Business Law

Covid 19 – Wage Subsidy

Employers who have received the Covid 19 Wage Subsidy need to be fully aware of the responsibilities they have agreed to.

The COVID-19 Wage Subsidy is paid at a flat rate of:

  • $585.80 for people working 20 hours or more per week (full-time rate);
  • $350.00 for people working less than 20 hours per week (part-time rate).

The subsidy is paid as a lump sum and covers 12 weeks per employee.

Paying your staff

If you are receiving the COVID-19 Wage Subsidy, you must try your hardest to pay the employee named in your application, at least 80% of their usual wages. If that isn’t possible, you need to pay at least the subsidy rate (i.e. full-time or part-time).

If your employee’s usual wages are less than the subsidy, you must pay them their usual wages. Any difference should be used for the wages of other affected staff – the wage subsidy is designed to keep your employees connected to you.

Employers are required to agree that, for the duration of the subsidy, they will make best efforts to retain the employees the subsidy was paid for.

Your obligations to use the subsidy to retain and pay your employees 

When making the application to MSD as an employer

  • You acknowledge that the granting of your application and your receipt of the subsidy does not override your existing obligations under the Employment Relations Act 2000;
  • 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 (It is unlawful for you to unilaterally vary an employment agreement to reduce an employee’s wages or salary in order to receive the subsidy. You must continue to comply with your obligations under the Employment Relations Act 2000);
  • You will not unlawfully compel or require any of the employees named in your application (Including essential workers who are unable to work for COVID-19 related reasons including their own illness or caring for dependents) to use their leave entitlements for the period you receive the subsidy in respect of those employees (other than as you are lawfully permitted to do, including as provided for in an employee’s employment agreement);
  • You remain responsible for paying your employees ordinary wages and salary for the employees named in your application.

Subsidy paid to the employer

  • The Subsidy scheme is provided to employers. The payment is made to assist employers in retaining employees during this difficult period.  The subsidy amounts must be paid toward staff wages and cannot be used for any other purpose.
  • While the Subsidy is granted in respect of named individual employees the amount of the Subsidy paid to the employer – is not an entitlement that is directly available to the employee. This can be seen from questions and answers provided by MSD in relation to the Subsidy.  For example:

What do I do if subsidy is higher than what I usually pay my employee?      

The wage subsidy is designed to keep your employees connected with you.  Any difference should be used for the wages of other affected staff.

If one of my employees who I have made an application for, voluntarily leaves during the twelve week period for another job opportunity or because of caring responsibilities, do I need to pay the money back to MSD?

No – where your employee voluntarily leaves their employment you must advise MSD, and you cannot claim any more subsidy for that person.  However, you do not have to return the subsidy already paid.”

  • What these statements make clear is the nature of the payment to the employer:
    • That the payment is not necessarily tied to a particular employee;
    • The employee has no direct entitlement to the amount;
    • The payment must be used for wages – but the Subsidy paid in respect of a named employee (in certain circumstances) can be used for the wages of other affected staff.

Written consent from employee required (if less than full pay)

  • We have struck a number of circumstances where employers have little or no work for their employees and also do not have the ability to continue to pay staff in full – so in some cases they are paying 80% (or less) or simply passing on the Government subsidy amount of $585.00 per week to their staff.
  • In order to pay staff any amount less than their contracted amount (unless the employment agreement has a force majeure clause – which would need to be reviewed carefully) the employer will need the written consent from each staff member.  An employer cannot pay less than the minimum wage.
  • If that written consent is not forthcoming there is the potential for claims to be made – once we get through the other side of this lockdown and subsidy – by employees for the balance of their full wages.  Some employers may be under the misapprehension that they will not still be liable later for full wages during this time.
  • In these circumstances if an employer cannot get a written agreement from employees to reduce wages whether that be to 80%, some other figure, or just pay the subsidy amount – then the employer may need to consider whether or not they should participate/continue with the subsidy scheme and/or effect staff wage cost reductions through a redundancy process.


Hugh Matthews

Hugh Matthews