Canada Emergency Wage Subsidy Details Announced – What it Means for Employers and Their Employees if they Choose the CEWS
Note: Since this blog was posted, the federal government has updated the details regarding the Canada Emergency Wage Subsidy (“CEWS”). The details are set out in A second Act respecting certain measures in response to COVID-19 (“Bill C-14”). We will be updating the below blog shortly.
The economy and the world continue to change daily in response to the ongoing COVID-19 public health pandemic. We have written previously about the various measures which make up the federal government’s three-part COVID-19 Economic Response Plan which includes support for workers (the CERB) and support for businesses (loan available for small to mid-sized businesses) and employers.
On April 1, 2020, the federal Finance Minister, Bill Morneau, announced details of the Canada Emergency Wage Subsidy (the “CEWS”), which is available to employers in respect of wages paid on or after March 15, 2020.
What is the CEWS?
The CEWS is a wage subsidy intended to incentivize businesses to keep employees employed and on payroll during the COVID-19 outbreak, and to re-hire employees previously laid off.
How much is the CEWS and how long will it last?
Under the CEWS, the federal government, using the Canada Revenue Agency (the “CRA”) will provide a direct reimbursement to employers for the period of March 15, 2020 to June 6, 2020 equal to the greater of
(i) of an amount equal to 75% of an employee’s wages paid, up to a maximum of $847/week per employee; and
(ii) the amount of wages paid to an employee, up to a maximum of $847/week, or 75% of the employee’s pre-crisis remuneration, whichever is less.
Further guidance will be provided, but “wages”, for the purpose of the CEWS, are anticipated to include amounts for which the employer is required to withhold and deduct amounts to remit to the Receiver General, but does not include severance pay, or items such as stock options or the employee’s personal use of a company vehicle.
As the duration of the COVID-19 crisis remains uncertain, the government has not, at this time, closed the door to an extension of the program. Instead, Minister Morneau has stated that the government “will be there for Canadians” and remains open to looking at new or extended measures if they are necessary. The estimated cost to the Canadian economy is $71 billion.
Employers will be responsible, where and as possible under the circumstances, for paying the balance of the employee’s wages. That said, Minister Morneau has said that the government recognizes that some businesses are simply not in a position to pay any or all of the balance owing for an employee’s pre-crisis wages.
It is important to note that all funds received through the CEWS must be applied directly to employee wages and cannot be used for any other purpose. It is for this reason that the government has developed the CEWS as a reimbursement and not an advance payment for employee’s wages.
Which employers are eligible for the CEWS?
The CEWS is available to all employers that are not publicly funded, including charities and not-for-profit organizations, regardless of size or sector. To qualify, businesses will be required to show the following:
that their gross revenue for business carried on in Canada has decreased by at least 30% as a result of COVID-19 when compared to revenues in the same month in 2019;
that they have actually paid an employee their pre-crisis income at a rate up to at least $847/week; and
that they are doing “everything they can” to pay the balance of any wages owing to an employee under their employment contract.
For those employers, such as new start-ups or seasonal businesses (i.e., golf clubs, camps), that do not have revenue in March, April or May 2019, Minister Morneau advises that the government continues to work on measures to provide support. Details of additional support for these employees will be provided in the “near term”, though one consideration has been made for businesses established after February 2019, where eligibility will be determined by showing a decrease in monthly gross revenue when compared to a “reasonable benchmark
For those employers that do not qualify for the CEWS, the previously announced Temporary Wage Subsidy that provides employers with a wage subsidy of 10% of remuneration actually paid to employees for the period of March 18 to June 20, 2020 up to a maximum of $1,375 per employee and $25,000 per employer remains available.
Examples:
a) Salary of $45,000.00 per year: Where an employer has an employee who earns wages (base salary, salary plus commission, draw on commissions earned, hourly wages, etc.) equal to $45,000 per year, or $865.38 per week, the employer would receive a direct payment from the federal government for this employee equal to $649.04/week, being 75% of that employee’s weekly wages ($45,000 x 75% ÷ 52 weeks). The employer, where able, would be responsible for paying the balance of the weekly wages, or $216.34/week, to the employee.
b) Salary of $75,000.00 per year: Where an employee earns wages equal to $75,000 per year, or $1,442.31/week, the employer may apply for the CEWS. Where eligible, the employer would receive a direct payment from the federal government for this employee equal to $847/week (the maximum payment permitted per employee under the CEWS). Where able, the employer would be responsible for paying the balance of the weekly wages to the employee in the amount of $595.31/week.
How do Employers apply?
Employers will apply for the CEWS through the My Business Account portal as well as a web-based application, with applications anticipated to launch within the next 3 to 6 weeks. Employers will be required to show their continued eligibility and re-apply each month throughout the 12-week period. Fund will be paid to employers (via direct deposit) after their application is received and processed.
In the interim, employers are asked to ensure that they have established a direct deposit system with the CRA if they have not done so already. The direct deposit system will be used by the CRA to administer the payment of the subsidy and will ensure that the necessary tools are in place before an employer’s application is made.
PH Points for Employers
CEWS is a subsidy in the form of a reimbursement, meaning employers must first pay the wages to their employees and then receive payment from the government some weeks after.
All funds received will be included in the employer’s taxable income as government assistance received.
All funds received must be used by employers for the payment of wages to their employees.
No “fraudulent purpose” will be permitted and the government has promised strict and severe consequences for any employer found to have abused the program including, at a minimum, the requirement to repay any CEWS benefits received.
Employers must have the revenue or cashflow available to continue to employ and pay their employees and then wait for the subsequent reimbursement from the government.
For employers who continue to employ staff members, the CEWS means the ability to “reconsider” future layoffs or wage reductions.
For employers who have already laid employees off, it means they can look at the possibility of recalling employees to work so that the demand on the CERB and the regular EI benefit program is lessened.
Recalling employees will stop the clock running on maximum layoff periods under employment standards legislation, eliminating the risk that a layoff will be deemed to be a termination.
Small to mid-sized businesses, that have no revenue available due to closures or significant decrease in demand and therefore might not otherwise qualify for the CEWS, may be able to avail themselves of a previously announced loan program whereby they can apply for a loan of up to $40,000 which will be interest free, and have up to $10,000 of the loan forgiven, if repaid by December 31, 2022.
PH Points for Employees
For employees who continue to work, the announcement of the CEWS may offer some form of comfort that their employment (and wages) will continue at least for now.
For employees who may be looking to leave work on maternity or parental leave at some time in 2020, it allows them to continue to accrue insurable work hours to support their claim for maternity or parental leave benefits through Service Canada.
For employees who have already been laid off, today’s announcement is not a guarantee that they will be immediately recalled to work.
If an employee who has already been laid off as a result of COVID-19 and has applied for and received regular EI benefits, it is uncertain what impact the CEWS will have on their existing EI benefit claim.
Both Prime Minister Trudeau and Minister Morneau have referred to the government’s COVID-19 Economic Response Plan as the “largest economic plan in Canada’s history”. And while it is admirable to recognize the incredible efforts the federal government has made to develop and introduce the various means of support and benefits to employees and employers across Canada, questions regarding the practical impact of these measures, including the CEWS, on employers remain. In fact, there are likely even more questions for employers than answers coming from Minister Morneau’s announcement today.
We continue to encourage employers to seek legal advice before making decisions regarding their workforce in response to COVID-19.
