COVID-19 continues to present challenges for employers. Whether your employees are continuing to work remotely or are unable to work at all, it’s important to understand how to tackle business disruption and to compensate employees properly.

Should my employees be paid reduced wages?

The government has advised that all employees who are able to work their usual hours while the COVID-19 alert system is in place (by working remotely or on-site at an essential business during alert level 4, for example) should be paid their full wage as normal.

However, if an employee can only work at a reduced capacity (i.e. they can perform some, but not all, of their usual duties), the employer is entitled to ask them to accept a reduced income during the applicable period (e.g. alert levels 3 and 4). In this instance, the employer should work with these employees to determine the appropriate number of reduced hours they will work per week. The employer should then come to an agreement with each employee to negotiate a reduced income based on these hours.

Business closed during covid-19

Can I ask my employees to use their annual leave?

You are entitled to ask your employees to use their annual leave during the lockdown period or at lower alert levels. However, the usual employment laws apply in this regard.

Employers should, in the first instance, try to reach an agreement with their employees regarding the use of their annual leave. Endeavouring to reach an agreement will ensure that the employer complies with its duty to act in good faith.

If an employer is unable to reach an agreement with its employees about utilising annual leave while COVID-19 restrictions are in place, they can then require an employee to use their annual leave, provided at least 14 days’ written notice is given to the employee. However, we reiterate that this should be done as a last resort, to avoid a breach of the employer’s duty to act in good faith.

Paying wages during covid-19

What if I can’t afford to pay my employees?

If an employer is unable to continue paying its employees their full income (or the reduced income negotiated as a result of reduced hours while working from home), the employer should apply for the COVID-19 wage subsidy (‘the wage subsidy’).

The August 2021 wage subsidy is available to all New Zealand businesses, including registered charities and incorporated societies. It is paid as a flat rate to all businesses that have had, or are predicted to have, a 40% decline in revenue that is attributable to the move to alert level 4.

The equivalent of 12 weeks’ worth of the subsidy is paid out to employers for each eligible employee. It is paid in a lump sum, which must then be passed on to employees in the course of the business’ ordinary pay cycle or at some other interval. 

The payments made are considered to be normal wage payments. Therefore, standard deductions such as PAYE, Kiwisaver and ACC levies apply. 

In order to receive the wage subsidy, the employer must make all efforts to pay its employees at least 80% of their wage (whether that be their normal full wage or the reduced wage they have negotiated as a result of reduced hours). The subsidy payments are subject to audits, so any employer who receives the subsidy and can pay at least 80% but doesn’t can be ordered to repay all, or some, of any subsidy received.

If it isn’t possible, even after receiving the wage subsidy, to pay an employee at least 80% of their wage, then an employer is required to pay the employee at least the full subsidy received for that employee.

Note: If you receive the wage subsidy, you can’t make any changes to your obligations under any employment agreement, including pay rates, hours of work and leave entitlements, without the written agreement of the relevant employee.

What if the wage subsidy is more than 80% of my employee’s wage?

In this instance, the employer is only required to pay their employee their usual wage (as of 16 August 2021). 

However, the wage subsidy is paid to employers on the basis that it is used to keep employees employed. Therefore, the official recommendation is that the balance of the wage subsidy received for an employee after that employee has been paid their usual wage should be used to pay other affected staff, rather than being diverted to other uses. Again, we reiterate that all wage subsidy payments may be audited and reviewed.

Working from home during covid-19

What considerations should be made if I need to make an employee redundant?

The wage subsidy is available to employers who have recently let employees go due to COVID-19, provided that those employers re-hire the employees who were recently made redundant. Accordingly, it is expected that all employers will, in the first instance, apply for the wage subsidy before making employees redundant.

If an employee’s position is redundant and their employment must be terminated, then the usual process for redundancy must be followed.

While the process for making employees redundant is relatively prescriptive, the nature of each business is different, so the process will require careful consideration and implementation in each case.

In order to comply with its duty to act in good faith when considering the redundancy of an employee, an employer must:

  1. Provide the potentially redundant employees with:
    1. Access to all relevant information (on which it will base its decision as to whether redundancies are made); and
    2. An opportunity to comment on the information before the decision is made.
  1. Consult with affected employees on the rationale for proposed redundancies before they make a final decision. The rationale must be a genuine reason based on the needs of the business. In the case of redundancies resulting from COVID-19, that reason is likely to be lack of work for the employees to perform.

The Ministry of Business, Employment and Innovation has developed a checklist that can be used by employers when considering redundancies to ensure that the correct procedure is adhered to. This checklist should be followed in all circumstances where redundancy is considered, whether or not the redundancy is a result of COVID-19.

If you’d like legal advice concerning your obligations as an employer during COVID-19, please get in touch with John Armstrong or contact reception.


Note: This post is brief and general in nature. You should not treat it as legal advice and should seek professional advice before taking any action in relation to the matters dealt with in this post. Armstrong Murray accepts no liability for losses suffered by any person or organisation who may rely directly or indirectly on this post.