning to work with reduced hours at a rate higher than the relevant subsidy rate + eligible for the Wage Subsidy Extension
Hana is the head chef at a successful catering company that closed during Alert Levels 3 and 4. Hana was getting paid $1,000 for a 40 hour week.
Due to its closure, the company suffered a 30% loss in revenue. Hana’s employer accessed the Wage Subsidy Scheme early in the lockdown period. During Alert Levels 3 and 4, Hana’s employer paid her $585.80 per week, topping that up with $214.20 to $800 per week, to ensure Hana received 80% of her normal wages.
Under Alert Level 2, the catering company reopens. However, due to the public health restrictions on large gatherings, there is less work than usual. Hana agrees to return to work for 30 hours a week until the shift to Alert Level 1. Hana and her employer sign a variation to Hana’s employment agreement for the new reduced hours.
Because of the slowdown in demand, Hana’s employer can no longer afford to top up Hana’s wages to 80% of what she was earning prior to the impacts of COVID-19. Instead, they pay Hana at her usual rate for the adjusted 30 hours a week, meeting their employment obligations to pay Hana for each hour of work she completes. Hana’s employer passes through the subsidy amount of $585.80, along with $164.20, making up Hana’s weekly wage of $750. Hana’s employer continues this for the remainder of the 12-week subsidy period.
The impact of the public health restrictions during Alert Level 2 mean that the company meets the 40% decline in revenue test to qualify for the Wage Subsidy Extension at the end of the initial 12-week subsidy period. This enables Hana’s employer to continue to meet the cost of paying Hana her wages for the 8-week extension period, including when Hana moves back to working 40 hours a week under Alert Level 1.
Case study: Employee able to work from home with reduced hours + returning to full hours + not eligible for Wage Subsidy Extension
Tamati is a civil engineer. He normally works 40 hours per week at $30 per hour, earning $1200 per week. The business is non-essential, was closed for the lockdown, and was eligible for the Wage Subsidy Scheme (as it met the 30% loss in revenue test).
Upon agreement with his employer, Tamati worked from home for 30 hours per week during Alert Level 3 and 4. Tamati has been receiving $900 a week ($30 an hour for 30 hours’ work) at the agreed reduced hours. Tamati’s employer has been using the $585.80 weekly subsidy payment to subsidise Tamati’s wages, and topping it up with $314.20 to pay for the hours Tamati works.
Tamati and his employer talk about the Alert Level 2 health guidelines and decide together that it is safe for Tamati to return to working 40 hours per week work in the office. Tamati’s employer will use the Wage Subsidy payment for the remainder of the 12-week subsidy period, topping up the $585.80 with $614.20, to offset the full cost of Tamati’s wages.
Tamati’s employer does not meet the criteria to be eligible for the Wage Subsidy Extension, as the business has not experienced a 40% revenue loss. At the end of the 12-week subsidy period, Tamati’s employer will resume paying Tamati his full wages independently.
Case study: Employee with normal wage lower than relevant subsidy rate + eligible for Wage Subsidy Extension
Jennifer is a Human Resources Advisor in a medium-sized tourism business and works part-time. Her hourly rate is $25 per hour, and she normally works eight hours a week. The business is non-essential, closed for Alert Levels 3 and 4 and has experienced a near total loss of revenue.
Jennifer’s employer was eligible for the 12-week Wage Subsidy Scheme, which they accessed a couple of weeks into the scheme becoming available. Her employer continues to pay Jennifer even though she was not working under Alert Levels 3 or 4. Under the subsidy scheme requirements, Jennifer must receive her normal pay of $200 per week, because her normal pay is less than the part-time wage subsidy rate of $350. Her employer uses the remaining $150 a week to top-up the pay of other affected employees who would usually earn more than the rate of the subsidy.
After moving to Alert Level 2, Jennifer resumes working 8 hours a week, and continues to receive $200 in wages for the hours she is working.
Towards the end of the 12-week wage subsidy period, the business is still experiencing more than a 40% revenue loss. Jennifer’s employer tells her that the business plans to reapply to Work and Income for the Extended Wage Subsidy once the initial 12-week subsidy period ends and that it will continue to use the payment to offset the cost of wages for Jennifer and other affected employees.
Case study: Essential business + able to work
Steph is an essential services worker, ensuring certainty of electricity supply, and can work at any Alert Level. Steph is really busy, working her normal hours and getting paid at her normal rates. Her business has not been affected by COVID-19 and does not require support to pay or retain its staff.
Steph’s employer is not eligible for the Wage Subsidy Scheme or the Wage Subsidy Extension.
Case Study: Labour on-hire agency + casual worker unable to work
Andrew is a labourer working through a labour hire agency as a casual employee on construction projects for the past 12 months at a rate of $20 per hour. During the Alert Level 4 lockdown and Level 3 restrictions a number of the agency’s clients have put their projects on hold, resulting in a 30% loss in revenue for the agency. Due to the lack of demand, Andrew’s services were not required. The agency wished to retain Andrew on their books.
Andrew’s employer, the labour hire business, accessed the Wage Subsidy Scheme. The business calculated that on average Andrew worked 15 hours each week over the past 12 months, giving a weekly wage of $300. As the average weekly hours were below 20, Andrew’s employer receives the part-time subsidy of $350, passing through $300 to Andrew and using the remaining $50 a week to top-up the pay of other affected employees who would normally earn more than the rate of the subsidy.
After moving to Alert Level 2 demand for agency staff increased. Andrew returns to work as a labourer on construction sites. As Andrew is working, the agency pay him his weekly wages based on the number of hours he works, and use the subsidy to offset the cost of his wages.
At the end of the 12-week subsidy period, Andrew’s employer does not meet the criteria to be eligible for the Wage Subsidy Extension as the business has not experienced a 40% revenue loss. Andrew’s employer will resume paying his wages independently depending on his agreement to work and availability of placements.
Case Study: Temping agency + full time worker
Courtenay is a temporary office administrator working through a temping agency for an IT company. For the past 3 months she has been working at the IT company for 30 hours per week at $25 per hour, with a normal income of $750 per week. During Alert Level 4, Courtenay continued to work 30 hours per week from home. As other agency clients did not require temporary staff, the agency experienced a 30% loss of revenue.
Courtenay’s employer, the staffing agency, accessed the Wage Subsidy Scheme. As she was still working, Courtenay continued to be paid $750 a week, with her employer using the $585.80 weekly subsidy payment to subsidise Courtenay’s wages for the 12-week subsidy period.
The impact of COVID-19 continues to affect requests for temporary staff from the agency. As a result, the agency meets the 40% decline in revenue test to qualify for the Wage Subsidy Extension at the end of the initial 12-week subsidy period. Courtenay’s employer continues to use the wage subsidy to offset the cost of Courtenay’s wages.
Find out more about the schemes available to businesses, including how to apply, and other support for businesses at:
- Leave Support Scheme
- COVID-19 Wage Subsidy – Work and Income (external link)
- COVID-19 Wage Subsidy – Inland Revenue (external link)
- COVID-19 Wage Subsidy Extension – Work and Income (external link)
- Privacy information for employees – Ministry of Social Development [PDF 475KB] (external link)
- COVID-19 information for businesses – Business.govt.nz (external link)
- Unite against COVID-19 – New Zealand Government (external link)