Key Differences in Wage Subsidy Obligations

09 April 2020

If you applied before 4pm on 27 March, the requirement is that “you will, using best endeavours, retain the employees named in your application in employment on at least 80 percent of their regular income for the period of the subsidy”.

So that means you must use best endeavours to do the above, but: 

  • You can reduce regular earnings, including below 80% if necessary.
  • You can declare redundancies (arguably without having to refund any remaining portion of the subsidy you obtained for the redundant employees, but being prepared to do so).
  • You can use a restructure process to change hours of work (and perhaps remuneration although that is more risky).

If you applied after 4pm on 27 March the rules are more stringent, specifically:

  • You must comply with your obligations under the Employment Relations Act (the same applies if you applied for the subsidy earlier).
  • You must not make changes to terms and conditions, including to rates of pay, hours of work and leave entitlement, without the written agreement of the relevant employee.
  • You must not unlawfully compel or require any of the employees named in your application to use their leave entitlements.
  • You must retain the employees named in your application for the period you receive the subsidy in respect of those employees.
  • You must use the subsidy for the purposes of meeting your named employees’ ordinary wages and salary (which arguably means not for the purposes of paying holiday pay).
  • You remain responsible for paying your employees’ ordinary wages and salary.
  • You must use your best endeavours to pay at least 80 per cent of each named employee’s ordinary wages or salary. 
  • You must pay at least the full amount of the subsidy to the employee except where the employee’s ordinary wages or salary are below the amount of the subsidy, in which case you must pay the regular amount.

Importantly, the above means:

  • Mutual agreement is required for any changes to terms and conditions - which rules out a unilateral restructure approach.
  • Taken at face value, you must not declare any redundancies during the period.  However, commercial reality may dictate the need to do so, but that requires a careful case-by-case analysis of the risk. As a minimum, you would need to refund any subsidy you obtained for the redundant employees.
  • You can pay employees less than their regular earnings, including below 80% if necessary, but you will need mutual agreement to do that.
  • You can reach agreement with employees to take annual holidays.  In the absence of agreement you can direct employees to take their entitled leave, by giving 14 days’ notice in accordance with the Holidays Act.