Ever watch Columbo on TV? Remember how, just when you thought the bad guys were going to get away with their evil deeds, humble Detective Columbo would say, "There is just one more thing..." Then he’d proceed to solve the case with the crims and other officers in the same room. Great crime show.
What we have here today is a classic Columbo moment...
Unfortunately, This is Not An April Fools Joke
Today is Wednesday. And tens of thousands of businesses are preparing tomorrow’s wages for many hundreds of thousands of employees.
Many of them applied to Work and Income for and were granted MSD’s COVID-19 Wage Subsidy. And they’re now about to realise two home truths about this monumental relief package...
- IRD is still taking out PAYE from wages
- KiwiSaver must still be paid in full
Say what?! Yes, WHAT indeed.
So suddenly, that $585.80 (for full-time employees) just got a whole lot less. And the employer's savings account just got drained further.
In the Parliamentary Press Release of 17 March 2020, the Hon Grant Robertson outlined the government's $12.1 billion support for New Zealanders and businesses.
You can read it here:
See any mention of PAYE in there?
It’s not mentioned anywhere except on the Work and Income website:
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, Student Loan, KiwiSaver, Child Support etc.
When calculating PAYE deductions, do not gross up the Wage Subsidy component. PAYE is deducted from the subsidy (i.e. $585.50 less PAYE, etc).
From first glance, that looks OK. Until you read the guidelines VERY CAREFULLY:
If you are receiving the COVID-19 Wage Subsidy, you must try your hardest to pay the employee named in your application, at least 80% of their usual wages. If that isn’t possible, you need to pay at least the subsidy rate (ie, full-time or part-time).
Let’s run some numbers with our friend XERO.
Our employee is on a wage of $20/hour: $800 weekly + commission. They usually take home between $750-$970 net per week.
Our employee has agreed to take home $600/week during the shutdown period. Any less and it would be hard for them to make payments and eat too.
$585.80 from MSD
$ 81.80 PAYE
$ 17.57 KiwiSaver deductions
$ 17.57 Superannuation (contribution from employer)
The employee takes home: $486.43
The employer cost is: $17.57
That is less than half of their usual pay, and nowhere near the 80% asked for. So, we, the employer, make up the difference:
$150.00 from the employer's savings account
$585.80 from MSD
$ 110.14 PAYE
$ 22.07 KiwiSaver deductions
$ 22.07 Superannuation (contribution from employer)
The employee now takes home: $603.59
The employer cost is: $172.07
We’re lucky. We’ve only got one employee. But I’ve got restaurateur clients with 6 full-time employees and 2 part-timers.
For them, this out-of-pocket adjustment will cost them well over $1,100 per week -- with no other income.
Add to that several hundred a week for equipment leases, and another hundred a week for their delivery van. Toss in the usual for insurance payments...and don't even mention the RENT on a completely vacant place.
Parliament's COVID-19 Wage Subsidy solution for businesses feeds IRD directly from the savings of small and large businesses in the guise of helping them.
Michael's Law: A Partial Solution, is NO Solution.
So, What Could Have Parliament Done Instead?
I keep on going back to the simplicity of the solution by Transparency Foundation (TF) written in their 'An Open Letter to the Prime Minister', a copy of which was delivered to each and every Member of Parliament including the Prime Minister.
The Letter outlined the reality of what closing the country would do to the people of New Zealand and especially the small-business owners, homeowners, and farmers.
TF issued a very workable solution: PAUSE All Payments and Interest including mortgages, rents, credit cards, taxes, etc., then restore them once the health danger had lifted.
Research & Investigation
Something can be done about this. Click on the TF website link, read the solution, then call your MP.