Wage Subsidy: how to pay public holidays and what to do if you need to terminate employment

08 April 2020

We are now two weeks into our Level 4 Lockdown and my impression is that businesses are starting to adjust to the ‘new normal’. However, issues still arise for which there seems to be some confusion. Two such issues are:

1.If we have reduced wages across the business, how do we pay for public holidays?

2.If we need to terminate the employment of an employee for whom we have applied for the wage subsidy, what do we do with that part of the subsidy which is unused?

Public holidays

Both Good Friday and Easter Monday are public holidays which are dealt with specifically under the Holidays Act. Assuming that your employees don’t work on either day (which will be the case for the vast majority of people this Easter), the law requires that you pay ‘relevant daily pay’. Relevant daily pay is defined as “the amount of pay that the employee would have received had the employee worked on the day concerned”.

The question arises whether that is the amount of pay calculated in accordance with the employment agreement or the amount of pay you have subsequently agreed the employee will receive during the lockdown? For many employees in receipt of the wage subsidy, this will be 80% of their wages or even less.

In my view, if you have a written agreement with your employee to vary their pay during the lockdown (which you should) then the Easter public holidays will be paid at whatever sum you have agreed their wages will be during the lockdown. That is, unless the employment agreement stipulates what ‘relevant daily pay’ should be (but I know of very few employment agreements that do this).

Termination while in receipt of subsidy

When you apply for the wage subsidy you make a declaration that you will retain your employee for the duration of the subsidy. However, there might arise reasons why you need to terminate their employment. For example, the employee may commit an act of serious misconduct, not successfully navigate a performance process, or you may need to terminate under a 90-day trial period. I would also suggest that redundancy could be an option where it was not Covid 19 related, or your business circumstances have changed since you made the application and it is no longer feasible to keep the job open.

In this situation, the question arises as to what you do with the balance of the subsidy not used? The answer seems to be (based on discussion with someone from WINZ) that you still pass on the balance of the subsidy to the employee and you don’t repay it. Whilst that balance will be subject to PAYE, it would not be treated as wages for the purposes of deductions like KiwiSaver etc. meaning that your obligation to pay employer contributions ends when the employment ends. I recommend that you record how you are paying this subsidy in the termination letter. Of course, it is always possible to come to an agreement with an employee about how their employment may end and the arrangements for paying any contractual entitlements (which could include the wage subsidy). Again, such agreements should be recorded in writing.

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