Understanding The Canada Emergency Wage Subsidy

Emergency Wage Subsidy & CEWS

The Federal Government has introduced and clarified the Canada Emergency Wage Subsidy (“CEWS”) that provides assistance to businesses so they can keep workers on payroll and re-call workers from any lay-offs.

What is the Canada Emergency Wage Subsidy (“CEWS”)?
• The government is providing a 75% subsidy to all eligible employers who have seen a drop of at least 30% of their revenue during the eligible periods
• The government is encouraging employers to re-hire workers that were previously laid off as a result of COVID-19.
• The CEWS is available for employers for wages paid between March 15, 2020 and June 6, 2020
• Employers will have to attest (swear an oath) as to the decline in revenue when applying
• Employers must keep records demonstrating their reduction in arm’s length revenues and remuneration paid to employees
• This is considered government assistance and therefore part of employer’s taxable income
• The CEWS will reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration
• Employers are encouraged to top-off the remaining 25% of remuneration, if possible
• Applications must be submitted before October 2020

What is an eligible employer?
• Individuals
• Taxable corporations
• Partnerships with eligible employers
• Non-Profit organizations
• Registered charities

What is the relevant “revenue”?
• The CEWS is available to eligible employers that see a drop of at least 15 per cent of their revenue in March 2020 and 30 per cent for the months of April and May 2020, compared to the same month in the previous years.
• Revenue from its business carried on in Canada earned from arm’s length sources
• Calculated using the employers regular accounting methods, and excludes revenues from extraordinary items and amounts on account of capital
• The government has clarified that employers would be allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both. Employers would select an accounting method when first applying for the CEWS and would be required to use that method for the entire duration of the program.

How much is the subsidy?
• The amount will be the greater of o 75% of the amount of remuneration paid, up to a maximum benefit of $847.00 per week; and

• the amount of remuneration paid, up to a maximum benefit of $847.00 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less
• Eligible remuneration paid between the relevant period, up to a maximum benefit of $847.00 per week, or 75% of the employee’s pre-crisis weekly remuneration

• For those who do not deal at arm’s length with the employer: • There is no limit on the subsidy amount that an eligible employer may claim
• Employers are expected to use their “best efforts” to top up their employee’s remuneration to bring them to pre-crisis levels.

What is considered “wages”?
• “Pre-crisis remuneration” is defined as o the average weekly remuneration paid between January 1 and March 15 inclusive (aka the first 10.5 weeks of the year), excluding any seven-day periods in respect of which the employee did not receive remuneration.
• Includes salary, wages, and other remuneration
• Amounts that employers would normally be required to withhold or deduct to the Receiver General for the employee’s income taxes
• This does not include severance pay, stock option benefits, or the personal use of a corporate vehicle

Refund for Certain Payroll Contributions
• On April 8, 2020, the government proposed to expand the CEWS by introducing a new 100 per cent refund for certain employer-paid contributions to EI and CPP.
• This refund would cover 100 per cent of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.
• The government will generally consider an employee to be on leave with pay throughout a week if that employee is paid by the employer for that week but does not perform any work for the employer in that week.
• This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.
• This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim for CEWS.
• There would be no overall limit on the refund amount that an eligible employer may claim.
• The government has made clear that employers would be required to continue to collect and remit employer and employee contributions for CPP and EI as usual. Eligible employers under the CEWS would apply for a refund at the same time that they apply for the CEWS.

What is the eligible period?
• Based on the change of the eligible employer’s monthly revenues, year-over-year, for the calendar month the period began
• On April 8, 2020, the government announced that all employers would be allowed to calculate their change in revenue using an alternative benchmark to determine their eligibility. This would provide more flexibility to employers for which the general approach may not be appropriate, including high-growth firms, sectors that faced difficulties in 2019, non-profits and charities, as well as employers established after February 2019. Under this alternative approach, employers would be allowed to compare their revenue using an average of their revenue earned in January and February 2020.
• Employers would select the general year-over-year approach or this alternative approach when first applying for the CEWS and would be required to use the same approach for the entire duration of the program
• There are 3 eligible claiming periods

• March 15-April 11 
  •  References will be made to at least a 15% drop in revenue when comparing March 2020 to either
    • March 2019 or the average of January and February 2020
  • April 12-May 9
    • References will be made to at least a 30% drop in revenue when comparing April 2020 to either
    • April 2019 or
    • the average of January and February 2020
  • May 10-June 6
    • References will be made to at least a 30% drop in revenue when comparing May 2020 to either
    • May 2019 or
    • the average of January and February 2020

To Which Employees Does the CEWS Apply?
• Eligibility for the CEWS of an employee’s remuneration, will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period described above.

How and when to Apply?
• Through CRA’s my business account before October 2020

Ensuring Compliance
• Must repay amounts paid under the subsidy if they do not meet the eligibility requirements and can pay their employees accordingly
• Fraudulent claims may lead to penalties
• In the process of creating anti-abuse rules- ensure employees paid, and relevant companies receive subsidy
• Potential offences including penalties resulting in fines or imprisonment for businesses, employers or business administrators 
Interaction with the Previously Announced 10% Wage Subsidy
• For employers who are eligible for both the 10% Wage Subsidy and the CEWS, any benefit from the 10% subsidy for remuneration paid in a specific period would reduce the amount available to be claimed under the CEWS in the same period

Interaction with Work Sharing Program
• The government announced an extension of the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks in mid March 2020. This provides income support to employees eligible for EI who agree to reduce their normal working hours because of developments beyond the control of their employers.
• For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

Impact of CERB
• Employer cannot claim the wage subsidy for remuneration paid to an employee in a week that falls within a 4 week period that the employee is eligible for CERB
• However, the government will provide a mechanism for employees to cancel their claim for CERB and repay any amounts paid, if they are recalled to work and their employer counts them to receive the CEWS

Current Unknowns
• When applications will be available to be made by employers
• When payments will be made to employers
• Consequences of employers not topping up the remaining 25% of pay, or the full pre-crisis remuneration
• Whether an employer can back-pay an employee to obtain the subsidy – for example, the employee is paid for period 1 during period 2.

As more details of the CEWS are announced, we will keep you up to date on how it affects your business.

Please contact our Employment Law Department for more information about this and any other employment law questions you have. This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice based on their specific situations.