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Finance minister Grant Robertson (Photo: Getty/Hagen Hopkins/Stringer)
Finance minister Grant Robertson (Photo: Getty/Hagen Hopkins/Stringer)

BusinessAugust 17, 2020

Wage subsidy extension details revealed: here’s how it works

Finance minister Grant Robertson (Photo: Getty/Hagen Hopkins/Stringer)
Finance minister Grant Robertson (Photo: Getty/Hagen Hopkins/Stringer)

Do you qualify for the government’s new wage subsidy extension? Here are the essentials.

What’s all this then?

Last Friday, the government announced Auckland would stay in alert level three – and the rest of New Zealand in alert level two – for another 12 days, as part of its response to the recent Covid-19 outbreak.

To help businesses survive at least a fortnight of reduced trade and other obstacles as a result of the measures, the government also announced a third round of the Covid-19 wage subsidy scheme. Finance minister Grant Robertson released the final details today.

Who is eligible?

According to Robertson, the new wage subsidy extension criteria is similar to the current active wage subsidy extension: any business, self-employed or independent contractor will be eligible for the wage subsidy if they can show a 40% decline in revenue for any consecutive period of at least 14 days within August 12 and September 14 compared to last year.

Because of the nature of level three restrictions – which allows businesses to operate only in a contactless setting – many Auckland businesses are going to take a big hit either from operating at a reduced capacity or having to close entirely over the two weeks. Level two businesses across New Zealand are also likely to be impacted from having to physically distance and limit their customer numbers, while also losing revenue they would otherwise make from travelling Aucklanders.

Naturally, this will mean a vast wave of businesses apply for the subsidy, which will take the burden off of paying staff and allow more employers to retain and pay their workers over the two weeks.

The government estimates the new wage subsidy extension is likely to cover 470,000 jobs.

So there’s already a wage subsidy extension? 

Yes, there is a two-month extension to the wage subsidy which came into effect on June 10, with applications open until September 1. Because this is available to businesses that can show a 40% decline in revenue for a continuous 30-day period, it may not be applicable to the businesses who have been doing well but will struggle under the current alert levels. The wage subsidy announced today is aimed at them.

Treasury estimates that together, the two schemes together will cover 930,000 jobs.

How much will you get?

It works in the same way as the initial wage subsidy, so full time workers working 20 hours or more per week will get $585.80 gross per week, while part-timers working less that 20 hours per week will get $350.00 gross.

This will be paid in a lump sump sum to employers, who will then pass it on to employees. Like in the last wage subsidy, employers are expected to pay employees in accordance with their employment agreement, or, if they can’t do that, then they “should try their hardest” to pay them at least 80% of their usual wages, using the subsidy to subsidise a portion of it.

Employees that earn less than the wage subsidy should be paid their usual wages, and any difference should be used for the wages of other affected staff or, if not needed, should be paid back.

How do you apply?

Employers or independent contractors can apply through the Work and Income website. According to MSD, the new wage subsidy will be open for applications by the end of the week, Friday August 21.

How much will it cost the government?

According to Robertson, the new wage subsidy extension will cost the government around $510m. Fortunately, there was an amount left over from the initial Covid-19 wage subsidy fund that could cover the cost, Robertson said on Friday.

The government also has $14b of the Covid-19 fund that it had held back in the event of a development such as the current outbreak.

What has the reception been?

While the support is likely to provide a great deal of relief for both employers and employees throughout the next two weeks, businesses typically have many other expenses besides wages that they will need to continue to pay.

Business leaders and industry representatives have welcomed the subsidy, but they say it doesn’t go far enough to protect already frail businesses from imminent collapse.

“We will see a massive reduction in retail spending nationwide over the next 12 days. Retail businesses typically operate on very low margins, and are critically reliant on cashflow coming in the door,” Retail NZ chief Greg Harford told RNZ.

Julie White, CEO of Hospitality NZ told RNZ targeted support would be needed to help those businesses that have greater expenses and overheads beyond wages.

“They have fallen short, we will need [them] to step up and recognise the impact on the income to hospitality, so we’ll be touching base and asking them to re-look at a sector-specific package,” she said.

While there are other tools the government has extended, such as the small business cashflow scheme and mortgage deferral scheme, targeted or industry-specific support has not yet been announced.

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