27.03.2020

The initial COVID-19 economic response package totalling $12.1 billion included $5.1 billion in wage subsidies, with a maximum drawdown limit of $150,000. This cap has now been completely lifted which allows medium- to large-sized businesses with more than 21 full-time employees to access the benefit as well.

This will mean an employer accessing the scheme for the full period will receive a lump sum payment of $7,029.60 for a full-time employee ($585.80 per week), and $4,200 ($350 per week) for a part-time employee covering 12 weeks.

The wage subsidies will be available to the following businesses impacted by COVID-19:
  • Employers who are struggling to retain employees
  • Sole traders
  • Partnerships
  • Self-employed
  • Existing businesses
  • Registered charities
  • Non-government organisations
  • Incorporated societies
  • Post settlement governance entities
  • New businesses less than one year old

It is important to note that one of the most important criteria while applying for the wage subsidy is that as an employer “you will, using best endeavours, retain the employees named in your application in employment on at least 80 percent of their regular income for the period of the subsidy”. You will not be eligible for the wage subsidy if you intend to make your employees redundant.

If you make any employees redundant after receiving the subsidy you will not be entitled to the subsidy for any period after the employment is terminated.

Income Tax, PAYE And GST Treatment Of Wage Subsidy

An Order in Council (regulation) was also passed to ensure that the COVID-19 wage subsidy payment received by employers is not subject to GST. (The subsidy would have been subject to GST in the absence of such an Order.)

For example, you are an employer who received a wage subsidy of $140,592 (for 20 full-time employees) to cover the 12 week period. You have decided you can only afford to pay your employees (all on say $45,000 p.a.) just 80% of their normal salaries over the next 12 weeks. That is $166,154, of which $140,592 is covered by the wages subsidy you received from the government.

Tax Considerations:

  • $140,592 wage subsidy received by you – not subject to income tax
  • $140,592 wage subsidy received by you – not subject to GST
  • $140,592 part of the gross wages paid by you to employees – not tax deductible for your business
  • $166,154 of gross wages paid by you to employees – these wages are subject to normal PAYE, student loan and KiwiSaver deductions
Four-Week Lock Down Period

The Ministry of Business, Innovation and Employment (MBIE) is currently monitoring the situation where employers are compelling staff to use sick leave or annual leave to cover the Alert 4 isolation period which commenced at midnight on 25th March 2020. Employees are entitled to leave without pay option during this period.