Accounting Treatment of the Wage Subsidy – Employers

This article aims to provide guidance around how the COVID-19 Wage Subsidy can be practically recorded in your business’s accounting system.

If you have never done journals in Xero before, or set up new Chart of Account codes, then we recommend you contact your local BDO adviser before going through this Case Study. It is vital you learn how to use these functions correctly (before entering any raw information into Xero), and your local advisor will be able to provide you with any training you require.

This article will focus on how to do this in Xero, but this process is also applicable to other software providers. Please contact your local BDO adviser if you need assistance recording the wage subsidy in another software.

This article focuses on how to record the wage subsidy for businesses preparing financial reports under the minimum requirements of the the Tax Administration (Financial Statements) Order 2014 and where they have selected their own special purpose accounting policies. If you are not sure whether this treatment is appropriate for you, please contact your local BDO advisor. For further information on the applicable reporting frameworks for wage subsidy purposes, you can refer to BDO’s article 'Accounting for New Zealand Government Wage Subsidies provided in relation to COVID-19'.


Case Study - Perfect Pets Limited (PPL)

Before reading the below, please ensure you have understood the Tax Treatment section of this article, as this addresses the core legislation which underpins how the wage subsidy is returned for an employer.

Step 1:

PPL will create two new account codes in Xero (You can use whichever naming convention or Chart of Account codes suits your business and software).

  • Current Liability (No GST) – COVID-19 Wage Subsidy Received in Advance
  • Other Income (No GST) – COVID-19 Wage Subsidy Income

step 1

If your business experienced a significant delay from the date you applied for the wage subsidy, and when it was actually receipted – you may prefer to record the wage subsidy from the date of application (rather than receipt). This is of importance for employers who altered employee wage arrangements at the date of application and where recording it from that date would provide a better understanding of the accounts.

If this is relevant to your business, and the reporting framework you follow allows for this way of recording the subsidy, then please contact your local BDO advisor who can assist.


Step 2:

PPL will reconcile the physical receipt of the cash (in their live bank feed) against the liability account code.

$36,518.40 was received at 5pm on Friday 27th March 2020.

(If you received the wage subsidy in two amounts (due to the original cap of $150,000), then you will have two amounts to code here.)


Step 3:

You will need to release the subsidy to the income account code, in line with when the wages were physically paid to your employees. You can create a journal (or repeating journal) in Xero to record this.

For most employers, the same amount of wage subsidy will have been utilised each week to assist with the payment of employee wages.

PPL pays their employee wages on a Tuesday.

  • The first Tuesday after the receipt of the wage subsidy will be Tuesday 31st March 2020. As PPL applied and received the subsidy at 5pm on 27th March 2020, the wage subsidy was not available for this pay week.
  • The following Tuesday, 7th April 2020, will be the first week PPL is using the wage subsidy to assist with employee wages. The wage subsidy was available for the full week 30th March 2020 – 3rd April 2020 and PPL will therefore record 1 week of wage subsidy as being used.

PPL has given us the following information:


  • Three full-time PAYE staff members (working >20 hours per week)
  • Two part-time PAYE staff members (working <20 hours per week)
  • Stacey – a full-time shareholder-employee (working >20 hours per week)

Gross Pay

  • The full-time employees are all paid $1000 gross wages per week.
  • The part-time employees are all paid $300 per week.
  • Stacey draws an income of $700 per week and is allocated a shareholder salary at year end

Wage Subsidy

  • Four full-time subsidies - $7,029.60 x 4 = $28,118.40
  • Two part-time subsidies - $4,200 x 2 = $8,400

PPL will record the following for its employees:

Part-time Employees

  • The part-time employees will receive their normal wage of $300, less their usual PAYE & other deductions.
  • $300 x 2 employees = $600
  • This $600 will be paid for using the funds received from the wage subsidy.


I have received the wage subsidy for my employee, and this is more than they would ordinarily be paid, what do I need to pay them?

If you applied for the wage subsidy after 4pm on the 27th March 2020: 

Where the ordinary wages of an employee are below the amount of the subsidy, then the employee should be paid 100% of their normal wage. 

Full-time Employees

  • The full-time employees (excluding Stacey) will receive 80% of their usual wages (as agreed in writing) being $800. This will be paid to the employees less their usual PAYE & other deductions.
  • $800 x 3 employees = $2,400
  • This will be paid using:
    • $585.80 x 3 employees = $1757.40 (full-time wage subsidy)
    • $50 x 2 employees = $100 (leftover subsidy from part-timers)
    • $542.60 of PPL's own funds


If the wage subsidy is more than my employee would normally be paid, what do I need to pay them?

If you applied for the wage subsidy after 4pm on the 27th March 2020, you declared that you will, for the period you receive the subsidy, pay at least the full amount of the subsidy to the employee.

However, where the ordinary wages of an employee is below the amount of the subsidy, pay the employee that amount.

You can use any remaining subsidy to assist with the wage obligations for other affected staff.

Stacey (Shareholder-Employee)

  • Stacey takes drawings throughout the year and will continue to do so.
  • The $585.80 wage subsidy received for Stacey will be released to income, as well as recording a $585.80 shareholder salary allocation.
  • The shareholder salary allocation can be done each week as 12 lots of $585.80 or allocated all at once at the end of the financial year as 1 amount of $7029.60 (plus any additional salaries determined by the business).
  • The wage subsidy forms a minimum requirement for the business to allocate to Stacey.

PPL will record a journal in Xero to release $3043.20 of the wage subsidy to the income code.

  • $600 – part-time employees wage subsidy
  • $100 – leftover from part time employees wage subsidy used to assist with full-time wages
  • $1757.40 – full-time employees wage subsidy
  • $585.80 – shareholder-employee wage subsidy

PPL will record the same journal entry for the full 12 weeks in Xero, starting for the week ending 7th April 2020.


If you are not confident in preparing journals, you can reach out to your local BDO advisor for assistance. You can also choose the ‘Save as draft’ option and have your advisor review your journal before it is actioned in the accounts.

Step 4:

Once all your journals are done:

  • Run your Balance Sheet Report in Xero – if you have done your journals correctly the Liability Account Code should now have a ‘nil’ balance.
  • Run your Profit and Loss Report in Xero – you should now see the wage subsidy sitting in the income account code we created for it in Step 1.