Depending on your circumstances you may be eligible to apply for a type of leave subsidy paid by the Ministry of Social Development (MSD).
Leave payments for self-isolation as a result of COVID-19 are available to businesses, contractors and self-employed workers who satisfy the eligibility criteria and are prevented from working. From 27 March 2020, the original Leave Subsidy Scheme was absorbed into the Wage Subsidy Scheme. However, there is another type of leave payment for essential workers. Further information on these subsidies and applications for a self-isolation leave subsidy on behalf of an affected employee are available on the Work and Income website.
This subsidy does not affect any leave entitlements that are owed and is not available for those who are able to work from home during their period of self-isolation and be paid normally by their employer.
Self-isolation leave subsidies should be passed onto the employee by the employer and processed as part of the employee's normal wages. All deductions (such as PAYE, KiwiSaver, or child support) should be made as normal. The employer is not liable to income tax or GST on the subsidy received from the Ministry of Social Development and is not entitled to an income tax deduction for wages paid out of the subsidy.
Example: Burger & Co Ltd
Burger & Co Ltd operates restaurants and cafes in Wellington. One of its full-time chefs returned from a holiday in Australia on 19 March and was required to self-isolate for the next 2 weeks. As a result, the company applied for and received the COVID-19 leave subsidy from MSD of $1,171.60 on 24 March 2020 (before the announcement on 27 March that the leave subsidy would become obsolete).
Burger & Co Ltd will need to pass on the full $1,171.60 to the chef employee ($585.80 per week). This will be treated as ordinary PAYE earnings in the hands of the employee, so Burger & Co Ltd will need to deduct and withhold PAYE, KiwiSaver (and any student loan or child support payments if applicable) on behalf of the employee from the final gross payment of wages (in the usual manner). For the purposes of the employee’s tax liability the self-isolation leave payment is treated the same way as a payment of sick leave or annual leave.
When calculating Burger & Co Ltd's own income tax liability, the subsidy is:
- excluded income and therefore not subject to income tax
- specifically excluded from being subject to GST
- non-deductible for tax purposes, as a result Burger & Co Ltd is not entitled to a deduction for the wages paid with the leave subsidy.
Note: From 3pm 27th March 2020 the Leave Subsidy Scheme has been absorbed into the Wage Subsidy Scheme, preventing applicants from accessing both entitlements at the same time for workers.
Example: Self-employed landscaper
Daniel Loh is a landscaper who works for himself and is registered for GST. Daniel and his husband have been on holiday in Europe, but have had to cut their trip short due to the COVID-19 outbreak. Daniel arrived home on 22 March and will now go into self-isolation for two weeks, following the Government's requirements.
As he is a sole trader Daniel has no sick leave entitlement, so he applies for and receives the full-time leave subsidy of $1,170.60. Daniel isn't required to account for GST on the subsidy received from MSD. However, the amount will be taxable to Daniel for income tax purposes. Daniel will include the subsidy in his Individual income tax return - IR3 and pay tax, as it is a payment that compensates Daniel for his lost earnings during self-isolation.
Example: Jesse Retiree
Jesse retired from his profession several years ago but still works 20 hours a week at a local supermarket to keep busy. He is in his 70s and suffers from a respiratory condition. Jesse has been advised that he cannot continue working at his part time job at the supermarket as he is more vulnerable to COVID-19 given his age and existing medical condition.
The supermarket is eligible for the essential services leave subsidy scheme from MSD for its workers, like Jesse, who are unable to work due to self-isolation guidelines from the Ministry of Health. On 6th April 2020, the supermarket applies for, and receives, a payment of $11,229.60 from MSD relating to the leave subsidy for its affected employees.
The supermarket will not need to account for income tax or GST on the leave subsidy it receives from MSD and the amount must be passed on to the affected employees. The supermarket passes on the $350 per week leave subsidy to Jesse and it is processed in the normal manner through the supermarket’s payroll system. PAYE and Kiwisaver are deducted from the payments by the supermarket.
Please note the $350 should not be grossed up therefore PAYE is deducted from the amount of $350.
Example: Sophie the Plumber
Sophie, a full time plumber working for Easy Flow Pipes, returned from a cruise around the Pacific on March 17. She has subsequently tested positive for COVID-19. Although she's already feeling better, she's required to self-isolate for the full 14 days. Sophie had already used her sick days earlier this year. Her employer has applied for and received a lump sum payment of $1,170.60 for the two-week mandatory isolation period for Sophie. Easy Flow Pipes is not required to include the $1,170.60 in its own income tax return or GST return as the payment is a subsidy, meaning it is excluded income and not subject to GST.
Sophie will have withheld from the self-isolation leave any PAYE, KiwiSaver and child support deductions that are normally withheld from her wages, in the same way as normal salary and wages or sick leave.