Employer snapshot: More on Canada’s emergency wage subsidy

Federal support for employers continues to evolve alongside the COVID crisis. Among the more recent measures is the Canada Emergency Wage Subsidy (CEWS), which was further refined by a bill passed on April 11. 

We have provided a detailed review of these refinements here. However, below is a quick snapshot of what the CEWS program entails to date: 

Qualifying for CEWS 

• CEWS is intended to minimize layoffs amid the COVID crisis by subsidizing wages paid by eligible employers to eligible employees 
• CEWS will be available between March 15 (retroactively) and June 6, 2020.  The government has set three CEWS “qualifying periods” within this timeframe
• To be eligible for CEWS in a given “qualifying period,” an employer must show the requisite decrease in revenue as follows:    

o To be eligible for Qualifying Period 1 (March 15 to April 11), an employer must have experienced a 15% decline in revenues. This decline can be calculated by an employer by comparing March 2020 revenues to either:

(a) March 2019 revenues; or 

(b) average revenues in January and February, 2020 

o To be eligible for Qualifying Period 2 (April 12 to May 9), an employer must have experienced a 30% decline in revenues. This decline: 

(a) is assumed, if the employer was eligible in Qualifying Period 1; or

(b) can be calculated by comparing April 2020 revenues to either:

i. April 2019 revenues, or 

ii. average revenues in January and February, 2020 

o To be eligible for Qualifying Period 3 (May 10 to June 6), an employer must have experienced a 30% decline in revenues. This decline: 

(a) is assumed, if the employer was eligible in Qualifying Period 2; or
 
(b) can be calculated by comparing May 2020 revenues to either:

i. May 2019 revenues, or 

ii. average revenues in January and February, 2020

Subsidy amounts 

• For each eligible employee that is paid wages, CEWS will reimburse an eligible employer the amount that is the greater of:  
  
  (a) 75% of the weekly amount actually paid by the employer to the employee during the claiming period, to a maximum of $847 per week; 
  
  (b) the lesser of 75% of the employee’s pre-crisis weekly remuneration and 100% of weekly amount actually paid to the employee during the claiming period 

For example, if an employee’s pre-crisis wages are $1,000, and the employer recalls him/her to work during a claiming period and pays him/her $800 per week, the employer would be provided CEWS of $750 per week to subsidize the wages of that employee. This is based on the following: 

(a) 75% of the weekly amount actually paid to the employee during the crisis is $600 ($800 * .75) 

(b) 75% of the employee’s pre-crisis weekly wages is $750 ($1000 * .75).  This amount is less than 100% of the weekly amount actually paid to the employee during the claiming period (being $800). Thus, $750 is the “lesser” amount in (b)

The employer is entitled to CEWS equal to the greater of (a) and (b). The applicable amount in (b) ($750) is greater than the amount calculated in (a) ($600). So, CEWS reimburses the employer $750 of the $800 actually paid to the employee in each week of the claiming period. 

CEWS for non-arm’s-length employees is calculated slightly differently than the above. 

• CEWS subsidies are based on wages already paid by the employer to an eligible employee. So, the employer must pay the employee first and then seek reimbursement
• In addition to the wage subsidy, CEWS may refund employers 100% of certain benefit contributions paid by the employer to eligible employees during the claiming period. This includes employer contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan

Employee eligibility 

• An employer can only collect CEWS for wages paid to “eligible employees.” These are employees who are employed in Canada and have been without income from the eligible employer for less than 14 consecutive days in the applicable qualifying period. Hourly and salaried employees and executives can be eligible, whether arm’s length or not 
• An eligible employer can use CEWS to subsidize the wages of eligible employees who have continued to work throughout the COVID crisis, as well as those who have been laid off as a result of COVID  
• Employees do not have to perform work to be paid wages for the benefit of CEWS – they just need to be on payroll 

Compensating employees through CEWS 

• The CEWS program encourages employers to pay eligible employees 100% of their pre-crisis wages (i.e. “top up” whatever portion of wages is not covered by CEWS). However, this is not strictly required
• If an employer cannot pay 100% of wages of a retained or recalled employee, it can elect to lower the employee’s wages and collect CEWS on the lowered amount. However, this approach could risk constructive dismissal allegations and so legal advice should be obtained
• If an employee is not working while being paid wages pursuant to CEWS, minimum wage need not be maintained. However, if an employee is working while being paid wages pursuant to CEWS, and employer must ensure that those hours worked are compensated by at least minimum wage 

Interaction of CEWS with other benefits 

• There is nothing to preclude an employer from using CEWS to subsidize the wages of some of its workforce, while keeping others on layoff or leave and/or in receipt of benefits such as EI or the Canada Emergency Relief Benefit (CERB)
• The government recently announced employees may earn up to $1,000 per month while collecting the CERB. However, unless or until more guidance is received from the government in this respect, employers should not use CEWS to subsidize the wages of employees who receive CERB, including wages paid up to this proposed $1,000 monthly limit. An employee should not be in receipt of both wages subsidized pursuant to the CEWS and the CERB and employees who are in receipt of both respecting the same qualifying period may have repayment obligations to Service Canada
• CEWS subsidy amounts may be reduced by other benefits received by an eligible employee, including pursuant to the previously announced 10% wage subsidy and pursuant to employment insurance benefits (including work-sharing benefits)  

Importance of accurate reporting

• If an employer knowingly misreports CEWS eligibility, the Canada Revenue Agency may impose penalties up to 50% of the CEWS received by the employer 

Stay on top of it

The government is expected to release online CEWS application forms in the next couple of weeks. Like other federal benefits currently available to employers, CEWS is likely to be further amended and refined over time. For a summary of other COVID-related benefits for Canadian employers, see our Guide to Government Relief Programs.