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COVID-19 Employer Subsidy Scheme

I understand your frustrations when you read potentially misleading, confusing, or somewhat conflicting material online about the COVID-19 Employer Subsidy Scheme and leave entitlements. In fact, there are incorrect statements published in some online news articles and websites. Such information may encourage people to raise frivolous or vexatious claims of personal grievance in a time the Government is encouraging employers and employees to work together in good faith for common good – i.e. the purpose of business continuity for employers, and employment continuity for employees.

Following are some hard-hitting questions answered clearly and precisely on points of law. There are no ifs or buts; the law is clear and unambiguous.

QUESTION 1: Can I direct employees to take annual leave during the shutdown?

ANSWER: Yes, even I if you have received the Wage Subsidy, you can direct employees to take annual leave, but only in accordance with your employment agreement and/or the Holidays Act 2003. This means that you will only be able to direct employees to take annual leave where the employee has a positive entitled leave balance, and you have first tried, but failed, to agree when those holidays are to be taken, and you give 14 days’ notice of the requirement to take that annual leave. In addition, there is no restriction on asking employees if they would like to use either accrued leave entitlements should they wish to do so. This is the legal position and MBIE – Employment Services – holds the same view.

QUESTION 2: Can the Wage Subsidy be used to pay annual leave?

ANSWER: Yes, you can pay annual leave from the Wage Subsidy money received from the Government. Under section 86 of the Holidays Act, holiday pay and leave pay payable by an employer to an employee is to be treated as salary or wages earned by the employee. That is the legal position, clear and unambiguous. We have had discussions with MBIE – Employment Services – on this matter and they agree with our legal view.

QUESTION 3: Should the Employer Subsidy be passed onto each employee as a lump sum payment?

ANSWER: No, it should be passed on in the normal pay period, in the normal pay cycle, through the payroll system. If it is passed onto employees on as a lump sum payment, the tax implications will be different.

QUESTION 4: Is the COVID-19 Subsidy taxable?

ANSWER: The Wage Subsidy is not subject to GST. It is exempt from GST under section 5(6E)(B)(iii) of GST Act. The wage subsidy paid to the employer is not taxable in the hands of the employer. It is excluded income under Section CX 47 Income Tax Act. It is not deductible when paid by the employer as part of wages to employees. It is taxable for the employee. It is included as part of their normal wages and subject to PAYE, Student Loan, Kiwisaver deductions etc.

If you have any COVID-19 related employment or tax law questions, please send an email to office@irlegal.lawyer

Ismail Rasheed, Lawyer specialises in Immigration, Employment, and Tax Laws. He has 20 years’ legal experience in New Zealand. He is a Barrister and Solicitor in New Zealand, Attorney at Law in the Maldives, and enrolled as a Legal Practitioner in New South Wales, Australia.

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