WINZ – Paying Your Staff the COVID-19 Short-term Absence Payment

How to pay the COVID-19 Short-Term Absence Payment to your workers, and manage GST and tax around this.

Paying wages to staff

Where your employee has an entitlement to be paid as per their employment agreement or the law (eg by taking paid sick leave) you will need to use the subsidy to pay your employee their entitlement under the Holidays Act or their contractual entitlement while they are waiting for the relevant test result.

Where your employee wouldn’t otherwise have an entitlement to be paid if they are not able to work (eg if a worker has used up their paid sick leave so would be on unpaid leave) you:

·         should try to pay your worker as if they had worked that day, or

·         where this is not possible, you must pay at least the full amount of the Short-Term Absence Payment to the employee while they are waiting for the relevant test.

If your employee’s usual wages are less than or equal to the Short-Term Absence Payment, you must pay the worker their usual wages. Any difference should be used to help pay any other affected staff.

Visit the Employment NZ website for information about employment law.

Modifying employment agreements during COVID-19 – Employment NZ website

GST and tax

GST

Employers do not have to pay GST on the Short-Term Absence Payment.

Income tax

Employers/Businesses in receipt of the Short-Term Absence Payment must pass that payment onto their employees and make the usual PAYE/PAYG deductions when passed on (refer PAYE/PAYG below). Where it is passed on in full, the payment is “excluded income” for income tax purposes for the employer/business, meaning you don’t pay income tax on the Short-Term Absence Payment you receive from us. Note you also don’t get an income tax deduction for the portion of wages paid using the Short-Term Absence Payment. By passing on through wages, the Short-Term Absence Payment is subject to income tax in the employees personal income tax return.

When the full payment is not passed on any excess amounts will be taxable income to the employer/business. You will need to include this in your income tax return.

If you’re self-employed, you need to pay income tax on the Short-Term Absence Payment in your IR3, as it’s a payment to replace a loss of earnings. Include this amount in the “Government Subsidies” field/keypoint.

PAYE/PAYG

Employers are required to deduct the usual employer deductions, eg, PAYE/PAYG, Student Loan, KiwiSaver on the Short-Term Absence Payment passed on to the employee as it’s paid to them as part of their normal wages.

The amount paid to the employee is included with their other wage payments to determine the total gross earnings (the payment is not grossed up). For example if the employee earned gross wages of $500, you paid them a Short-Term Absence Payment of $350, their total gross earnings required to be included in the relevant PAYE return it was paid would be $850. The usual employer deductions are made from this amount.

You can agree with your employee when the Short-Term Absence Payment is paid. However, if the payment is made 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.

Reference: https://workandincome.govt.nz/covid-19/short-term-absence-payment/paying-your-staff.html