Paying your staff the COVID-19 Leave Support Scheme

How to pay the COVID-19 Leave Support Scheme to your employees, and manage GST and tax around this.

Paying wages to staff

The employer must pay their employees any amount required by the employment agreement and employment legislation. The Leave Support Scheme requirements do not remove or reduce this obligation.

You must try your hardest to pay the employee named in your application their normal wages, or at least 80% of their usual pay. If that isn't possible, you need to pay at least the Leave Support Scheme payment rate (ie, full-time or part-time).

If you can't pay your employees their usual wages, then any reduction requires good faith consultation and written agreement in line with existing employment law.

If your employee's usual wages are less than the Leave Support Scheme, you must pay them their usual wages. Any difference should be used for the wages of other affected staff - the Leave Support Scheme is designed to keep your employees connected to you.

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 Leave Support Scheme is classified as "excluded income" for income tax purposes. This means that as a business you don't pay income tax on the Leave Support Scheme you receive from us. You don't get an income tax deduction for the wages you pay using the Leave Support Scheme. 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 Leave Support Scheme 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.
  • Paying less than 2 weeks

    The Leave Support Scheme is paid as a lump sum and covers 2 weeks per employee from the date you submit your application. You can't apply for less than 2 weeks.

    If you've been paid the Leave Support Scheme for an employee who returns to work in less than 2 weeks, you'll need to use the remaining amount to pay any other employees who are getting less than their usual wages due to COVID-19. This could be employees who are also unable to work, or to top up the wages of employees receiving another COVID-19 payment from us and are currently paid less than their usual rate.

    If you do not have other employees, or they're already being paid their normal wages, you'll need to repay the remaining amount.