COVID-19 Wage Subsidy: Frequently asked questions

Nick Stanley
By Nick Stanley

We’ll be updating this page with questions we receive from our members about the government's COVID-19 Wage Subsidy August 2021.

This information is correct as of 18 November 2021.

What is the Wage Subsidy August 2021?

The COVID-19 Wage Subsidy August 2021 is a payment available to businesses throughout NZ (including self-employed people) who are significantly impacted by the continuation of Alert Levels 3 and 4 from 17 August 2021 onwards. The payment is a contribution towards employees' wages for a 2-week period.

Business must have had, or expect to have, a revenue drop of at least 40% because of COVID-19 over the period of 14 consecutive days, compared to either:

  • a typical 14 consecutive days of revenue in the 6 weeks immediately before the move to Alert Level 4 on 17 August 2021; or
  • the same 14 consecutive days in 2020 or 2019, if your business has highly seasonal revenue.

The subsidy is paid at a flat rate of:

  • $600.00 for people working 20 hours or more per week (full-time rate)
  • $359.00 for people working less than 20 hours per week (part-time rate).

The subsidy is paid as a lump sum and covers 2 weeks per employee.

You can only receive one COVID-19 subsidy at any one time per employee, so you can't be getting the short-term absence payment or leave support scheme payment at the same time.

Find out more about the Wage Subsidy August 2021 at Work and Income.

What happened to earlier rounds of the Wage Subsidy August 2021?

If you applied for the any of the previous rounds of the August wage subsidy, you will need to wait at least 2 weeks after you applied before you can apply again, even if you haven't received a payment yet.

If not, then you will be able to apply for the current wage subsidy payment round.

Applications for earlier rounds:

  • The Initial Wage Subsidy August 2021 closed on 2 September.
  • Wage Subsidy August 2021 #2 closed on 16 September.
  • Wage Subsidy August 2021 #3 closed on 30 September.
  • Wage Subsidy August 2021 #4 closed on 14 October.
  • Wage Subsidy August 2021 #5 closed on 28 October.
  • Wage Subsidy August 2021 #6 closed on 11 November.

Work and Income usually processes applications within 3 working days, however some applications may take longer, if they need to check details with Inland Revenue.

If the business ceases to be viable before the end of the period I receive a wage subsidy payment for, and I'm forced to make some (or all) of my employees redundant, what effect will this have on the subsidy I received?

Employers are obliged to retain their employees they received the wage subsidy for. If you have to make an employee redundant during the subsidy period, you can use the subsidy to pay the employee the redundancy notice period, as long as it falls within the wage subsidy period.

If the employee does not remain employed for the entirety of the wage subsidy payment period, then employers are obliged to repay the remaining subsidy back to the Ministry of Social Development.

The wage subsidy cannot be used to pay any notice period falling outside of the wage subsidy payment period, or to contribute towards any additional redundancy payments as required by the employee’s agreement. 

Find out more about employer obligations at the Work and Income website.

Can I use the wage subsidy to help cover an employee's final pay when they voluntarily resign?

Yes. Employers must advise the Ministry of Social Development within 5 working days if anything changes that may affect your eligibility or entitlement to the subsidy, including if any employees end their employment relationship with you.

You won't be able to claim any more subsidy for that person but any leftover subsidy payments for that employee can be used for the wages of other impacted employees.

If there are no other employees to use the payment for, then the remainder of the subsidy must be repaid.

Find out more about repayments at the Work and Income website.

If an employee can't work their previously-agreed hours because of childcare and homeschooling obligations, can I use the remainder of their wage subsidy for the casual staff who are covering their remaining hours?

Yes. Employers have an obligation to offer the full hours; if they can't, they have to pay the employee the wage subsidy amount (full- or part-time).

In this situation, the employee is unable to work their full hours despite the work being there, so the employer can use the money to pay casual staff picking up the work.

For example, if the employer applied for and received the wage subsidy for an employee working 22 hours per week, but going back to work at Alert Level 3, the employee is only available to work 16 hours per week, the employer now only has to pay the employee for those 16 hours and can use the remainder to pay casuals.

How do I work out the amount my revenue has dropped?

Revenue means the total amount of money a business has earned before expenses are deducted.

In applying for the wage subsidy, you must compare the 14-consecutive-day period compared to 14 consecutive days in the 6-week period before 17 August 2021, or in the same 14-consecutive-day period in 2020 or 2019, if your business has highly seasonal revenue. 

If the revenue in the 14 consecutive day period is at least 40% less than it was for the period you compare it against, you can apply for the August 2021 #4 wage subsidy.

Can casual workers get the wage subsidy?

Employers can apply for any casual employee who would have been expected to work during the time they receive the subsidy.

For casual employees who have variable hours, assess their subsidy rate by averaging their hours over the last year or the total period of their employment (if it’s less than a year).

Do I pay tax and Kiwisaver on the wage subsidy?

As the wage subsidy is paid as part of normal wages, it's subject to the usual employer deductions, e.g. PAYE, KiwiSaver, Student Loan, Child Support etc.

The subsidy is classified as “excluded income” for income tax purposes, so businesses don’t pay income tax on the wage subsidy.

You also don’t have to pay GST on the wage subsidy.

Find out more at the Inland Revenue website.

Do I have to pay 80% of employees’ normal wages?

The government is encouraging businesses to make best endeavours to pay employees 80% of the normal wage, at least.

If that isn’t possible, you must pay them at least the full subsidy.

If you are proposing paying employees less than their normal wages, you will need to follow the correct consultation process and act in good faith.

Does the minimum wage apply?

Yes. Businesses must still pay employees for any work they do - whether they are working from home or from premises - and the new minimum wage rates (as of 1 April 2021) apply:

  • $20.00 per hour for adults.
  • $16.00 per hour for workers on the training or starting-out wage.

Can I require people to work while paying them the wage subsidy only?

Yes, you can require your employees to work and pay them using the subsidy money, as long as you have commercial justification as to why you’re unable to pay more and if you’re otherwise compliant with the rules of the current Alert Level and health & safety requirements, e.g. you’ve implemented social distancing at work, have changed your practices and moved desks around, using split shifts, only one person per vehicle.

It’s likely that you will need to either:

  • reduce their hours, so that they are working less hours than normal, e.g. a plumber earning $25/hour could only work 24 hours per week, and an accountant earning $40/hour could only work 15 hours; or

  • reduce their pay rate, and thus have them work more hours. We don't recommend this option unless the organisation has strong commercial justification.

You would have to consult with the affected employees before making either of these changes.

Keep in mind that if you have employees who earn less than the wage subsidy, you are obligated to pay them for their usual hours over this time.

Do employees on ACC get paid the subsidy?

Yes. The ACC website says:

"You should pass on COVID-19 wage subsidy payments to employees receiving weekly compensation from ACC. You must tell us each time you pay them the wage subsidy by completing an ACC038 form.

The subsidy is treated as income, so we’ll take it into account when making weekly compensation payments to the employee."

So, employers should apply for the wage subsidy for all employees and pass it on, including to those on ACC. You should then go to the ACC website and complete the ACC038 form notifying ACC of the amount paid. ACC will adjust their payment to the employee.

My employee is unwell or injured and is unable to work. Am I able to use the wage subsidy to pay for the sick leave?

If an employee is sick during this period, normal sick leave applies. The employee is not ready, willing and able to attend work. As they wouldn't otherwise be at work, they can take sick leave.

You can use the subsidy to pay for the sick leave

Can we use the wage subsidy to pay employee’s annual leave through this time?

If an employee had previously applied for, and had approved, annual leave during this time, then yes, you can use the wage subsidy to cover the cost of their annual leave.

Leave must be paid in accordance with the Holidays Act.

However, if the employee requests cancelling the leave, it would be good faith to oblige, given that leisure activities have been severely restricted.

My employees want to be paid annual leave to top up the wage subsidy, do I have to accept this?

Employers and employees, including those receiving the wage subsidy, must follow normal legal requirements when making decisions about leave.

You may agree to let employees use their annual leave, but obviously, if the business isn’t in a financial position to pay annual leave at employees contracted rates of pay, there is no legal obligation to do so.

You must only make your best effort to pay at least 80% of each employee’s pre-COVID-19 income.

Similarly, employers cannot illegally require or compel employees receiving the subsidy to use their annual leave.

Businesses are able to institute an annual closedown (you can only do this once a year), which means employees would be required to use their annual leave.

If you can’t agree with your employees on the timing of annual leave, you can require them to do so by providing 14 calendar days' notice of the requirement.

We are a non-essential business and are closed through the lockdown. Can we ask our employees to use annual leave?

If you have applied for or are receiving the wage subsidy for your employees, you can’t compel or require those people to use their leave entitlements for the period you receive the subsidy, other than as you are lawfully permitted to do, including as provided for in an employee’s employment agreement.

In other words, probably not.

Do I have to pay my employees for public holidays?

The short answer is: if these days are 'otherwise working days' then yes, you do. Treatment of public holidays has not changed.

Employment.govt.nz clearly states:

“If a public holiday falls on a day of the week that is otherwise an employee’s working day, the employee should be paid for the public holiday. The payment should be Relevant Daily Pay, or if it meets the criteria, can be Average Daily Pay.

Determining whether a day is an 'otherwise working day' should be based on the employee's pre-lockdown working pattern. However, if the employer and employee have agreed to a permanent change, this new arrangement can be used to assess whether the day is an 'otherwise working day'."

Businesses operating as usual (people working usual hours from home or they are an essential business)

Treat these employees the same way you would during normal work times, because they continue to work.

For example, if somebody has continued to work their normal 40-hour week (five 8-hour days), then they will work a 32-hour week due to Labour Day and still be paid for 40 hours.

If they work on the public holidays then, like usual, they would be paid time-and-a-half for any hour worked and receive a full day in lieu ('alternative holiday').

Similarly, for part-time workers whose hours haven’t changed, their normal work pattern applies. For example, a regular Monday-Thursday part-time worker would receive public holiday entitlements for working Labour Day.

Businesses operating on temporarily reduced hours or changed conditions due to COVID-19

The most common work pattern we have observed in this group is where employers and employees have agreed to a temporary 20% reduction in hours, e.g. an employee who normally works a 40-hour week, works 32 hours during the lockdown. Their pay is made up of the government subsidy and the employer’s payroll.

Employment.govt.nz is clear that pre-COVID 'otherwise working days' should apply to this group, meaning if the employee would have worked on the public holiday prior to the lockdown, you will need to recognise the public holiday.

The method for calculating payment for the public holiday remains: Relevant Daily Pay, which is determined by what the employee would have earned, had they worked. Therefore, if reduced hours have been agreed to as part of the lockdown, the payment for the public holiday is based on the reduced hours.

If the employee is not required to attend work, they receive payment for the day, based on the reduced hours. If they are required to work, they receive time-and-a-half for the hours actually worked, plus a full day as an Alternative Holiday (day in lieu). If it is not possible to determine Relevant Daily Pay, then Average Daily Pay can be used.

The government has also stated that: “employers can use the wage subsidy to cover some or all of their employees’ wages, including pay for the upcoming public holidays.”

Therefore, you can use the wage subsidy money to cover the normal public holiday costs. The employee works their temporarily reduced hours over the agreed days during the week which Labour Day falls  and receives payment for these days, plus payment for the public holiday, based on the above calculations. The wage subsidy is used to cover these payments; any additional money is paid via company cashflow.

Businesses not operating at all - staff at home receiving the wage subsidy only.

As businesses are able to use the wage subsidy to cover public holidays, there is no change in pay for this group.

They are at home receiving the subsidy of $600 or $350 (or normal earnings if these are less than the wage subsidy). The payment covers any public holiday entitlement they might be eligible to receive.