Amendments to CEWS Program Provide Lifeline to Struggling Canadian Employers
The Canada Emergency Wage Subsidy (CEWS) is part of the government’s COVID-19 Economic Response plan. The program is designed to incentivize employers to recall employees who have previously been laid off and to continue to employ those currently on their payroll by providing a wage subsidy for qualifying employers. Since its inception, multiple changes have been made to the CEWS program, with the intent of broadening its reach to allow for more eligible employers to reap its benefits.
Which businesses are eligible to receive wage subsidies?
The following entities can apply for CEWS:
Taxable corporations and trusts;
Individuals;
Non-profit organizations;
Registered charities; and
Partnerships, provided that a minimum of 50 percent of the fair market value of all interests in the partnership are held by partners that would otherwise be eligible for the subsidy.
What changes have been made to the CEWS program?
Below is PH’s breakdown of the key changes made to the wage subsidy program developed in response to the COVID-19 pandemic.
Extension of program: Employers can breathe a sigh of relief. The wage subsidy program originally set to expire on August 29, 2020, has not only been extended to November 21, 2020 under changes announced in Summer 2020, but the federal government has now announced it’s intention to extend it to June 2021 This news is welcomed by businesses which continue to be on life support as a result of the economic crisis. The application period for the CEWS has also been extended from September 30, 2020 to January 31, 2021.
Revenue reduction of a minimum of 30 percent no longer required: Previously, throughout qualifying periods 1 through 4 (from March 15, 2020 to July 4, 2020 – see chart below), employers had to meet a minimum of a 15% decline in revenue for period 1 (March 15 to April 11, 2020) and at least a 30 percent drop for the remaining periods through July 4th in order to benefit from the government’s wage subsidy plan. This threshold is no longer a criteria to qualify for CEWS effective July 5, 2020. Employers who have suffered a loss in revenue greater than 0 percent during the periods of July 5, 2020 to November 21, 2020 as a result of the effects of the pandemic may benefit from this support program.
Base subsidy: Effective July 5, 2020, the CEWS provides two flexible types of subsidies for employers. The first, the base subsidy, is available to all qualifying employers who have suffered a reduction in revenue in any amount. The base subsidy rate will decline each qualifying period, and the subsidy amount will vary depending on the scale of revenue reduction experienced by an employer.
For Example - For period 8: To receive the maximum base subsidy of 40 percent from September 27, 2020 to October 24, 2020, employers must have experienced a revenue loss of a minimum of 50 percent. Otherwise, the subsidy to which employers are entitled is calculated by multiplying the percentage of their revenue reduction by 0.8.
Top-up subsidy: For employers who have been hardest hit by the pandemic and experienced a revenue drop of 50% or greater on a rolling 3-month average, the CEWS now also provides a “top-up” subsidy. In addition to the base subsidy described above, the top-up subsidy provides an additional subsidy to those employers suffering most, as well as those employers (i.e., seasonal businesses) who may have experienced a temporary grace in their revenue reduction, but whose 3-moth average revenue has still dropped more than 50% . Unlike the Base Subsidy, the top up percentage does not decline over time; it is equal to 1.25 times the average revenue drop capped at 25% of the employee’s paid remuneration.
Employees who were unpaid for 14 days or more can now be included in the calculation: As of July 5, 2020, employees who were on unpaid leave for 14 or more consecutive days are no longer excluded from qualifying for a subsidy. Further, employees who are eligible for the CERB during the qualifying periods are not excluded from the group of employees for whom the CEWS subsidy is sought for the periods of July 5 to November 21, 2020.
Tools and Resources
The CEWS Calculator can be used to calculate subsidy amounts to which businesses may be entitled, provided they qualify.
PH TIPS
Overall, the CEWS now provides relief to a greater number of employers and permits employers to strategically consider the following:
Ability to rehire/recall: Employers may now rehire/recall employees to work for any period after July 5th regardless of whether they have qualified for or received the CERB payments.
Bring employees back to work even for short periods: The elimination of the requirement for “continuous employment” means employees can be recalled for a period of work less than 14 days.
Use the CEWS for inactive employees: Employers can consider using the CEWS for “inactive” employees, that is those who do not attend for work but who the employer chooses to provide with a form of paid leave. The government does differentiate between the subsidy that can be claimed for active versus inactive employees, but recent announcements have confirmed that the CEWS calculation for inactive employees during period 8 (September 27 to October 24) remains the same as that for periods 5 through 7.
Review top up eligibility: With the recent roll-back to modified Stage 2 restrictions, employers will want to review their eligibility for the “top up” subsidy which looks at average revenue reduction over a 3 month period rather than the fixed 4-week qualifying period. An employer who experiences a 25% revenue reduction in qualifying period 7 but experiences a greater revenue reduction up to 100% for the new 28-day closure period may qualify for the top-up subsidy in addition to a higher base rate subsidy in each of periods 8 and 9.
Greater complexity so get help: However, while more employers may receive a subsidy, the quantum of the subsidy may be reduced (compared to previous levels) and the new CEWS is much more complex. Contact your tax or financial advisor to help you through the intricacies of the CEWS, including the calculation of revenue and an employee’s pre-crisis remuneration.
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Piccolo Heath LLP continues to monitor developments surrounding the wage subsidy program and will provide updates as information becomes available. We urge employers to seek legal and financial advice if there is any uncertainty surrounding these critical business decisions.
(Thank you to Cindy Ingram and Sabrina Morcos for their assistance with this blog)
