Since our last Blog, the Level 4 lockdown for areas outside of Auckland has been extended until the end of this week and Auckland has been extended until Tuesday next week.  The Alert Levels for areas outside of Auckland will be reviewed on Friday.  

Now that we are reaching almost a week of lockdown, and this has been extended until the end of the week (at least), Government assistance has become more relevant for many businesses.

The two key Government assistance packages are the Wage Subsidy and the Resurgence Support Payment.  These can be obtained together if all eligibility requirements are met.

Wage Subsidy

You will probably be aware that there was significant political and public relations fallout from the original Wage Subsidy scheme, where many businesses (especially large ones) were heavily criticised for taking the wage subsidy where it was seen as being morally wrong.  Also, many businesses were forced or at least compelled to repay the subsidies where their turnover did not drop as much as was anticipated.  As a result, the requirements for getting a wage subsidy, and the circumstances where it must be repaid have been strengthened.

As we mentioned in our previous article from last Friday, the Wage Subsidy has more conditions than it did in March/April 2020 and therefore, careful thought and record-keeping is required before applying.  Failure to properly consider the requirements could result in the subsidy needing to be repaid, and in some rare cases further enforcement actions.

The two key differences to the Wage Subsidy now (compared to the original scheme) are:

  • The specific requirement to repay if a predicted revenue drop does not occur; and
  • The wording around the requirements to take active steps to mitigate the impact of the change to Level 4 on 17 August.

For most businesses, whether a 40% turnover decline over the two weeks from 17 August will happen will be pretty obvious by now, and we suspect that this afternoon’s alert level announcements will make that even clearer.  Therefore, this aspect does not trouble us too much.

What does concern us is the wording around mitigating the impacts of the Level 4 Alert Level.  The wording here specifically refers to using cash reserves where appropriate.  No further guidance is given around this and the way it is worded, it does not seem that this is mandatory as such.  However, anyone looking to make an application will need to specifically address the viability and desirability of using cash reserves prior before making an application and document their reasons why they think that they have taken adequate steps to mitigate the impacts.

The comments around using cash reserves are undoubtedly aimed at bigger businesses, however, nothing specifically states this.  In the circumstances, all businesses would be prudent to cover off why they consider that they should use the subsidy to partly fund wages rather than fully funding wages and burning through cash reserves.  While each business will have its own circumstances, common reasons to use the subsidy to supplement cash reserves could include:

  • Directors’ or trustees’ duties; and/or
  • Threats to the business including existing securities over business assets; and/or
  • Owners’ personal securities over business assets; and/or
  • Uncertainty about how long this outbreak and lockdowns might last; and/or
  • The lack of control of the situation (strict lockdown preventing any mitigation through changing service delivery etc); and/or
  • Retaining cash reserves for the next outbreak as it is difficult to have too much confidence in the Government’s border processes keeping the Delta variant out (especially considering the slow vaccine roll-out); and/or
  • Obtaining the subsidy to keep employees connected to the business is preferable to making any employees redundant in this tight labour market; and/or
  • The lack of insurance cover for these situations; and/or
  • Retaining cash reserves to the maximum extent possible for the future because the Government has given no clear direction about the future of Covid and what happens if it cannot maintain an eradication strategy.

For most businesses, the key action steps they will take will be to seek advice from their accountants and/or lawyers.  And their advisors will likely point them towards Government assistance as the most sensible way to mitigate the impacts of this outbreak.

Please note that the Wage Subsidy does not override employment law.  Ordinary employment obligations remain.  We discuss this further below.

Resurgence Support Payments (RSP)

As well as the wage subsidy, there is the less generous RSP scheme.  Applications for this open at 9:00 am and are made through Inland Revenue.  There are far fewer conditions for the RSP than there are for the Wage Subsidy, although a business needs to be viable.  Please see here for the full eligibility criteria.

This scheme covers the 7 days to 24 August 2021.  Although, we expect that there will be further 7-day blocks for the RSP as the lockdown continues in some or all of New Zealand.

Most businesses will not have come across the RSP, so one minor point to note is that the RSP is subject to GST for a GST registered business, whereas the Wage Subsidy is GST exempt.

Employment law considerations

Amongst other things, the Wage Subsidy requires that employers use their best endeavours to pay their employees at least 80% of their ordinary pay, and employees will not be unlawfully compelled to take leave.

While the wage subsidy refers to this 80% threshold, employment law considerations apply, and an employer cannot unilaterally change employment conditions.

We cannot give employment law advice.  We recommend that you obtain specific legal advice before contemplating changing employee working conditions, including changing hours or paying your staff anything other than their full normal pay.  Here are some useful publicly available resources on the topic:

Of course, New Zealand is facing a significant skills shortage, so we would also advise careful thought into taking any drastic actions which might damage relationships with staff.  Of course, that needs to be weighed up against the survival of businesses and the potential hardship of business owners.

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