Since applications for the Covid-19 August Wage Subsidy opened on Monday 23 August, our Telephone Advisory Service has been flooded with questions from employers about the application process, checking eligibility and obtaining employee consent.
The process to apply for the wage subsidy this time around does look different from last year in a few areas. Below we answer some of the more complex questions surrounding the wage subsidy declaration.
Do you need employee consent to apply for the wage subsidy?
To comply with the August Wage Subsidy declaration, you must first discuss the application with the employees you identify to receive the subsidy. Once you have discussed the application, you must obtain each employees’ written consent to you sharing their personal information with the Ministry of Social Development (MSD) and other agencies for the purposes under the application.
After consulting with our law partner, LangtonHudsonButcher, we recommend that, to fully comply with your employer obligations under the Wage Subsidy declaration, employers must:
- Try to obtain consent in writing in the first instance.
- Obtain consent before applying for the Wage Subsidy.
- Ensure that employees clearly understand the particular purposes for which MSD and other agencies may use their personal information.
Opt-out approaches are not compliant, for example, you can’t say: “If you don’t reply to this email, I will assume that you consent”.
If obtaining written consent is not practicable, employers must be prepared to justify that position in an MSD audit. In this case, an employer will need to confirm that they received some form of unwritten positive response from the employee (for example, if you make a follow-up call to your employee where they consent to the application on the phone).
What if you applied for the wage subsidy without meeting the consent requirements?
If you have applied for the wage subsidy without your employees’ consent, or the permission you obtained from employees may be inadequate, you should go back and seek proper consent that meets the requirements.
Do I also need to obtain consent to reduce employees’ pay to 80 per cent?
Even during an emergency such as a COVID-19 lockdown, employment law still applies to all employment relationships. The fact that there’s a subsidy does not give an employer the right to make changes to an employee’s terms and conditions of employment without obtaining the consent of each employee in writing. Remember, the employment contract is an individual contractual agreement between each employee and the employer, and every change to contractual terms must be agreed upon and signed off.
The first question we get after advising clients of this is the obvious one: “What happens if the employee does not consent? Does this mean we can’t make a change and have to carry on paying them 100 per cent?” Initially, the answer is yes. But employers do have three options that they can use unilaterally when this happens and include:
- Require the employees to take annual leave by giving 14 days’ notice in writing; this option doesn’t solve the cash flow problem, but it does reduce leave liability for the future.
- Declare force majeure – but only if the employment contract contains a clause that allows you to do so. Force majeure is a declaration that an external and unavoidable circumstance has prevented both parties from delivering on their employment contract obligations; as a result, the employee no longer has to work, and the employer doesn’t have to pay them while they don’t work. This option is a short term and reviewable arrangement. This option should be used as a last resort, and because of the risks involved, we recommend seeking advice before using it.
- Restructure the business to be sustainable in the economic environment that it exists in. Restructuring is a long-term, large-scale solution, so it may not always be appropriate in a short-term situation. And a restructure is certainly not appropriate if you don’t have a genuine reason behind it. The central thing to keep in mind about restructuring is that it should be an impartial process: it would be (extremely) bad faith to target an individual who did not consent to the reduction in pay. Again, this option should be considered as a last resort, and we recommend seeking advice before you proceed. You can read more about the process of restructuring and redundancy in this seven-part guide.
What could happen if your application breaches the declaration?
A breach of the declaration could result in:
- civil proceedings;
- prosecution for providing false or misleading information;
- repayment of Wage Subsidy funds for any employee who didn’t consent.
Employers should also be mindful that it’s possible to breach the Privacy Act 2020 if you fail to show that your employee gave adequate consent. This is a risk that will be considered on a case-by-case basis and will depend on the purpose for which the information was collected from the employee in the first place (as advised to the employee at the time).
What is the decline in revenue test?
The decline in revenue test that applicants must meet is stricter than previous iterations of the subsidy, including that:
a) applicants must have had, or be predicting they will have, a decline in revenue of at least 40 per cent over the period 17 August 2021 to 30 August 2021when compared to a typical 14-day consecutive period of revenue in the six weeks immediately prior to the move to Alert Level 4. There is an exception to this test for employers with highly seasonal revenue. Such applicants must be able to demonstrate that the seasonal nature of their business makes it harder to meet the 40 per cent revenue decline test;
b) applicants must prepare and retain evidence to support the declaration, such as:
- records that demonstrate how a decline in revenue was attributable to the move to Alert Level 4 on 17 August 2021;
- evidence that applicants have taken active steps to mitigate the impact of the move to Alert Level 4; and
- proof that the business is not receiving any other form of COVID-19 support for any employees named in the application (this does not include the COVID-19 Resurgence Support Payment).
Do I need to repay the subsidy if I don’t use the total amount?
There is now an express obligation to repay:
- any amount of the subsidy that is not required to pay the ordinary wages and salary of employees named in the application, and for meeting the employer’s obligations concerning the subsidy; and
- all or any part of the subsidy if an applicant was not, or stopped being, eligible for the subsidy or any part of the subsidy, such as if predictions of a decline in revenue are not realised.
What are the purposes for which employee information will be used in a wage subsidy application?
The declaration permits broader information sharing than before, including that the information in an application for the wage subsidy can be used to make decisions about other applications for other COVID-19 support and can be used to audit and review how any support is paid to employees. Employee consent to such information sharing is required, and you must inform employees of their right to access their personal information.
Do employees need to be informed of the outcome of the Wage Subsidy?
You must inform all employees named in your business’ wage subsidy application of the outcome of the application plus the conditions that apply to the receipt of the subsidy.
What else should employers know about employee pay and leave entitlements under the wage subsidy?
Remember that you cannot name any employee in an application who you have given notice of redundancy. You must retain all employees you receive the subsidy for, for the duration of the subsidy.
It’s also unlawful to make any change to an employee’s terms and conditions of employment – such as requiring employees to take leave or reducing their pay or hours – without the written agreement of the relevant employee.
If, as an employer, you receive the subsidy, you remain responsible for paying the ordinary wages and salary of the employees named in your application. This means that you must:
- use “best endeavours” to pay at least 80 per cent of each named employee’s ordinary wages or salary; and
- pay at least the full amount of the subsidy to each named employee; but
- if the ordinary wages or salary of a named employee as of 16 August 2021 is lawfully less than the subsidy, you may pay the employee that amount.
If your business applies for the wage subsidy, be sure to carefully read the declaration to ensure you can comply with it. We expect to see more stringent enforcement of the obligations set out in the declaration (including prosecution) this time around.
If you need any assistance with obtaining or reviewing the adequacy of consent or communicating compliantly about the wage subsidy to your employees, the team at HR Assured can help.
For HR Assured clients, contact our 24/7 Telephone Advisory Service.
Not an HR Assured client and need some advice? The team at HR Assured can support your business on a range of workplace matters. Contact us today to arrange a confidential, no-obligation chat.
The information in this update aims to provide an overview of the employment law requirements under the COVID-19 Alert Levels and is shared with the help of our law partner, LangtonHudsonButcher (LHB). LHB are an internationally recognised specialist employment law and litigation firm based in Auckland. The team of lawyers at LHB are experienced in negotiation, mediation, and advocacy. They work with the HR Assured team to ensure every legal template, document, and checklist in HRA Cloud is compliant. Learn more about LangtonHudsonButcher here.