Wage Subsidy applications are now live. However, we recommend that you exercise caution before rushing out and making an application. The circumstances for this round of Wage Subsidy are very different to that of March 2020. In March 2020 there was panic that the economy could collapse, and many thousands of jobs would be lost. Therefore, the original wage subsidy was very much an emergency economic stimulus to maintain business confidence and protect jobs. The fears of an economic collapse are not present at the moment and the conditions of the new scheme are very much consistent with the wage subsidy being emergency assistance to those businesses who really need it. We explain below:
The new Wage Subsidy August 2021 requires an actual or predicted turnover drop of 40% in the two weeks from 17 August 2021 to 31 August 2021 as a result of the change in Covid Alert Levels compared against a continuous 14 day period in the prior 6 weeks (or the year prior for seasonal businesses).
On making an application, a business is required to make a declaration. This declaration has some very important differences from the March 2020 applications, and the points we discuss below give us cause for concern for businesses who rush out without taking a very considered approach to making an application.
- Predicted revenue drop
As with the March 2020 Wage Subsidy, an application can be made on the basis of a predicted drop in turnover. However, unlike the original application, if that prediction doesn’t come to fruition, there is a specific requirement to repay as the declaration states the following:
“You agree to repay the subsidy or any part of the subsidy paid to you if you:
were not or stop being eligible for the subsidy or any part of the subsidy, including where you predict that you will meet the revenue decline test but, as a result of your actual revenue, you do or did not;”
- Mitigation steps
Another change to the terms is around the mitigation steps. It was a requirement to take steps to mitigate the impact of Covid for the March 2020 Wage Subsidy, but the following clause is in the declaration now:
“Before making this declaration, you have taken active steps to mitigate the impact of the move to Alert Level 4 on 17 August 2021 on your business activities (including but not limited to engaging with your bank, drawing on your cash reserves as appropriate, making an insurance claim)”
Insurance cover for lockdowns is extremely unlikely.
Drawing on cash reserves is something that was mentioned in the media a lot after the original Wage Subsidy scheme. This is a bit wishy-washy as there is a big question around what is appropriate? This is the part of the declaration that we have the most concerns with. We think businesses with strong balance sheets might struggle to justify an application if they have decent cash reserves. Therefore, a much more considered approach will be needed to support a wage subsidy claim this time around, and this might include the likes of budgets/forecasts.
- Maintaining evidence
It is a specific requirement in the declaration that a business prepares and retains evidence to support the application that demonstrates how the decline in revenue was attributable to Covid and that steps were taken to mitigate the impact (as discussed immediately above).
- Other key conditions
Other key terms such as retaining employees, complying with employment laws, passing on the subsidy etc carry over.
Given the tightness of the labour market at present, we don’t foresee the same kind of behaviours and employment issues that occurred back in March 2020.
Our message would be that the Resurgence Support Payment (RSP) should be the first port of call for most businesses who have suffered a fall in turnover and need assistance. As mentioned above, Wage Subsidy applications may be difficult to support for businesses that are not in financial difficulty.