Further changes to the wage subsidy on Friday give greater clarity on the ‘best endeavours’ requirement to pay 80% and how the subsidy intersects with current legislation. Many employers will have acted quickly and decisively in the face of the lock-down, but the changes on Friday present a good opportunity to review past decisions and perhaps change course.
The leave subsidy
The first significant change is that the leave subsidy no longer exists and instead has been folded into the wage subsidy. This will come as no surprise to those reading my articles, because I predicted this would happen. The leave subsidy was created before we all went into Level 4 and was designed for employees who had to self-isolate when others were at work. Now we are all self-isolating it has become irrelevant.
Best endeavours to pay 80%
The best endeavours requirement to pay 80% of wages remains. The reason for that is because the burden of keeping people employed through the pandemic needs to be shared between Government, business, banks, and (where applicable) insurance. The 80% requirement is to ensure that businesses don’t shirk their responsibility. However, there is a recognition that even paying 80% may be too tough for some employees (and I discussed high income earners last week).
The Finance Minister’s comments on the podium offer some clarify over what to do in this situation. The message appears to be that if faced with the option of redundancy or wage subsidy plus less than 80%, then it is better to keep the employment alive with the wage subsidy than choose redundancy:
“We still want employers to use their best endeavours to pay employees 80% of their normal salaries. Where this is not possible, we want the value of the subsidy to be passed on” Grant Robertson, Friday 27 March.
In my view, if you are going to pay less than 80% then you will need to be sure that you have a good business case for not meeting the 80% requirement as you may be required to justify it later if an audit is carried out.
Agree, preferably in writing
The other important requirement is that employers are being required to get their employees’ agreement to any changes to their employment terms, and where practical these changes should be recorded in writing. Many businesses will have gone ahead to make changes last week quickly and may not have those agreements recorded anywhere. It is important those changes are now recorded in writing to avoid problems later.
The requirement that the changes be agreed ensures a further safeguard to ensure that employers are consulting over proposed changes as required by the Employment Relations Act. In the current environment, it should be easier to get agreement because employees are motivated to keep their jobs and ensure continuity of income. Employers should get the agreement of employees to apply for the wage subsidy before they apply. There is no reason why a variation of employment terms shouldn’t form part of any agreement to apply for the subsidy. As an employee, you should push for a minimum of 80% of your salary or wage and ask your employer to justify anything less than that before you agree.
If you made redundancies last week, consider whether you can re-employ those employees. The changes introduced on Friday allow for employers to re-employ staff made redundant as a result of Covid 19 and apply for the wage subsidy even though you may not be able to meet the 80%. The wage subsidy is the best way to get a benefit into your employees’ hands, rather than relying on the unemployment benefit.
If you suspended the employment of an employee last week, then my advice is to now apply for the wage subsidy and pay whatever on top of that you can afford.
Non-Covid 19 redundancies and the wage subsidy
In some cases, businesses were contemplating redundancy before the pandemic, and the lockdown has merely accelerated the need to move forward with those redundancies. There is certainly nothing preventing a business going through a redundancy process during the lockdown, especially if it is for a non-Covid 19 reason, providing the usual consultation requirements are observed.
However, difficulties arise if the employer has already applied for and received the wage subsidy because that imposes on the employer an obligation to keep the employee employed for the duration of the subsidy. Under no circumstances can the employment end before that date (except by resignation), although there is nothing stopping notice being worked during the period of the subsidy.
Whether an employer has applied for the wage subsidy or not, discussions around the wage subsidy will inevitably form part of any consultation process because the employee will be seeking to maximise their income over that period. If you haven’t applied for the wage subsidy yet, then it should be easier to reach an agreement on arrangements during the period of the wage subsidy which include an eventual redundancy of the role. If you have already applied for and received the wage subsidy then the employee will be expecting guaranteed employment for 12 weeks, so getting agreement on alternative arrangements may be more difficult.
Under no circumstances can you apply for and receive a subsidy and then not pass it on to the affected employee, or use it for some other purpose.