COVID19 Day 1 Update
The Govt wage subsidy is a fantastic means of support for those businesses who have lower paid employees. For the low paid it pretty much takes care of the cost of maintaining employees at an 80% rate of pay. For businesses with higher paid employees, and the self employed, the close down is still a financial disaster unless they can keep working. So if you do have employees who will cost you more than the subsidy ($585 per week or $350 for those working less than 20 hours), you need to keep them working or face up to making hard decisions about their futureThe wage subsidy
This is a subsidy for you, the employer, to help you to keep up wage payments to your staff.
So you don’t have to pass it on, so to speak. You just keep paying wages in the normal manner.
How much you continue to pay, is up to you to negotiate with your employees. But in order to be eligible for the subsidy, you must continue to pay at least 80% of the normal weekly wage amounts.
The ongoing payment of wages should be done through your payroll system as usual, and it will be subject to the same deductions for PAYE, Kiwisaver etc.
We suggest that when you receive the subsidy, you consider putting it aside in a separate bank account.
And, note that the subsidy does NOT include GST. So when you code it in your accounting system, make sure you put it to a non GST code.
The self employment subsidy
This operates pretty much the same as the wage subsidy.
Our only comment would be, that many self employed people might tend to overlook their eligibility and will battle on regardless. Make sure that you do it, if your income is going to be affected.
Employers do need to be aware of what their employment agreements say about reducing the hours of work. The agreement might be open on that subject, but in any event, employment law requires employers (and employees) to act in good faith, and that implies being transparent, honest, and constructive.
Speaking of employment law, don’t forget that the Minimum wage is still scheduled to increase from $17.70 $18.90 per hour from 1 April.
Keeping in touch and working from home
Keeping in touch with employees, customers, and working from home etc is a new experience to many. One very practical means of doing so is by using the online meetings application
Zoom. It is very easy to set up, it’s free, and very effective. You can get that by going to www.zoom.us/download
A number of our clients provide essential services or supply goods or services to essential service providers. There has been widespread confusion about what is included as an essential service, and it is constantly being updated. You can find this at:
Business bank loans
If a business is suffering financially, they may apply to their bank for a partially Govt guaranteed business loan. The loans are for a maximum of $500,000 and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for up to 3 years and the banks are expected to charge competitive rates. Note that the applicant must be solvent, and terms will vary from bank to bank.
Home owners’ bank loans
Banks can offer loan repayment deferral for up to 6 months or interest only payment terms for up to 12 months. This has the potential to make a huge difference to the cash flow of many people over the next few months. See your bank.
Finance company commitments
Most finance companies will consider softening loan repayment commitments. For example, a 7% $200,000 plant loan over 3 years which is half way through it’s term would have a normal monthly repayment of $ 6,175. Whereas if you can get it onto interest only the repayment would be about $ 650.
IRD interest / penalty remission
A sobering thought: it must be bad for IRD to be offering interest remission! And sure enough, they are. This is straight from the horse’s mouth:
“If your business is unable to pay it’s taxes on time due to the impact of COVID-19, we understand – you don’t need to contact us right now. Get in touch with us when you can, and we’ll write off any penalties and interest.”
If you need help or guidance, or just want someone to help you chew over the future of your business, don’t hesitate to call us.
Good luck, and happy hibernation.