Part 5: Oversight, monitoring, and review of the Wage Subsidy Scheme

Management of the Wage Subsidy Scheme.

In this Part, we discuss:

Summary of findings

The public organisations responsible for developing and administering the Scheme largely relied on existing management and governance arrangements for oversight of their work on the Scheme. This does not appear to have been a problem. Overall, the Scheme was established quickly. Payments were managed well and the public organisations took some steps to improve their processes. However, as we have noted, more attention could have been given to the post-payment integrity process.

There have been some unintended consequences of the Scheme. Issues have been raised about the way the Scheme interacted with various aspects of employment law. These were of a scale and variety that was unforeseen. There is an opportunity to learn from this to inform guidance for employers and employees for any future schemes.

In our view, given the significant amount of spending associated with the Scheme, and the likelihood that this approach could be used again in the future, it is important to complete a comprehensive evaluation of the Scheme in a timely manner.

Public organisations largely relied on existing management and oversight arrangements

The public organisations involved in administering the Scheme worked closely together and with Ministers to develop and implement it. These arrangements appear to have been effective in the circumstances.

Public organisations largely relied on existing internal management and leadership accountabilities to control and guide their work on the Scheme. Some organisations (for example, the Treasury and Inland Revenue) set up specific internal groups with Covid-19 or Wage Subsidy co-ordination and advice responsibilities. The Ministry of Social Development's leadership team met regularly (sometimes daily) during the development and implementation of the Scheme. The Ministry's Service Delivery leadership team met daily during the development and implementation of the Scheme. The Ministry of Business, Innovation and Employment's Deputy Chief Executives met regularly to discuss policy, design, and operation of the Scheme.

There were weekly cross-agency meetings between relevant agencies about complaints, queries, policy development, and operation of the Scheme.

Public organisations also relied on frequent informal communications across agencies at all levels, as well as formal engagement with the Economic Advisory Group during development of the Scheme. This is a group of officials overseeing the economic impact of Covid-19.

A full and timely evaluation is needed

The Ministry of Social Development published information on its website about the Scheme with intermittent updates on how many applications there were. It also published information about the concentration of payments in various industries and estimates of the number of employers and employees the Scheme had supported.

The Ministry of Social Development also looked at the number and proportion of jobs the Scheme supported. This data was broken down by age, gender, ethnicity, industry, and region. It published the results of that work on its website.

The Ministry of Social Development commissioned a survey of businesses that had received a subsidy payment to understand its impact and inform future policy. Participants in the survey were largely representative of the businesses that received the subsidy payment. The Ministry published the survey results on its website. The main findings from the survey were:

  • 79% of respondents said they benefited a lot from the subsidy payment; and
  • 89% said the subsidy payment meant they could keep operating for the foreseeable future at the time of the survey.

However, the survey did not include businesses that chose not to apply for the subsidy payment, businesses that wanted to apply but were not eligible, or employees of businesses that did and did not receive the subsidy payment.

The Treasury reported on the impact and performance of the Scheme to the Minister of Finance. Its early advice stated:

[The subsidy] has been well suited to the sudden and temporary nature of the COVID-19 shock, is likely to have reduced economic scarring and will facilitate a more rapid economic restart once the disruption is over ...
Evidence available indicates that the wage subsidy has supported employment attachment and worker incomes and preserved jobs during severe public health restrictions and enabled a rapid economic restart once Alert Levels were lowered.

The evidence that the Treasury was referring to was its modelling of unemployment, the movement in real-time economic indicators across lockdowns, analysis of changes in worker incomes, comparisons with overseas experiences, and qualitative feedback from employers and business groups. The analysis showed that, without the Scheme, 100,000 more people would have become unemployed in the second quarter of the 2020 calendar year.

The public organisations involved in administering the Scheme are jointly exploring how to evaluate aspects of the Scheme. When we carried out our audit, it was yet to be determined which organisation or organisations would own, lead, and fund this work.

We understand that this planned evaluation intends to look at the longer-term impact of the Scheme on employment. In our view, the evaluation should look at the development, operation, and wider effects of the Scheme.

It is important that comprehensive evaluation work be carried out so that the effects of the Scheme are better understood, and a view can be formed on the effectiveness and value for money of this kind of policy response. In our view, this evaluation work should be prioritised and carried out in a timely way.

However, performing this evaluation should not prevent public organisations from making improvements based on the lessons learned so far. It would be regrettable if there was another stage of the Scheme implemented without those lessons to inform improvements to post-payment reviews and enforcement actions.

Recommendation 5
We recommend that the Ministry of Social Development, the Inland Revenue Department, the Ministry of Business, Innovation and Employment, and the Treasury carry out timely evaluation of the development, operation, and impact of the Wage Subsidy Scheme and use the findings to inform preparation for future crisis-support schemes.

At the time of finalising our report, we were told that the Ministry of Social Development, Inland Revenue, the Ministry of Business, Innovation and Employment, and the Treasury were in discussions about proposed evaluation work.

The Wage Subsidy Scheme's unintended consequences

Some recipients received payments more than their normal income

Self-employed people received a subsidy payment as if they were an employer. They could initially keep the full amount of the subsidy, even if their usual income was less than what was paid to them. The effect was that some self-employed people had their income increased for the period of the Scheme.

There were administrative amendments to the Scheme to address this issue. In the wage subsidy extension, there was an obligation in the declaration for self-employed people to repay any surplus arising from the difference between their usual income and the subsidy payment.

Employers with several part-time employees who usually earned below the fixed part-time subsidy rate of $350 each week could have potentially ended up with a surplus from the subsidy payment. These employers were expected to pay the money back if they had no other employees who they could pass it on to. This was an explicit requirement in the declaration for the wage subsidy extension.

Implementing the Scheme revealed some problems with employment practices

In early May 2020, advice was prepared for the Ministers of Finance, Social Development, and Workplace Relations and Safety about how the Scheme interacted with aspects of employment law. There were a range of largely unforeseen issues, although we understand that some stakeholders raised concerns early.

Employers who applied for subsidy payments were still required to meet their employment law obligations. Stakeholders, employers, and employees questioned how aspects of those obligations were affected by the Scheme. There were also many complaints about employers' compliance with their employment law obligations or with the obligations of receiving the subsidy payment.

The Ministry of Business, Innovation and Employment sought legal advice about some of the employment matters that arose. These matters included whether employers could make employees take annual leave while the employer was receiving a subsidy payment during Alert Level 4 – Lockdown.

Other employment issues raised during the Scheme included:

  • questions about whether, and what type of, consultation was needed to meet good-faith expectations before any changes were made to employment agreements (such as to remuneration and hours worked) during Covid-19;
  • lack of clarity about minimum wage requirements for people unable to work or unable to work their usual hours. There was confusion about how to define "usual hours" for the purposes of the subsidy payment. The minimum wage was increased during the Scheme, further complicating these issues; and
  • questions about whether casual workers were eligible for the subsidy payment and some concern that employers were not making applications for these workers.

To some extent, these issues reflected the complexity and variation in understanding of employment law before the Scheme was implemented. Some of the issues that have arisen during the Scheme have been the subject of cases before the Employment Relations Authority and the Employment Court.

The Ministry of Business, Innovation and Employment told us that it is committed to updating its publicly available information based on the outcomes of complaints and Employment Court cases about the Scheme.

Forming a view on the appropriateness of the legal positions the Ministry of Business, Innovation and Employment took is not our role. However, we consider that, by seeking legal advice, the Ministry of Business, Innovation and Employment took reasonable steps to address the identified issues.

We encourage the Ministry of Business, Innovation and Employment to reflect on what the identified issues mean for its educational work with employers. We also suggest that it consider the implications for any future stages of the Scheme or other subsidy schemes. This will help public organisations be better prepared for the complex employment issues that could likely arise in any future subsidy scheme. The Ministry of Business, Innovation and Employment has confirmed that it has already made changes to its guidance and complaints processes and will review its guidance in line with any precedents set in the Employment Court.