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The Wage Subsidy: Let's get it right



People are absolutely panicking about how to properly apply the Wage Subsidy. I'm not sure why; employment law hasn't changed. An employers obligations, and an employee's rights, haven't changed. So, why is there so much confusion?


Employment Law


The COVID-19 pandemic has not changed New Zealand employment law; there have been no amendments (or proposed amendments) to any of our key pieces of employment law legislature.


The Employment Relations Act 2000 is very clear on the obligation to pay wages. Following the "zero hour" law changes, an employer must provide an employee with an agreed minimum hours of work per week.


If an employer is unable to offer the employee those minimum hours in any week, then the employee must be paid or compensated for those hours.


Compensation for the loss of hours can only be made where there is a relevant provision in the employment agreement. In the absence of any provision, it is expected the employee will be paid their guaranteed hours.


Yes, it really is that simple. The only way to reduce someone's income is by agreement. This hasn't changed; and it is our starting point before considering the obligations under the Wage Subsidy.


But, be careful; there may be a loophole. Check your employment agreement for a "Force Majeure" clause. This clause may mean that an employer is not obliged to pay wages following an "act of god" that means an employer's business cannot operate. Understandably, these clauses have not been used often in New Zealand; so I would tread lightly before invoking it.


The Obligations of the Wage Subsidy


When applying for the Wage Subsidy Scheme, an employer must declare that:


[it] will, using best endeavours, retain the employees named in [its] application in employment on at least 80 percent of their regular income for the period of the subsidy.


In a recent update, the Government has clarified that employers are expected to "try [its] hardest to pay the employee named in [its] application at least 80% of their usual wages. If that isn't possible, [it needs] to pay at least the subsidy rate."


This is an employer's obligation to the New Zealand Government with respect to that subsidy. If an employer has lied in its declaration, or has failed to meet its obligations, it may be required to pay back all, or part, of the subsidy.


An employer's obligations to the New Zealand Government are separate from an employer's obligations under the Employment Relations Act 2000. If an employer pays its employees 80% of their regular income, it will be meeting the criteria for the Wage Subsidy. However, it may not be meeting its obligations under the Employment Relations Act 2000.


A Warning for Employers


A warning for employers: do not take these obligations lightly. It is my view that the obligation is to pay 100% of an employee's wages; as per usual employment law.


An employer must "try its hardest" to pay at least 80% of an employee's wages. This does not mean an employer can simply pay the bare minimum. They must try their hardest to pay 100%, then they must try their hardest to pay 99%, then they must try their hardest to pay 98%. Etc.


"Try its hardest" isn't a test established in law, but I can guarantee it's not going to be an easy test to meet. Have you explored every avenue? Have you talked to your employees? Have you considered a loan? Remember; the law is that an employer must pay 100% of an employees wage. Even if an employer tries its hardest to pay 80%, they still risk breaching employment law standards.


If that's not possible, an employer must pay at least the subsidy.


"Not possible" is an incredibly high threshold. It is not enough to show that the long-term budget will be impacted, or that the business continuity may be at risk. An employer must show it is not possible to pay 100% of wages for the period of the subsidy (ie; 12 weeks). As part of this, they may be required to consult with their financial advisers and banks about the possibility of getting a loan.


This is risky business. It is my view that in years to come, employers may be open to wage claims if they cannot justify their decisions to reduce wages. Remember; there's a six year limitation on claims like these.


Employers who try to skirt their obligations will also be breaching their declaration to the Government, and may be liable to pay back the subsidy.


Let's Get it Right, Together


The absolute safest method for an employer is to gain an employee's agreement to reduce their wages during this time. This can only be achieved if the employer communicates, in good faith, with its employees about its ability to pay wages. The feedback that I've received is that employee's want transparency. Those in minimum-wage positions want to be confident that those in managerial positions are also impacted. They want to know what options the company has explored before making the decision to reduce wages.


Employees want to be heard.


We can get this right; but we have to do it together.


Other Common Questions


I have been inundated with questions about the COVID-19 pandemic, so below are some typical responses:

  • If you are working in an essential service, and you choose not to work, you are not entitled to be paid the wage subsidy. You can ask to be paid your annual leave. Please note that your employer does not need to accept your leave request, and you could be at risk of abandoning your employment.

  • If you work in an essential service, and your employer has informed you not to come to work, you are required to be paid for this time (this is irrespective of whether the employer is eligible for the Wage Subsidy). The only exception to this is if there is a "Force Majeure" clause in your employment agreement; but I wouldn't invoke this lightly.

  • If you are working in an essential service, and you cannot work as you are classified as "high risk", the Government are currently considering options for subsidies. At present, you are only entitled to sick leave and annual leave. I anticipate that we will have an update on this within a couple of days.

  • Part-time workers who earn less than the subsidy are not entitled to the entire subsidy. This has been clarified by Grant Robertson in a Facebook post. I understand these changes will be made on the Ministry website shortly. At the moment, the feedback is that employers will not be required to pay back the excess, and it is expected that the excess would be used to help pay wages beyond the 12-week point.

  • Casual employees are entitled to be paid during this time, under the Wage Subsidy. The employee will be entitled to their average weekly pay, or the Wage Subsidy; whichever is the least. The average weekly pay should be calculated by looking at the past 12-months.

  • Employees are not required to use their annual leave obligations before receiving any wage payment.


Any other questions, please get in touch by either commenting below, by emailing me, or through my Facebook page.


Stay strong New Zealand. We can get through this together.


Ashleigh Fechney

LLM(hons), BA


027 555 999 5 Ashleigh.the.Advocate@gmail.com www.ashleightheadvocate.co.nz



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