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Agreeing Employment Terms – What you need to consider

Following the rise in alert levels announced by the Prime Minister on 17 August 2021, the wage subsidy has been reinstated.

In the wage subsidy declaration, you declare that for the period you receive the subsidy you will:

  • use your best endeavors to pay at least 80 percent of each named employee’s ordinary wages or salary; and

  • pay at least the full amount of the subsidy to each named employee; but

  • where the ordinary wages or salary of a named employee as of 16 August 2021 is lawfully below the amount of the subsidy, pay the employee that amount.

Ordinary wages or salary means:

  • in relation to a named employee, the ordinary wages or salary as specified in the employee’s employment agreement or in accordance with relevant statutory obligations as at the date you apply for this subsidy; or

  • in relation to you if you are a sole trader or self-employed person, the weekly amount that you regularly pay yourself as at the date you apply for this subsidy.

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.

Deciding what is right for your business

With the above in mind, as an Employer, you must now decide the basis of the wage payment you will be paying your Employees and communicate this to your team.

Have good faith discussions with your Team to enable by-agreement outcomes

Taking into consideration the Wage Subsidy Scheme guidance released by the Government on Friday 20 August 2021 and the declaration you sign when applying for the wage subsidy, you will need to have good faith discussions with your team to have a by-agreement outcome that is agreed to by both parties.

Your starting point should be to consider what reserves your business has available, together with the wage subsidy and resurgence payment, and then determine your ability to meet all of your obligations for the duration of any shutdown and however long you anticipate it will take for your business to return to normal. Wherever possible you want to be able to pay your employees as per normal so that you are looking after them and your business.

If you are unable to do this, last year Velocite developed a framework that holds true again with this lockdown whereby the key requirement is to have good faith discussions with your employees prior to changing their terms of employment. And yes, dropping an employee to 80% of their previous wage is a change to their employment terms.

In discussions with your employees, you could consider discussing some of the following points:

  • that this is a government-mandated shutdown of the business

  • that the shutdown is for an unknown duration but currently a minimum of a further 4 days for New Zealand ex. Auckland and a further 8 days for Auckland (at 23 August 2021)

  • your business has no (or significantly reduced) revenue

  • list the decisions you have made already, including if you have deferred debt repayments, what costs you have reduced, and what reductions you have made to your own drawings

  • with limited revenue coming in you need to decide how to address all costs including wages

  • that the Government wage subsidy is only $600 (part-time $359)

  • you would like to reach an agreement to vary terms of employment, you are doing this to keep the business afloat so that there is the opportunity to return to full-time employment terms

  • if after the shutdown you do not believe, the business will immediately return to full revenue consider discussing a transition back to full employment terms, manage expectations about how long it will take to recover post the lockdown period

  • alternatives to consider also include restructuring, redundancy, or closing the business but this would not enable the wage subsidy to be applied for

  • discuss what your proposal is with all employees and ask for feedback

The objective is to reach a ‘by-agreement’ outcome which is then communicated in writing (email or text) and accepted by reply confirmation.

Every business is different, some are able to pay 100% or are topping employees up to 80% out of their own pocket. Other businesses are reaching an agreement with employees to use annual leave to top the employee up to 80% or 100%, others are proposing to only pay the wage subsidy amount. Employers may still want to ask their team to take leave for the return to work period.

An employer can use annual leave towards the shortfall between the subsidy and 80% of the employees pay BUT first:

a) The employer must have a good-faith conversation with the employee about that (attempt to get agreement). The employer should explain why they intend to use annual leave in that way (help maintain employment long term, reduce annual leave liability, we’re all in this together, etc)

b) Employee has to agree to that proposal from the employer, and

c) That of course means the employee does not then have to work (if there is work available, then they should be paid to do that work)

d) IF THE EMPLOYEE DOES NOT AGREE, the employer can give 14 days’ notice of a requirement to take annual leave (employer must follow section 19 Holidays Act).

e) Annual leave balance is deducted proportionally to the shortfall

Most employers are able to reach a ’by-agreement’ outcome fairly quickly for the simple reason that everyone realises how challenging the situation really is when all businesses are having to shut their doors for weeks. Whatever outcome you reach, ensure that you document the basis for arriving at your proposal and confirm in writing the agreement you reach, via email or text to your employees with a confirmation reply required.

These are difficult times for all, the above guidance is designed to give you some ideas of how to approach the challenging conversations with employees that all employers must have; not just last week, but again this week and yet again in the transition back to full employment. Be sure to talk to your HR specialist or Legal advisors, everyone is here to help navigate what is a difficult situation for all.

If you require our support please email our team at

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