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Uncertainty, confusion and chaos. That is how many businesses are currently describing their staffing, understanding of employment obligations and how the Government wage subsidy works during the Covid-19 pandemic.

At the heart of this confusion are two distinct sets of obligations for businesses - obligations to their employees under employment law, and obligations to the Government as a result of receiving the wage subsidy.

The current environment is fluid and many businesses remain unclear on how they apply the wage subsidy, what they are meant to pay employees in various situations and what about the upcoming public holidays?

To begin with, the wage subsidy is a lump sum payment from the Government to businesses to assist paying wages. The wage subsidy is paid at a flat rate of $585.80 for people working 20 hours or more a week and $350 for people working fewer than 20 hours a week. The lump sum payment covers 12 weeks per employee.

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To receive the wage subsidy, businesses enter into an agreement with the Government in which they agree to fulfil a set of obligations. The first is that businesses must use their best efforts to keep staff employed for 12 weeks.

Businesses are also obligated to use "best endeavours" to pay employees 80 per cent of their wage. After using their best endeavours, if businesses cannot pay 80 per cent of employees' wages, businesses can drop below 80 per cent, to the highest affordable level.

In some circumstances, this may mean simply paying only the wage subsidy. "Best endeavours" is a very broad term and dependent on the circumstances of each business.

However, it is important to remember that when audited later, the business will need to have recorded their best endeavours to pay 80 per cent and, if appropriate, how they calculated and justified paying a lesser percentage of wages.

At the very least, businesses must pass the full amount of the wage subsidy on to the employees (the $585.80 and $350 is before tax and other deductions). In our opinion, the full subsidy amount must be passed on at every pay period and not as a lump sum payment.

Whether or not businesses apply for the wage subsidy is at the pure discretion of the business.

There is no obligation to do so. Some businesses may decide that they want to close or make redundancies during the next 12 weeks and therefore will not apply for the subsidy.

In other situations, the wage subsidy will not be enough to keep the business afloat when there are other expenses that will arise during this period, rental payments, for example.

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Further, over the 12-week period, employees will continue to accrue annual leave and the business might not be able to cover this leave liability.

However, this must be balanced against the employer's duty to preserve employment where possible and take all reasonable steps to maintain employment relationships.

The wage subsidy obligations between the employer and government do not affect the obligations that arise between employer and employees.

Nothing in respect of employment law has changed. In our experience, there has been considerable confusion as to how to apply employment law to the wage subsidy obligations and the novel situations which are arising between employers and employees.

Before we look at some of these specific employment obligations, we note that not every situation may have an answer and, in some circumstances, the parties must go back to the basic principle governing all employment relationships – good faith.

The wage subsidy does not preclude employers from seeking to drop employees' wages.

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Under employment law, this cannot be done without employees' consent.

Employers are still required to go through a consultation phase and obtain the employees' consent before their wages can be reduced.

This is the case even though the consultation process may be more streamlined in the current environment than what would normally be expected.

If employees do not agree to decrease their wages and the employer cannot afford to keep them on at 100 per cent, the employer will then need to consider making redundancies so they can afford to pay a lesser number of staff. Legal advice should be sought.


Hours of work should reflect the wages of the employee. If an employee's wage has reduced, they should not be expected to continue the same hours of work. As above, the decrease in hours of work should also be done by way of consultation and agreement with the employee.

The wage subsidy also affects the employer's obligations under the Holidays Act. Employers are not able to contract out of the Holidays Act by making an alternative agreement with their employees, even in these exceptional times.

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Once an employer and employee have agreed that the employee's wage will decrease, the newly agreed wage then becomes that employee's Relevant Daily Pay.

This is what employees can expect to receive as their everyday remuneration (e.g. if a full time employee is only receiving the wage subsidy, the relevant daily pay would be $177.16 being the weekly wage subsidy of $585.80 divided by 5).

Under the Holidays Act, this Relevant Daily Pay is used to calculate an employee's sick leave, bereavement leave and public holiday pay.

Treadwell Gordon
Treadwell Gordon

For example, a full-time employee is working from home Monday - Friday with 80 per cent reduced pay and 80 per cent reduced hours.

Good Friday is a public holiday and an otherwise working day for that employee.

Where the employee is not required to work on the public holiday, the employee should receive their new relevant daily pay, being 80 per cent of their previous wages. If they are required to work, they should receive time and a half of their new relevant daily pay and an extra leave day in lieu.

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Acknowledging there is some debate among employment lawyers, in our opinion, if an employee is on the wage subsidy, but they are not able to work because of the lockdown, the public holiday should not be treated as an "otherwise working day".

Brittany Gibson
Brittany Gibson

This is because if it wasn't a public holiday they would still not be working. Therefore, that employee would not be eligible for the public holiday, but, importantly, should still receive their agreed weekly wages. This is a novel point and may have little practical effect for most situations.

The only circumstances where Relevant Daily Pay is not used for sick leave, bereavement leave or public holidays is where it is not possible to calculate, or, the employee's daily pay varies in the relevant pay period.

In these circumstances, the Average Daily Pay is used. The Average Daily Pay is the average daily earnings of the employee over the past 52 weeks.

Presently, it is common for employees to take annual leave to "top up"' their wage subsidy. This concept is also causing confusion among employers.

Annual leave is different to other types of leave in that it is paid at either the Relevant Daily Pay or the Average Daily Pay, whichever is the highest.

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This means that where employees are electing to take annual leave, they are not technically "topping up" their wage to 100 per cent. Instead, they are electing to get paid their average daily pay across the last 52 weeks, which, at this early stage of the lockdown, may be close to 100 per cent.

Taking annual leave and getting paid Average Daily Pay is an attractive option for employees.

For example, where an employee is on the minimum wage subsidy without any employer top up, their Average Daily Pay is likely to be much greater than the reduced Relevant Daily Pay they are now receiving.

Depending on their wages throughout the last year, they might receive close to 100 per cent of their pay by taking annual leave, rather than being paid a reduced wage.

Of course, as the lockdown proceeds, their Average Daily Pay will reduce. This might mean that it is better for employees to take annual leave now, rather than at a later date.

However, some employees may not want to use their leave and we have had concerning reports of employers forcing employees to do so.

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Simply, an employer cannot force an employee to take their annual leave straight away.

This would be in breach of the Holidays Act.

Further, whether or not the employer decides to apply for the wage subsidy cannot be conditional on the employee taking annual leave.

Employers and employees may agree that the employee will take leave, or, alternatively, an employer is able to give 14 days' notice and direct employees to take leave.

In any event, for many employees, they may be financially better off to take their annual leave (as we have explained above) and many employers have been recommending they do so.

It is important to remember that there is a difference in having it recommended or proposed that employees take annual leave at this time and an absolute "gun-to-the-head" instruction from an employer to take annual leave.

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If there is any uncertainty as to whether annual leave has been forced on an employee, we recommend that specific advice is sought.

It is important that employers are thinking to the future and considering what work there might be for employees after the shutdown and after the 12-week wage subsidy period has ended.

How may this impact employees' wages? Do hours need to reduce, or redundancies need to occur? This is the time to start planning.

This is also the time for employers to make sure they are being as open and communicative with their employees as possible.

In these times, it is important that employees have certainty and can plan for the future – whether that is a return to normal or not.

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