COVID-19, Tax payments and employment law issues
March 26th, 2020
So far only one person has asked me to stop sending information about Covid-19 issues. Her inbox is falling over because of that word! If you do not wish to receive these updates – please let me know. I wont take offence.
I sincerely hope you find the following information useful or you might like to pass it onto someone who does:
1. Suggested wording to IRD for clients unable to meet tax payments.
To protect clients and bring them within the new UOMI remission rules, Mark Keating – Tax Barrister has recommended any client who is going to default on a tax liability (including PAYE) should send a version of the following email to IRD via MyIR.
“We are presently experiencing difficulty caused by the current Covid-19 crisis and Government imposed shutdown. As a result, we will be unable to pay our tax liability in full on the due date.
We wanted to proactively contact Inland Revenue regarding this matter. We will endeavour to pay the outstanding tax as soon as practical. However, that may require us to enter into a future instalment arrangement. We also seek relief from the Commissioner regarding the remission of any Use of Money Interest and/or Late Payment Penalties that would otherwise apply.
Please contact my tax agent as soon as possible to discuss this matter further.”
We concur with Marks recommendations and suggest you contact us immediately if you have any such difficulties.
2. Message from IRD re payments
IRD has now issued the following message on payments, penalties and interest:
3. Finally, we are indebted to Mark Keating, Tax Barrister ([email protected]) who has put together the following list of frequently asked questions on employment law issues and given us his permission to share them with you.
FAQ – Employment Law Issues
In response to Covid-19 and the Government announcement of the lockdown of most businesses, many employers have questions about their rights and obligations regarding employees during this time. We address some frequently asked questions below.
4. Is my business an “essential service” or do I have to lock down?
The categories of “essential services” are very broad and the Government has published a list here: COVID19.govt.nz website. Where businesses provide both essential and non-essential services, they must shut down their non-essential operations while continuing their essential services. Businesses that continue to operate essential services must still take steps to ensure the health and safety of their workers performing those services.
5. Must non-essential business shut completely?
No, employers can continue to operate their non-essential business as far as possible during the shutdown provided all employees work from home. Services can still be provided remotely and employees can still perform work although they cannot meet with colleagues or clients in person. But employees who cannot work remotely cannot be asked to attend work.
6. What if businesses must shut completely?
Many employers will have to close their doors and temporarily cease trading. Legally employers must provide work for any employee who is willing, ready and able to work – and likewise must continue to pay employees over this shutdown period. That is what the Government wage subsidy is for (discussed below). But this situation is unprecedented and during the current lock-down it is arguably that employees are not “able” to work - and therefore an employer is not required to either provide them with work or to pay them. That approach is untested and unions have already spoken out and vowed to dispute it. Accordingly, we recommend obtaining specific advice before suspending employees without pay over this period.
7. If the business shuts and there is no work for employees, can the employer access the government wage subsidy?
Yes, the Government wage subsidy is intended so employers can continue paying employees during that period. The wage subsidy is paid as a lump sum and covers 12 weeks per employee at the flat rate of:
• $585.80 for people working 20 hours or more per week;
• $350.00 for people working less than 20 hours per week.
But to access the wage subsidy employers are required to retain employees and pay them at least 80% of their usual pay. Therefore, if an employer cannot provide an employee with at least 80% of their usual wages (because they temporarily suspend them or make them redundant), they arguably will not qualify for the wage subsidy.
8. Can a employer use the wage subsidy for other business expenses?
Yes, provided an employer has paid affected employees 80% of their usual pay, it may retain any surplus wage subsidy (i.e. the difference between the flat rate subsidy and 80% of the employee’s usual pay) to apply to other business expenses.
9. Can a business unilaterally reduce employees’ hours of work?
No, employers cannot unilaterally reduce an employee’s hours of work. Instead, we recommend the parties negotiate for any reduction in work (if any) during the Covid-19 situation. This can be done by temporarily agreeing changes to the employee’s hours of work under their employment agreement.
10. Can a business unilaterally make employees take annual leave?
Yes, an employer can direct employees to take enforced annual leave provided it gives at least 14 days’ notice before that annual leave commences.
11. Can a business unilaterally make my employees take unpaid leave?
No, employers cannot force employees to take unpaid leave. There is no right under New Zealand employment law to temporarily suspend or furlough employees on no pay. Nevertheless, we recommend employers speak with employees and seek their agreement to take leave without pay – they may prefer to a short period without pay than having no job to return to. But we recommend employers obtain advice and document this kind of agreement carefully.
12. What are the obligations to temporary workers and do they qualify for the wage subsidy?
Temporary workers are only required to work and be paid as and when the work is available, so many employers can simply not hire (or pay) them over the shutdown period. But accordingly, temporary workers do not qualify for the Government wage subsidy (because they will not continue to receive 80% of their normal pay).
13. Can an employer apply a force majeure clause in an employment agreement?
Maybe … Some employment agreements include a force majeure (or “act of God”) clause suspending or terminating that agreement when an event outside the control of the parties (such as a global pandemic or unprecedent Government imposed shutdown) prevents the contract of employment from being fulfilled. These clauses may permit employers to suspend employees (and therefore not to pay them) during this period. But it is important that these clauses be carefully reviewed to ensure they apply to the Covid-19 shutdown and are applied fairly. We recommend employers obtain advice before attempting to invoke these clauses.
14. Can an employer make employees redundant?
Maybe … It is possible that many employers may be forced to consider redundancies to ensure business continuity. But the process for making employees redundant is somewhat complex. While New Zealand has no mandatory redundancy compensation, there is an obligation on employers to consider all possible alternatives to redundancy and to consult with affected employees throughout the process. Redundancies cannot be unilaterally imposed or rushed through. We recommend employers obtain advice before making any employees redundant.
15. What if an employee contracts Covid-19?
The Government is providing a subsidy to any employee who falls ill with Covid-19 or must self-isolate (as mandated by the Health Department). Payments under this category are at the same rates as the wage subsidy rates (above). Any person in self isolation and unable to work from home will be eligible for payments up to a fortnight whereas those who have the virus (or are caring for another with the virus) are eligible for payments for as long as they are ill.
16. How does the Government sick leave payment scheme fit with employees’ usual sick leave?
The Government sick leave payment scheme will work as follows:
- If an employee has sick leave, and chooses to take it, the employer will pass on the full weekly amount of the sick leave and may “top up” the difference between the Covid-19 Leave payment and the employee’s normal daily pay (which reduces the employee’s sick leave). As an example, if the Covid-19 Leave payment amounts to 75% of the employee’s normal daily pay, then for each day that they receive the Covid-19 Leave payment, they will take ¼ of a days’ sick leave (to make up the other 25%)
- If an employee has no sick leave, they will receive only the Covid-19 Leave payment. This will have no reduction on their sick leave and will be treated in their payroll as leave without pay.
Chris Lynch, CA
Chris is the founding Director of Lynch & Associates Limited.
He qualified as a CA in 1973 and is a full member of the College of NZICA now merged with CAANZ. His expertise is in the areas of tax, accounting, business development, forecasting, and auditing. He has a clear focus on adding value to his clients lives and businesses and seeing the people behind the numbers.
Chris experience includes working as a CFO and company secretary for some of New Zealand’s leading companies before starting his own CA firm in 1999. In his previous roles Chris has worked in the wool, dairy, engineering FCG, banking and investment banking and stock broking industries.
Today he uses this vast experience to assist his clients add value to their businesses and personal lives.