Published 2nd April 2020
The following guidance is to help you make decisions about how to deal with the isolation period payments.
Immediate action required
The 2 immediate actions we strongly recommend you take at this stage are:
- Check your decisions in respect of isolation period payments against the new COVID 19 declaration (guidance below)
- Get your employees written agreement to the payments that you are making during the isolation period. We have developed a template to help you deal with that
Hold all other action in respect of employment agreements at this stage
Our recommendation at this stage is to hold off making any further decisions about changes to terms of employment until such time as there is further clarity about how long the isolation protocols will be in place.
What to check?
- Have you used the correct baseline for “Ordinary wages or salary”?
- Are you making correct annual leave deductions?
The law does allow employers to correct mistakes. So do not panic if you think you may have made errors so far but do use the information you have now to adjust your decisions moving forward. If you have deducted too much annual leave this can be added back into the leave balance, if you have not paid enough pay, you can correct this.
What this document covers
- If an employee earns below the subsidy received?
- Paying 80%
- What is ORDINARY WAGES OR SALARY?
- Annual leave
- Does employment law still apply?
- Can I change someone’s terms of employment during this period?
- Can I fire someone or make them redundant during the next 12 weeks?
- Can I ask people to do work?
- What are “best endeavours”
On Friday changes were announced to the COVID 19 subsidy scheme, but over the weekend these have now been readjusted. The subsidy declaration for the new scheme can be viewed here. https://workandincome.govt.nz/online-services/covid-19/declaration-wage-subsidy.html
Which declaration applies to me?
Technically, if you applied under the original scheme then the declaration in force at the time of application is the one that applies. However, the 1st declaration was open for interpretation and the 2nd declaration has answered many of those areas of confusion. As such, if making decisions about how to proceed I would recommend that you look at your decisions in light of the 2nd declaration. If you are not able to meet the requirements of the 2nd declaration, then be prepared to justify why you have made the decisions you have made.
What the 2nd Declaration states
We recommend that you read the entire declaration, however to help you make your decisions we have broken it down around the main areas of question that have been coming through
If an employee earns below the subsidy received?
The 2nd declaration (applications after 4pm on 27th March 2020) states that you will “pay at least the full amount of the subsidy to the employee; but where the ordinary wages or salary of an employee named in your application was lawfully below the amount of the subsidy before the impact of COVID-19, pay the employee that amount.” The First declaration states that you will “make best efforts to pay them a minimum of 80% of their normal income for the subsidised period. ”
As such if Mr X normally gets paid $20 per hour for 10 hours per week, his normal pay would be $200 gross per week and therefore you pay him $200 gross under Declaration 2, but (arguably) $150 gross under declaration 1, even though the subsidy received as a result of putting Mr X’s name on the application was $350. The balance should be used for the wages of other affected staff.
I am sure there will be further commentary on this, however it would appear that under declaration 2 the 80% rule should NOT be applied to Mr X. It is the value of the subsidy OR ordinary wages or salary. But under Declaration 1 you should make best endeavours to pay everyone 80%. You will need to assess:
- When you applied – i.e. before or after 4pm on 27th March 2020
- What the impact on everyone is of applying 100% to Mr X, i.e. will you have to disadvantage Mr Y you normally earns $60K per annum because you are having to top up Mr X?
The declaration states that “You will for the period you receive the subsidy: use your best endeavours to pay at least 80 per cent of each named employee’s ordinary wages or salary;”
Key words of note here are:
- At least – 80% is the target, but if you are not paying 80% you may be called on to justify why (see later on “best endeavours”). Equally, if you can pay more than 80% you should still be doing so.
- The period you receive the subsidy – this is for a 12 week period and you need to pay them through this whole 12 week period (see later on Redundancy during this period)
- Each named employee – you need to keep everyone named on the application (see later on Redundancy during this period)
- If your staff are still doing more than 80% of normal work you do need to be paying them in line with the work load they are doing. You should NOT be using the COVID 19 situation as an excuse to pay them less money for the same amount of work.
However, the Finance Minister stated on Saturday 28th March “We still want employers to use their best endeavours to pay employees 80% of their normal salaries. Where this is not possible, we want the value of the subsidy to be passed on.” So if you can’t pay 80%, pay the subsidy.
What is ORDINARY WAGES OR SALARY?
The 2nd declaration defines ordinary wages or salary as” specified in the employee’s employment agreement as at 26 March 2020.”
This is still not totally clear exactly what the “starting point” will be for assessing if you are meeting the 80% threshold. However a rule of thumb may be to utilise 80% of “ordinary weekly pay” as defined by the Holidays Act as your starting point and then assess this against “best endeavours”.
This is another point which I am sure there will be more commentary about. However, I suspect that the main aim of this clause is to ensure that employers don’t rely on a lower guaranteed number of hours clause in the employment agreement to reduce their assessment of peoples pay during this period. NB refer to the section on “If an employee earns below the subsidy received”. We recommend that when communicating with your employees about this you specify what you are using as the baseline to calculate the 80%.
The declaration states “You will not unlawfully compel or require any of the employees named in your application to use their leave entitlements for the period you receive the subsidy in respect of those employees;
- Check your employment agreements – Since at least April 19 the HRtoolkit templates included the following clause “In the event the Employer’s business is interrupted by unforeseen events beyond its control e.g. natural disaster (earthquake etc.), damage to the workplace premises, governmental action, war, terrorism or health epidemic or pandemic) causing significant disruption to the business then the employee may be required to take annual leave or unpaid leave without notice. If the impact is long-term then the employer may be required to terminate employment by reasons of frustration of contract.”
Even if you have downloaded one of our agreements please double check this is actually in the agreement you gave to a specific person.
If you have this clause or something similar then you may lawfully require an employee to take annual leave. But check your wording very carefully.
- Don’t use the subsidy to reduce an annual leave liability – Annual leave is a liability for a company that accrues over time. To use the COVID 19 subsidy payment, a payment you would not have otherwise received, to reduce an existing liability would not, in our opinion, be legally compliant
- Ask your employees if they want to take annual leave to top up above the subsidy – the declaration says you can’t require or compel an employee to take annual leave. However, you absolutely can ask if they want to take annual leave. We would particularly recommend this for top up between 80% and 100% if you are unable to pay 100%
Does employment law still apply?
The declaration states that ”your receipt of the subsidy does not override your existing obligations under the Employment Relations Act 2000”
There have been no changes to employment law and technically you can still be held accountable to abiding by the terms of your employment agreements. I.e. if an agreement states “You are paid a salary of $XX,XXX which will be paid in 52 equal instalments” then arguably you still have to pay that. The current situation does give a level of defence to not abiding by this term. However, we recommend that you tidy up paperwork in respect of payments during the period of isolation, and you will need to make sure your employment agreements align with the new reality for when the isolation protocols are lifted.
Can I change someone’s terms of employment during this period?
The declaration states that “You will not make any changes to your obligations under any employment agreement, including to rates of pay, hours of work and leave entitlement, without the written agreement of the relevant employee; ”
So, yes you can make changes, BUT you have to get the employees written agreement to the changes. I.e. you need to consult with them.
Action required NOW
Most companies will not have the “written agreement” for changes made to pay as a result of the isolation protocols. This paperwork needs to be tidied up and we have drafted up a template letter available for free to companies to achieve this.
Future actions may be required
Depending on when the isolation protocols are lifted will, for many companies, dictate what your company will look like when we re-open for business. However, for the majority we will not be up to 100% speed day 1 and therefore you will need to build a degree of flexibility into your employment agreements to cope with the reopening. We will be issuing more guidance and templates on this once we have a clearer picture about how long isolation will last.
At this point we recommend that you DO NOT make any further changes to employment agreements (except as to account for the isolation period) as decisions may change depending on how long isolation lasts.
Can I make someone redundant during the next 12 weeks?
The declaration states that “You will retain the employees named in your application as your employees for the period you receive the subsidy in respect of those employees”
It is very clear that the intention is to keep everyone in employment for the next 12 weeks.
We strongly recommend that you do NOT go into a redundancy process right now. However, if the isolation protocols are extended then we will provide further advice applicable at that time.
Can I ask people to do work?
Yes. You are paying them so you can call on them to do work for 100% of the time you are paying them for (NB the wages subsidy is time you are paying them for).
Work requests of course need to be fair and reasonable and given the situation you need to ensure that the requests are:
- Able to be done at home (i.e. without breaching isolation rules)
- Done in line with appropriate protocols (PPE etc) for essential workers
- Within the reasonable abilities of the person. g. you can’t ask someone who is computer illiterate and doesn’t have access to a computer at home to do on-line work
But this is a great time to get all of those “tidy-up” jobs done e.g. reviewing documents, phoning clients etc
What are “best endeavours”
This is not a term that is defined and will, I expect, be one of the areas of biggest debate as this situation unfolds.
Each business owner will need to make their own assessments and I strongly recommend that you speak to a financial advisor/bank/accountant about what you can do. But keep a record of what you have done as this is likely to be called on later if you get any challenges either from WINZ or from employees that you have not made “best endeavours”.
If best endeavours mean that you can’t pay anything more than the subsidy then the statement from the Finance Minister on Saturday 28th March was “We still want employers to use their best endeavours to pay employees 80% of their normal salaries. Where this is not possible, we want the value of the subsidy to be passed on.”
If you have already consulted with staff, but now think you need to adjust that approach how do you do that?
Paying less than 100%, but not communicated this in writing
The declaration states that “You will not make any changes to your obligations under any employment agreement, including to rates of pay, hours of work and leave entitlement, without the written agreement of the relevant employee;
Technically, if you are paying less than 100% of their normal earnings the COVID 19 situation has NOT changed employment law and you can still be held accountable for reductions in pay. Obviously the COVID 19 situation will be a strong defence. But we recommend that you get this kind of paperwork sorted and we have developed a free template which will help you deal with this situation.
Already changed employment terms?
If you have made changes already, great. I would not suggest making any further changes until it becomes clear what those changes will need to be. However, refer to earlier sections about paying people who are below subsidy level and paying the 80% and, if you are not complying as a result of changes to employment agreements then you will need to address that.
Told them you will pay less than 80% or less than full subsidy if pay under subsidy value?
You may need to change this approach and re-consult with them. However, refer to earlier sections about paying people who are below subsidy level and paying the 80%.
The advice included in this is aimed to give as much clarity as possible based on the information today. We will endeavour to keep employers as up to date as possible through our mailing list, but it is likely that this advice will change over the coming weeks.
We are here to help
Our goal is to help you through this trying time as much as possible, though we obviously also have to keep ourselves afloat too. As much as possible we will be providing COVID 19 specific templates for free, and reasonable free phone advice for those who are willing to do as much of it for themselves as possible. We can of course help with consultancy support on a pay by the hour basis and our philosophy is to facilitate you to ensure you keep your costs down as much as possible, and also to ensure that what you do is legally compliant.
So give us a call and we will be very happy to get you through, and help you thrive. Lisa (021 741 544) or Frances (022 059 5022)