19 May 2020 – Wage Subsidy Extension – Considerations

Last week the government announced an 8 week extension to the wage subsidy scheme, which will be available from 10 June 2020 until 1 September 2020. Eligible employers will need to reapply through Work and Income once their current 12-week subsidy has come to an end.

Not much changes from the existing terms of the Wage Subsidy – it is a payment for wages per named employee on the application at the same rates that are presently being paid.  It does not change existing employment law obligations or the employment relationship.

The purpose remains to support employers adversely affected by COVID-19, so that they can continue to pay their employees, and supports employees to ensure they continue to receive an income, and stay connected to their employer, even if they are unable to work.

The employer will retain the employee for at least the duration of the extension and will pay the full subsidy received, except where a person’s income is less than the subsidy amount, in which case they can be paid their normal salary.  It is expected that the employer will top up to at least 80% of salary where possible.

The Wage Subsidy Scheme is available to all businesses (including the self-employed, contractors and sole traders), registered charities, incorporated societies and post settlement governance entities, that are adversely affected by COVID-19.

What is different?  The subsidy spans 8 weeks rather than 12 weeks and the revenue loss is set at 50% rather than 30%, for the 30 days before the employer applies for the extension (compared to the closest period last year). There are different calculations for organisations where this is not possible, such as new businesses or pre-revenue firms.

The extension throws up some interesting scenarios around restructures and redundancies.

Firstly – it is also available to employers who recently let employees go because of COVID-19 – provided they re-hire those employees.  Does this mean that there is an obligation to rehire those who were laid off due to COVID-19? The answer is – well, no.  Employers need to look pragmatically at the business outlook – can they forecast an upturn in revenue that will be able to sustain employees in employment beyond the 8 weeks?  Whilst there is no legal obligation to top up the wage subsidy, in some cases this will need to be done to ensure minimum wage requirements are met, and in some circumstances even this could be too financially draining for some employers struggling to stay afloat.

Secondly – what happens to redundancy processes that are currently underway?  The advice is that if you can pause these processes as an employer, you should.  The outlook for a business after a further 8 weeks of wage support may be brighter.  The consultation process is the right vehicle to explore different ways to sustain employment, and discussions around the wage subsidy extension should now form part of these processes.  The key for employees and employers is to work together to see if they can find a suitable alternative to redundancy.

BuckettLaw can help you navigate these challenges – contact us for advice.


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