Paying your staff the COVID-19 Wage Subsidy

How to pay the COVID-19 Wage Subsidy to your employees, and manage GST and tax around this.

Information

You can no longer apply for the Wage Subsidy.

You can still apply for the Leave Support Scheme if you have staff who can’t work because of COVID-19.

How to pay your staff

  • 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 (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. If there are no other employees to use the subsidy for, then the remaining Wage Subsidy should be paid back.

    The Wage Subsidy is to support you to pay 12 weeks of wages for your employees from the date you submitted your application.

    Visit the Employment NZ website for information about employment law.

  • GST and tax

    Businesses

    Information about GST, PAYE/PAYG and income tax if you're a business.

    GST

    You don't have to pay GST on the wage subsidy.

    PAYE/PAYG

    Your employee will need to pay tax on their wage subsidy payment as it's paid to them as part of their normal wages. This means it's subject to the usual employer deductions, eg, PAYE/PAYG, Student Loan, KiwiSaver, Child Support etc.

    When calculating PAYE/PAYG deductions, do not gross up the Wage Subsidy component. PAYE/PAYG is deducted from the subsidy (i.e. $585.80 less PAYE/PAYG, etc).

    You can agree with your employee the frequency at which the subsidy is paid. However, if the subsidy is being paid outside of their usual pay cycle this might have adverse tax implications for your employees such as:

    • they may be taxed at the wrong rate
    • it may impact Working for Families entitlements.

    Income tax

    For most businesses, the Wage Subsidy is classified as "excluded income" for income tax purposes. This means that as a business you don't pay income tax on the Wage Subsidy you receive from MSD. You don't get an income tax deduction for the wages you pay using the Wage Subsidy. You still need to make the usual PAYE/PAYG deductions when you pass it onto your employee.

    Self-employed

    If you're self-employed, you need to pay income tax on the COVID-19 Wage Subsidy you receive, as it's a payment to replace a loss of earnings.

    More information

    For further information on tax queries, visit the Inland Revenue website.

    For information on your obligations under employment law, contact Employment NZ on 0800 20 90 20 or visit their website. For example, you might have questions about:

    • employer contributions to KiwiSaver
    • holiday pay
    • annual leave.
  • Employee receives ACC

    If you apply for a Wage Subsidy, you can't include any employees in your application who are on ACC earnings related compensation.

    If you're receiving the Wage Subsidy for an employee and they get injured and start to receive ACC, the employee will continue to get paid as normal (including any Wage Subsidy). The employees' wages will need to be declared to ACC and be deducted off their ACC payment.

    If an employee was on ACC and then returns to work during the Wage Subsidy period (and they're now no longer receiving ACC), you can apply for the Wage Subsidy for them, as long as they meet the criteria.