What To Do At The End Of The Wage Subsidy Period
Having moved out of the nationwide level 4 lockdown and the subsequent level 3 and 2 restrictions there is a sense of both relief and caution as we continue to venture down unchartered territory.
The measures imposed to combat Covid-19 have had significant impacts on economic activity, both nationally and internationally.
The government’s wage subsidy was a lifeline for many businesses. It meant that they could continue to pay their valuable staff and give their business a chance at survival despite having reduced earnings.
However, there was a lot of confusion about what the wage subsidy was for, how it should be used, and how it should be accounted for in your business.
During this time, there was an expectation that businesses would do the best they could to maintain the health and well-being of their staff, while still practising strong governance along with effective systems and controls in their business.
What does that all mean in terms of the wage subsidy?
Well, let’s take a look now...
What To Do At The End Of The Wage Subsidy Period
What Is The Scheme And How Should It Be Used?
Research has shown the wage subsidy scheme employed to assist New Zealand businesses during these difficult times has brought about some upheaval.
While it was a lifeline to some, it was taken in error by others. Evidence of fraud has been revealed by a team of over 100 auditors, who are re-examining random and select businesses who previously obtained the subsidy.
Those who are found to be abusing the scheme will be forced to return the money received and may be subject to legal proceedings. So, ensuring your business correctly qualified for the criteria prescribed by the scheme is paramount.
The primary intent behind the wage subsidy was to protect employees jobs by keeping them connected to their employer, even if they are unable to work and ensuring they continued to receive an income.
Therefore, each employer must be able to demonstrate the money obtained has been distributed among employees accordingly. As an employer, you must have endeavoured to pay at least 80% of each employee’s wages or salary for the period you received the wage subsidy. If this was not possible, you will be expected to have paid at least the wage subsidy in full to the employee.
Accounting Accurately
OK, now that we know what the scheme was and how it was to be utilised in your business, it’s time to look at accounting for it. And that is a whole different kettle of fish!
Although you may understand the scheme and how the subsidy should be handled, confusion may arise when tending to the accounting.
So, here are a few things to consider when you are getting your accounting ducks in a row:
The scheme put in place is tax free for the employer and exempt from normal income tax
The payments made to employees are only subject to standard deductions (such as PAYE, KiwiSaver)– just as if it were any other wage.
It is important to follow the recommended guidelines set by accountants so that you are able to easily report the wage subsidy being received and paid. If you use Xero, they have published an article on how to account for the subsidy in your books. Access it here.
You can also achieve the same results in other accounting systems by reporting the transactions under a new code, such as ‘other income’ in your bookkeeping. If in doubt, check in with your accountant or bookkeeper.
Auditing Your Wage Subsidy
Auditing requires a focused approach of ensuring all information is accurate and complete. Although everything is a bit confusing during this time, now - more than ever - it is critical that you keep track of your finances. By doing so, you are able to demonstrate your business is adhering to policies and procedures that have been outlined for the wage subsidy scheme.
Accounting for the subsidy programme is not all about creating the right transactions in your finance software. You need to consider how you can demonstrate your business met the criteria of the scheme.
The main criteria was that your business experienced a 30% decline in a one month period from January to June 2020. It is important that you have records on hand to demonstrate that loss and the steps you took to try and recover the loss and rejuvenate your business.
Then, if you do happen to get audited, you will have everything on hand to prove you did everything by the book!
Subsidy Extensions
In the recent budget reveal, Finance Minister Grant Robertson has announced that there will be an extension of the subsidy for businesses that need it. However, there will be new criteria to meet.
A business planning to apply for the additional 8-week subsidy will need to have experienced a 50% drop in revenue. It will be available from the 10th June when the first subsidy period expires.
Find out more info about whether your business would qualify by clicking here.
Some businesses have had to repay the funds if they were not used for the intended purpose. If you aren’t sure if you have handled the wage subsidy correctly in your business, then it is important to seek advice on it now.
Luckily, we are here to help at Core HR. Get in touch with us today with any questions you might have on the wage subsidy process.
CONTACT US TO BOOK A FREE 15 MINUTE CONSULTATION HERE: BOOK HERE