Covid-19 Wage Subsidy – Are you prepared for an audit?

While we are all planning our next steps as we rebuild our businesses, the Ministry of Social Development (MSD) have begun the mammoth task of auditing certain applications made under the wage subsidy scheme. This is an action that was signalled from very early on in the scheme. While the swift move into audit phase may seem harsh, the statistics that emerged regarding fraudulent claims on hardship grants after the Canterbury and Kaikoura earthquakes prove that some people will take advantage of ‘high trust’ opportunities.

Those of you that applied for the Wage Subsidy Scheme (both the original 12-week wage subsidy and the current 8 week wage subsidy extension) should be looking to revalidate your eligibility to have claimed under the wage subsidy. Where appropriate, businesses should look to repay amounts claimed if there ultimately wasn’t an entitlement to it. This is a process which is especially important for businesses who made a claim on the basis of an anticipated revenue loss under the original scheme. Now is the time to validate and document that this loss did actually arise as predicted.

What should you be assessing?

Firstly for those of you that applied on predicted loss of income, you need to revisit to ensure you did in fact have a minimum of 30% in revenue and it was in fact due to Covid-19. The evidence of this should be documented in the event you are asked to prove it.

As an aside, many Covid-19 concessions (particularly in relation to tax) only apply to businesses that have been significantly affected by Covid-19, so there are multiple reasons why businesses should be understanding and documenting what the revenue impacts of Covid-19 have been.

Payments to employees

It was made very clear by us and by Government that the Employment Law had not changed during the lockdown. Any changes to conditions of employment must have been agreed upon by the employee and in writing.

When your application for the subsidy was made you would have declared to endeavour at your ‘best efforts’ to pay and retain employees at 80% of their regular income after receiving the subsidy (less than 80% is accepted in circumstances where it was not possible). Payroll data should be assessed to ensure that employees’ pay remained the same, or at 80% of normal, or at a lower amount agreed to by the employee or with a union. This information must also be held on record. 

New Zealand is no longer in a state of national emergency. This means that for all claims made since the state of national emergency was lifted, businesses should now have on record written correspondence from all named employees, confirming they gave consent for you to provide their personal details to MSD as part of making your wage subsidy application.

Document the evidence

To the extent you are comfortable that your business was, and/or still is, eligible for a wages subsidy claim made, it is important to consider taking proactive steps to clearly document this. Having some emails here and a spreadsheet there is not enough. The eligibility criteria per the declaration should be considered a ‘checklist’ like and a complete file of all evidence of eligibility should be constructed and held on hand. For example, this should include documenting:

  • The necessary revenue drop;
  • The steps taken to mitigate the impact of Covid-19 on the business;
  • What cash reserves the business had at the time of making the claim;
  • Proof of what discussions were held with bankers, insurers or business advisers;
  • What payments were made to employees;
  • On what basis did any employees cease employment (whether voluntarily or involuntarily) during the wage subsidy period.

We have put together a checklist of what you should be keeping to assist with this. Click here to download the checklist. Not only will this pro-active action make a potential audit a lot quicker and smoother, it will demonstrate that you have considered the eligibility criteria and that you are confident that your claim on the scheme is legitimate.

If you need assistance to put this information together, please contact us. You are not alone, we are here to support you.

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