Changes to COVID-19 Subsidies – What you need to know

The Government’s COVID-19 response has evolved since our last newsletter on this topic dated 18 March 2020. We’ve put together some FAQs to guide you through the changing landscape.   This is correct as at time of issue, however in a fast moving environment, with regular changes, the position on each point should be checked:

Can we dismiss an employee for misconduct during the subsidy period?

There are no apparent changes to established employment law regarding dismissal (including dismissal for misconduct/serious misconduct). That means a dismissal must still be justified as a course of action open to a fair and reasonable employer in all of the circumstances at the time, including the process followed in making the dismissal. One applicable ‘circumstance will be the current lockdown.   Another consideration might be practical inability to recruit/replace.  ‘We also note the possibility that the Government may reclaim a portion of any wage subsidy paid out relating to a dismissed employee.

What do we do with subsidy funds if the employee employment is terminated within the 12 weeks?

WINZ has emphasised that, where wage subsidy applications have been made after 4pm on 27 March 2020, employers will be in breach of their obligations under the subsidy if they do not retain those employees over the 12-week subsidy period.

In receiving the subsidy, employers also agree to repay the subsidy or any part of the subsidy paid if they fail to meet any of the obligations about how they must use the subsidy. It is not crystal clear whether repayment is required in cases of termination for misconduct (see above) but funds received for employees who are made redundant inside the 12 weeks are, in our view, likely to be reclaimed by the Government. The safest view is that while the subsidy is payable to the employer, it is ultimately for the benefit its employees, and so not for the employer to distribute or withhold in any manner it otherwise considers appropriate.  The sole exception to that seems to be where the subsidy received exceeds the usual wages of the employee (in which case the excess can be used for other wage costs).

Can we submit another claim if we find we have not claimed correctly or the rules have been subsequently modified?

Yes, additional applications can be made for employees not already covered by previous applications. (You cannot however apply for the same employee more than once).

What if staff refuse to work based on a fear of contracting COVID-19?

Only ‘essential’ staff may work at all during the level 4 lockdown (other than remotely), so we confine our answer to that. You can check if your business is essential here:

Staff may refuse to work under the Health and Safety at Work Act 2015 if they believe, on reasonable grounds, that carrying out the work would expose them (or any other person) to a serious risk to their or the other person’s health or safety arising from an immediate or imminent exposure to a hazard.

Staff can also refuse to work by way of a (lawful) strike under the Employment Relations Act 2000 if they have reasonable grounds to believe such action is justified on grounds of health and safety. The assessment of risk made by staff must be “real and not far-fetched,” and must be sufficiently serious as to justify participation in such a strike.

These are high thresholds for staff members to satisfy. Given this, a staff member’s subjective, generalised fear is not likely to satisfy the high threshold required.

That situation may change.  For example, if the rate of the virus’ spread within New Zealand increases, there is widespread non-compliance with the lockdown, or should the circumstances change at any workplace (any staff member at that workplace contracting COVID-19, for example). Changes by Government could also impact.

For you this means that, if the risk remains generally low in New Zealand, and specifically low in your workplace, our view is that you are not required to pay essential staff who refuse, on a generalised basis, to work and have not agreed to use any of their leave entitlements to cover their absence (notwithstanding the requirements of the wage subsidy, see the FAQ below).

There are however reasonably practicable steps that you can and should investigate taking to lower the risk (such as PPE, hygiene procedures, and arranging shifts to limit any spread).  We note also that an employee’s refusal to work where a specific issue is raised but not addressed, could very well mean payment was still required.  Worksafe’s general guidance on potential steps can be found here:

We also recommend that before taking any steps not to pay essential staff, you discuss this further with them, with a view to their understanding what steps you have taken, and the consequences of refusing to work (in terms of payment).   Ultimately there are very real practical  issues: what can you realistically do in this environment if staff maintain refusal?  Legal action or disciplinary action (even if possible) are unlikely to achieve a motivated / committed workforce.  Discussion and seeking to accommodate any real issues is more likely to maintain staffing.

Can we claim the Wage Subsidy for all full-time workers regardless of their sector worked in? i.e. can we claim for staff being paid in full who are still working in essential services?

Yes, you can apply, subject to the eligibility requirements.  The subsidy is based on the financial effect of the virus on the business overall, not on whether employees are still able to work.

How do we claim for, and pay, casuals or part-time employees who only work for a few hours per week? i.e. if a worker only works up to $100 worth of hours in a week, what do we pay them via the subsidy?

The wage subsidy is a flat rate, and for those working less than 20 hours per week, the subsidy is $350 per week (gross) (up to 12 weeks).

What to pay part-timers is now also relatively clear – you will need to pay any part-time worker the full subsidy or if their normal weekly wage is less than the subsidy, that lesser amount.  “Normal” may though create calculation problems, in which case WINZ currently suggests (if hours are “variable”) averaging the worker’s hours each week over the last 12 months (or if employed for less, over the period of employment).

Casuals WINZ currently says are to be approached in the same way, but the guidance indicates that to be eligible, the worker would have to have been ‘expected to work’ during the time you will receive the wage subsidy. If so, and if after averaging they qualify for the full-time subsidy rate (over 20 hours), you will then need to pay them accordingly.

Note though, for any worker, if their usual pay is less that the applicable wage subsidy rate, you just pay usual pay (and can retain the rest of that week’s subsidy in your ‘wage bucket’ for use towards other wages payable).

Leave Subsidy?

The Government has announced folding the Covid ‘leave’ payment into the wage subsidy scheme. You can no longer apply for this subsidy. Finance Minister Grant Robertson has said: “We are working on arrangements for those in essential work who require sick leave due to COVID-19.” We recommend that you check for updates on how this may be addressed. 

Issues also arise for non wage subsidy qualifying employers, who had previously been able to rely on leave payments.   Government is considering these issues.

We have applied for the wage subsidy. Can we pay an employee only 80% of their normal pay if they are not available to work due to the current ‘lock-down’?

You cannot make unilateral changes to your employee’s pay. The Government has confirmed that your usual legal obligations to staff remain unchanged by the lockdown. That means that any change from a staff member’s current entitlement requires an established legal basis. You cannot unilaterally reduce hours or pay; agreement is ordinarily required. This will be complicated if staff are part of a collective agreement, because you cannot agree anything inconsistent with a collective agreement.

Next, and ordinarily speaking, you are not required to pay staff who are not able to work (other than through fault by the employer) and not on some kind of leave.

However, the Government’s wage subsidy has changed that landscape. The stated intention of the wage subsidy is to keep staff paid and in employment during the lockdown, regardless of their specific scenario. That means you are required to use your best endeavours to pay your staff at least 80% of their usual pay, and only if you are unable to do this, the full value of their applicable subsidy (whether full or part-time, or lesser if usual pay is lesser). This is therefore essentially a new type of government subsidised leave. It does not affect any staff member’s entitlements to annual or sick leave.

We view this subsidy as an obligation to pay staff during the level 4 lockdown at least the value of the applicable wage subsidy (unless usual pay is less, in which case you can pay less), regardless of whether they are not able to work for personal reasons (such as childcare requirements, or they are in self-isolation), or cannot work because you are not operating. The Government has indicated that audits following the lockdown will address any employer non-compliance.

Changes to the Minimum Wage – What you need to know

Minimum Wage increase

The Minimum Wage increased with effect from 1 April 2020.  MBIE’s guiding on that (relative to COVID-19) can be found here.

The key point is that the minimum wage relates to hours actually “worked”; it does not relate to hours where no work can be done.   MBIE appears to adopt a similar view to our own of the (absence of) legal obligation to pay wages where no work can be done, however an obligation to pay the wage subsidy and 80% of usual as a part of that.

Where businesses are unable to process the increase due to the lockdown, they should communicate that openly and clearly to employees. Employers will need to backdate pay at a rate of $1.20 per hour worked since 1 April 2020.

The answers provided here are general and may not apply to your own situation. For specific advice, we recommend you talk to one of our experts (all currently working from home). You can call us on on our mobile numbers, or contact us via email, and please stay safe:

Paul McBride (Partner) – or 021 614 215

Guido Ballara (Partner) – or 021 782 891

Frances Lear (Senior Associate) – or 021 237 7811

Saadi Radcliffe (Solicitor) – or 021 557 236

Emma Rose Luxton (Solicitor) – or 021 751 247

Disclaimer – this newsletter is necessarily brief and general in nature.  You should therefore seek professional legal advice before taking any action in relation to any matter addressed above.  © McBride Davenport James