COVID-19 Wage Subsidy EXTENSION simplified

Ok accounting fans, here it is – the wage subsidy extension. 

It’s June 10 2020 and it’s finally rolling into full effect. As with the old wage subsidy i’m sure you all have many questions about the wage subsidy extension so I’ve done the hard research for you and really squeezed my brain juices to keep it simple and understandable for all of you.

Fair warning though – this article is going to be a bit wordy.

Ok, preamble over! Let’s get into it!!!

Is the wage subsidy extension the same thing as the wage subsidy?

You’d think so right? But, actually, they are two different schemes – meaning that the obligations and declarations under the wage subsidy extension DO NOT apply to the old wage subsidy retroactively. 

In case you were worried about falling under the new obligations and declarations of the wage subsidy extension because you applied for the wage subsidy earlier – you need not worry. 

TL;DR? (Too Long; Didn’t Read)

The Wage subsidy extension is NOT the same scheme as the wage subsidy – in fact, the old wage subsidy is over and you can no longer apply for it. You can only apply for the wage subsidy extension now.

Who can apply for the wage subsidy extension?

The criteria for the wage subsidy extension is pretty much the same as the wage subsidy that preceded it with one major exception:

“The business applying must have experienced a 40% decline in revenue for a 30 day period in the last 40 days before they applied for the wage subsidy extension”

Does that make your head hurt? Because it sure makes mine hurt!

But before we delve deeper into what this 40% decline implies, let’s cover the basics first. 

To apply, your business must be:

1. An eligible Employer
2. Your business must be in NZ (duh)
3. Your employees must be legally working in NZ (double duh)
4. You must mitigate the financial impact
5. You must retain the employees you are working with

You can read more about these other criteria in detail at the MSD website or in the write up I made on the wage subsidy here.

I’d like to spend more time talking about that 40% decline.

So, you remember that 30% decline that you needed to show for the old wage subsidy right? Well, this time it’s a 40% decline you need to show to qualify for the wage subsidy extension. 

The 40% decline needs to be for a 30 day period within 40 days before the date you applybfor the wage subsidy extension. The 40 day period cannot extend beyond 10 May 2020. 

Let’s use an example:

Goodtimes Ltd is thinking of applying for the wage subsidy extension. They made the application on 17 June 2020. They can choose any 30 day period within 40 days (meaning 7 May 2020 to 17 June 2020) but this period cannot extend beyond 10 May 2020 – so the period they are looking at is only from 10 May 2020 to 17 June 2020. 

Now, They need to choose a 30 day period within this time frame to check out whether they have experienced a 40% decline in their revenue. Let’s say they choose the period 15 May 2020 to 13 June 2020.

This period of 15 May 2020 to 13 June 2020 needs to be compared with the period of 15 May 2019 to 13 June 2019 to determine if they indeed experienced a 40% decline in revenue. If they are a new business operating less than a year or a high growth business, they can choose another 30 day period prior to the COVID-19 crisis for comparison (much like the wage subsidy).

It is also worth pointing out that if they are a research intensive business in the pre-revenue stages (meaning that they are still in the R&D stage) and are reliant on capital investment – a 40% drop in capital investment for the period can be used instead of revenue.

SO – if in 15 May 2019 to 13 June 2019 they made sales of $10,000 and in 15 May 2020 to 13 June 2020 they made sales of $6,000, then they qualify, since the drop is 40% (or more).

WOW

Did you have as hard a time reading it as I did writing it? 

Ok, let’s simplify it:

Take 30 days, any 30 days from before the date you apply for the extension AND after 10 May 2020 – and compare it against either a time from before COVID-19 crisis (if you are new or high-growth) or the same period in the previous year.

You cannot take whole months for comparison right now as the cut-off date is 10 May 2020. Once we roll into July 2020 – this calculation should be simpler as you can then just take the whole month of June 2020 for comparison purposes.

How much do my employees get for the wage subsidy extension?

The amount is paid in a lump sum for 8 weeks worth of wages at the following rates:

For full-time employees (more than 20 hours): $585.50 – lump sum of $4,684

For part-time employees (less than 20 hours): $350.00 – lump sum of $2,800

Note that these amounts also apply if you are self-employed or are the shareholder/director of your company.

How do I pay out the wage subsidy extension?

This is a really good question and in a lot of ways it helps to clarify some of the confusion that was surrounding the initial wage subsidy with regards to paying part-time and casual workers so here’s a quick breakdown of some clarification and changes made to the wage subsidy extension:

1. Full-time employees: Get paid out at their normal rates or at least 80% of their normal rates.
2. Part-time employees: Get paid out at their normal rates or at least 80% of their normal rates. 
3. Casual employees: Get paid out at their normal rates or at least 80% of their normal rates. Note that casual employees can only qualify for the wage subsidy IF they were supposed to be working during the wage subsidy extension period.

In all cases, Where the employee’s normal rates are below the subsidy amount, the excess can be used to pay other employees their normal rates.

Just like the wage subsidy before it, the wage subsidy extension should be paid out together as part of your employee’s regular remuneration.

When can I apply for the wage subsidy extension?

Officially – you can apply for it now! 10 June 2020 is the opening date after all.

BUT! 

And this is VERY IMPORTANT

You cannot apply for the wages subsidy for any employee (and that includes yourself if you are self-employed or the shareholder of your company) while they are still on the 12 weeks wage subsidy.

Which means that if you received the wage subsidy on 1 April 2020, you cannot apply for yourself or your employees until after 17 June 2020 (which would be 12 weeks after 1 April 2020). You need to make sure that you have completely paid out the wage subsidy to your employees over the 12 week period before applying for the wage subsidy extension.

This is especially important to remember for all you self-employed folks out there: Yes, you might have gotten the wage subsidy as a lump sum but if you are thinking about applying for the wage subsidy extension, you need to make sure that it is 12 weeks after you received the initial wage subsidy.

Do I need to repay the wage subsidy extension?

In most cases, no.

However, if you experience any of the following, you have to repay the subsidy (taken from the MSD website here):

• you no longer meet the criteria for the Wage Subsidy Extension
• you’re not meeting your obligation to use the subsidy to retain and pay your employees
• you’ve received insurance (eg, business continuity insurance) for any costs covered by the Wage Subsidy Extension
• you provided false or misleading information in your application.

There is also some additional guidance if an employee leaves employment during the wages subsidy extension period (taken from the MSD website here):

For redundancies:

If you have to make an employee redundant during the Wage Subsidy Extension period:

• you can use the Wage Subsidy Extension to pay the employee any notice period arising from the redundancy, and
• you must repay any balance of the Wage Subsidy Extension that’s left after the notice period has been paid. You cannot use it to pay other staff.

If the employee resigns:

If one of your employees voluntarily leaves during the 8 weeks of the Wage Subsidy Extension, you need to tell us. You can’t claim another Wage Subsidy Extension for that person.

You don’t have to repay the Wage Subsidy Extension. Any difference should be used for the wages of other affected staff – the Wage Subsidy Extension is designed to keep your employees connected to you.

Basically there are very different treatments to what you do with the balance of the employees’ subsidy depending on whether they were made redundant or if they voluntarily resigned.

But wait, we haven’t got to the best part yet:

For all you self-employed folks out there (this includes directors/shareholders of companies as well) – you may have to repay your wage subsidy extension too. 

If the amount you received as part of the wage subsidy extension is more than what your weekly drawings/earnings usually are, you will have to repay the difference to MSD.

So, for example, if your usual weekly take is $300 and you received $585.50 per week under the wage subsidy extension – you have to repay the $285.50 extra received per week.

In the old wage subsidy – this was implied to be voluntary as it was not included in the obligations/declarations. In the wage subsidy extension – this is VERY CLEARLY stated in the obligations/declarations and you MUST abide by these rules.

Arguably, it will be difficult for the MSD or IRD to prove that you are getting more from the subsidy extension than your regular weekly take (since drawings aren’t taxable and all that). However, if you are self-employed or are a director/shareholder of your company ask yourself this one, very simple question:

Would I normally make, in terms of profit, MORE than $4,684 (for full-time) or $2,800 (for part-time) from my business over an 8 week period?

If you answered no – don’t apply for the wage subsidy extension. Just don’t do it. Save yourself some legislative headache and be happy with the old wage subsidy you’ve already received.

If you answered yes – be sure you have the accounts and tax returns to back up your claims. Otherwise you could end up on the wrong side of the law.

If you answered no and STILL want to apply for the wage subsidy extension as a self-employed business – make sure you keep a very precise record of what your usual weekly take is and be sure that you are not owing money to your business from taking too much drawings out of it. Be very sure to repay any excess amount you get from the subsidy that is above your usual weekly take.

While IRD may not be able to analyse your weekly drawings amount, they certainly can do the math on the profit you have returned to them through your tax returns – so don’t try anything funny if you don’t usually make that much money anyway.

If you are looking to repay the wage subsidy extension, you can get the details at this page here.

What about taxes?

The tax treatment for the wage subsidy extension is the same as the old wage subsidy:

For Companies:

The Wage subsidy is treated as non-taxable income and is non-tax deductible when paid out to your employees. You will still need to pay PAYE/PAYG and other deductions out of the gross amount you pay to your employee.

For self-employed/shareholder salaries:

The wage subsidy is treated as income replacement and will be included as part of your taxable income for the financial year.

There is NO GST taxable on the wage subsidy.

Anything else I need to know?

If you have an hour or two on your hands, you can read up on the Wage subsidy extension in its entirety at the MSD website here.

Be sure to have a thorough understanding of the obligations and declarations before applying for the wage subsidy extension here.

And, after all that, if you meet the criteria and strongly believe that your business qualifies for the wage subsidy extension you can apply for it on this page here.

I didn’t cover every single aspect and detail of the wage subsidy extension simply because it is, in a lot of ways similar to the old wage subsidy, which I’ve covered before. I have taken great care to highlight the main differences and the implications of the newly worded declaration. Make sure you understand what you are signing up for before applying for it.

Take care, stay smart and most importantly:

Stay positive!