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Employment – COVID-19/Wage Subsidy Issues

April 2020

With the restrictions on economic activity rapidly changing alongside the developing situation regarding COVID-19, businesses are facing an unprecedented degree of economic uncertainty.

To address this, the Government released a wage subsidy scheme where qualifying employees can receive a subsidy to be used to pay employees for 12 weeks. The criteria for qualifying, broadly, are:

  • The employer must have experienced at least a 30% decline in revenue attributable to COVID-19;
  • The employer must retain employees for at least the duration of the 12 week period; and
  • The employer must pay employees, at a minimum:
    • for any work that the employees do at their normal rates;
    • at least 80% of an employee's normal income where reasonably possible (for employees working reduced hours while self-isolating);
    • the full subsidy received for each named employee, except where an employee's normal income is less than the subsidy amount (see below).

The Government's wage subsidy announcement came as some relief for employees and employers alike, but despite the introduction of the scheme many employers still need clarity as to what their payment obligations to staff are.

This article aims to provide answers to some questions regarding the wage subsidy scheme, and the payment obligations of employers in the current crisis.

Question 1: What if the employee's usual wage is less than the subsidy?

If an employer qualifies for the subsidy, they can receive up to $585.90 for staff working 20 hours or more per week, and up to $350.00 for staff working less than 20 hours. "Up to" is the operative phrase here - the Government clarified on 28 March 2020 that for employees who earn below the subsidy level (that is, their usual weekly pay is less than $585.90/$350.00), employers are only expected to pay them their normal income amount and are not expected to pay them the full amount of the subsidy.

Question 2: What if the employee's usual wage is more than the subsidy? Can an employer reduce an employee's wage to 80% or to the level of the subsidy?

The Employment Relations Act 2000 still applies here - an employer cannot change an employee's pay without their agreement. As such, an employer is not entitled to reduce the employee's wages to 80% or to the level of the subsidy unless the employee agrees to that reduction.

If an agreement cannot be reached regarding a reduction in pay, employers could ask an employee to agree to take unpaid leave, or to take annual leave. If an agreement is still unable to be reached - get legal advice!

In saying this, many employers are finding that employees are open to reducing their wages temporarily as a means of avoiding redundancy later down the track.

For reasons that will become evident below, any agreed reduction to an employee's pay should be in writing, and should indicate how long the reduction will remain for.

Question 3. What if an employee agrees to reduced pay - and then the business is able to operate again?

This is a scenario which has the potential to crop up as we exit the Level 4 lockdown period: where an employer is unable to operate their business and so consults with their employee (or, in some unfortunate cases, strong-arms them) into agreeing to reduced pay. Then, through either descending alert levels, through the business being deemed essential by MBIE, or otherwise, the business is able to operate again and generate income.

The question then arises - is the employer still only obligated to pay the reduced amount agreed on, despite being able to go back to business?

Given the unprecedented nature of these issues, we don't have a clear direction from the Government or from the law as to what an employee can do in this situation. However, we think if this situation were to arise it would be open for an employee to begin negotiations with their employer to seek a reinstatement of their usual pay. A fundamental principle of employment law is any negotiations must be on a "good faith" basis, which continues to apply at the moment. We would encourage anybody in this situation to seek legal advice on how to move forward.

In conclusion

Employers may find that their employees are more open to reducing their pay than might be assumed, and employees may find that employers are more reasonable in paying them what they should, despite the economic impacts on businesses. If this is not the case however, we encourage seeking legal advice.

What is clear in this time of uncertainty is that employers engaging in and maintaining open channels of communication and transparency with employees is more important now than ever.

If you are an employee or employer with questions or concerns about the wage subsidy or wages in general, please contact us at Holmden Horrocks for more information.

Written by Julia Holden (Litigation Junior) with input from Blair Franklin(Commercial Partner) and James McLennan (Litigation Partner)