Updated: Apr 1, 2020
Current at 30 March 2020
Over the last week we have had a huge number of conversations with business owners; all are trying to decide how they pay their employees when most businesses are going to have no income coming in over the next four weeks.
Alongside this, we have been reading plenty of updates as well as having some good and interesting discussions with Phil McCarthy at Auld Brewer Mazengarb & McEwen (ABMM) on this.
The Velocite view based on the information available is that 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 4 weeks
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 $585 (part time $350)
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 down 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 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. Some are using the 14 day notice period and enforcing annual leave, and in rare cases others are having to terminate employment.
Most employers are able to reach a ’by-agreement’ outcome fairly quickly for the simple reason that everyone realises how bad the situation really is when all businesses are having to shut their doors for four 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.
So, can I go to wage subsidy payments only?
Three helpful clarifications happened on Friday and over the weekend:
The previous separate sick leave isolation payment scheme has been folded into the Wage Subsidy Scheme as the original sick leave scheme was designed when only a few people were in isolation, whereas now the Level 4 shutdown affects everyone.
On Friday Grant Robertson, Finance Minister outlined that where it is not possible for a business to pay staff a minimum of 80% of their wage “in particular where a business has no activity whatsoever due to the shutdown and workers are not working any hours – they must pass on at least the whole value of the wage subsidy to each affected worker”.
Grant Robertson has since added: “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. “But to be absolutely clear if a person’s income is normally less than the subsidy, they can be paid their normal salary.”
Work and Income Guidelines now reflect this new guidance and state:
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 (ie, 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.
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  to use their leave entitlements for the period you receive the subsidy in respect of those employees 
If you applied for the COVID-19 subsidy for any employees after 4pm on 27 March 2020, you must retain those employees, or you will be in breach of your obligations.
The Velocite view is that Grant Robertson has made it clear that you can reduce an employees’ pay down to just the amount of the subsidy where they are not working any hours, but first you must ensure:
Best endeavours are made to pay them a minimum of 80% of their wage
If best endeavours do not allow you to pay the employee at 80%, then you should prepare supporting information that shows why you cannot do this (notes around revenue for the next 12 weeks, cash coming in and cash going out and the basis for your proposal)
The supporting information should consider the full 12-week period of the subsidy, not just the four weeks of the shutdown
The business is shut down completely during the isolation period, and
The employee is not working any hours, and
You have prepared good supporting notes, and
You have consulted with your employee in good faith resulting in some form of agreement, and
You retain your employee on your books (do not make them redundant or end employment)
In our view, you have a reasonable basis to pay your employees only the amount of the subsidy (less any PAYE, Kiwiwsaver and related tax deductions) for at least the four-week shutdown period, potentially longer depending on the impact on your business.
We recommend that if you are going down this path you discuss it with your legal advisor and that you take a very supportive approach during these discussions. Make sure you highlight the banking assistance packages that the Government has arranged whereby individuals can arrange mortgage payment deferrals to support them personally through this period.
Beyond this Government mandated Level 4 shutdown period you must reassess the wages and terms of employment and continue to reach new ’by-agreement’ arrangements as you transition out of shutdown and back to full operation. For some sectors the return to full revenue may take several months.
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 have any queries or need immediate assistance, get in touch
 Including essential workers who are unable to work for COVID-19 related reasons including their own illness or caring for dependents.
 Other than as you are lawfully permitted to do, including as provided for in an employee’s employment agreement.