The Wage Subsidy scheme has been a lifeline for many businesses over the last few months. However, it has also caused a lot of confusion for both employers and employees alike. You may be wondering what would trigger an audit if you’ve utilised this subsidy. In this article we provide an overview to Wage Subsidy audits.
The Government’s Wage Subsidy Schemes were introduced to support employers adversely affected by COVID-19 by supporting continuity of employment enabling employees to maintain a connection to their workplace during the Government ordered lockdown and to assist the wider recovery effort by supporting employers to meet their wage obligations to their staff moving forward. The Wage Subsidy extension was subsequently made available to further support employers who remain significantly impacted by COVID-19.
The Wage Subsidy declaration completed and submitted by Employers on application imposes a number of obligations on Employers
including, but not limited to, “you are aware that you may be audited.”
Overview on what an audit may involve
Wage Subsidy audit processes are administered by the Ministry of Social Development (MSD). An audit can occur at any time, and MSD audits have already commenced nationwide. Audits may be generated by numerous means, for instance:
- By a complaint in relation to a specific employer; and/or
- By a process that identifies potential discrepancies (such as, people who claim to have a business but are also on a benefit); and/or
- As part of a random selection process.
In general, MSD will check the subsidy application details and will contact the employer directly if it has any concerns.
It is important for Employers to keep accurate employee records, which is a general New Zealand employment law requirement. As this requirement relates specifically to the Wage Subsidy Schemes, any reconciliation of staff movements, such as resignations, and recording any redistribution of the subsidy to other affected staff, should be carefully recorded. Best practice would indicate informing MSD as soon as possible and ideally within five days of any change. This should be in line with usual record keeping requirements and accounting processes including PAYE reconciliation. Part of MSD processes include communications with IRD to ensure consistency and employers may be contacted if there are identifiable discrepancies between the information held by the relevant Government Department.
Employers should check that they have retained accurate records of:
- How they have applied the wage subsidy;
- Evidence of their decision-making in relation to calculating their revenue reduction;
- What “normal pay” is for employees and evidence of their best efforts to maintain this at 80%;
- Steps they have taken to mitigate the impact of Covid-19 on their business;
- Specific communications to the employer received from MSD;
- How consent was obtained from employees in applying for the Wage Subsidy.
Employers should also assess whether there is any obligation on them to repay some or all the subsidy (for example, in circumstances where employees have been made redundant). Employers may be asked to pay back some of the subsidy in redundancy situations particularly if they applied post 27 March 2020 as they are in potential breach of the declaration.
Overall, indications are that the Wage Subsidy is a “high trust” model, and while most employers have acted in good faith, employers who have intentionally tried to mislead MSD, could end up with a bill, or ultimately a prosecution. As has been noted in the media, there have been instances, not necessarily in the hospitality sector, where subsidies have been applied for on behalf of employees and the employees have not subsequently received the funds. In these situations, the employer is potentially acting fraudulently, has not acted in good faith, and is not using the subsidy for its intended purpose.
When considering a case for prosecution, MSD must “weigh up all the factors in terms of both evidential sufficiency and public interest. A case will only be considered appropriate for prosecution if the various factors, unique to that particular case, indicate that there is both evidential sufficiency and public interest in prosecution.”
On this basis, considering the “high trust model”, and where an employer is acting in good faith, with appropriate record keeping, a prosecution scenario would be unlikely.
An example is as follows:
“An example of appropriate record keeping is if employers can specifically show if Employee A resigns voluntarily and some of the subsidy was used for their final pay and the balance was redistributed to affected Employees B and C. Good record keeping would include showing subsidy contribution towards their wages to make up the 80%.”
These last few months have been unprecedented, have occurred in a rapidly changing landscape requiring a fluid process, at times. Employers have had to be agile to respond to the demands placed on them by Covid-19. The Government has, under pressure, tried to have an appropriate financial assistance product that meets the needs of Employers, also taking into consideration of feedback and response from various sectors. In response to feedback, the criteria for the recent Wage Subsidy Extension was changed, from a decline in revenue of 50%, to a decline in revenue of 40%, in part due to the hospitality industry’s feedback, including that it would be severely impacted by the requirement for a 50% decline in revenue. Businesses generally want to do the right thing and according to MSD, “we have been highly impressed by their management of the subsidy and the distribution to their staff.” In line with the high trust model, some businesses have voluntarily contacted MSD to say that the business has recovered quicker than they thought, and they wish to pay back the subsidy.
In summary, at this stage, indications from MSD are that the audits should not be an area of concern for employers acting in good faith and following the correct processes. It is a high trust model, and the Government has placed clear obligations on employers to act in line with the requirements of the Scheme.
The Subsidy was designed to keep restaurants, cafes and other employers in business, so that employers were supported in paying affected employees in order to retain them. This approach applied in good faith, along with accurate and up to date record keeping, will assist in mitigating the risks of a potential audit.