Of the many benefits provided by the federal government to assist employers, and employees, navigating the effects of the COVID-19 pandemic, the 75% Canada Emergency Wage Subsidy is arguably one of the most significant. On April 11, 2020, the federal government passed Bill C-14, the COVID-19 Emergency Response Act, No. 2 (the “Act”), enacting the Canada Emergency Wage Subsidy (“CEWS”), which included additional changes to and details about the CEWS.
How it Works
As we have written in the past, the CEWS is a 75% wage subsidy currently available for up to 12 weeks, and retroactive to March 15, 2020. The CEWS covers 75% of the first $58,700 of wages for each worker employed by an eligible business, which is up to $847 per week.
Currently, there are three claiming periods during which employers can receive the CEWS, as follows:
Period 1 March 15 – April 11
Period 2 April 12 – May 9
Period 3 May 10 – June 6
More information about the claiming periods and how to show eligibility in each is set out below.
The Act allows the government to extend the CEWS from June 6 (when it currently ends) to September 30, 2020.
Who is eligible?
The subsidy is available to all employers, including individuals, taxable corporations, partnerships, non-profits, and registered charities that experience a sufficient drop in revenues. Public bodies (including municipalities, Crown corporations, public universities, hospitals, schools, etc.) are not eligible for the CEWS.
How is revenue calculated?
Contrary to what was initially announced, employers will only need to show a 15% decline in revenue in March 2020 to qualify for the CEWS for wages they paid to employees in the March 15 and April 11, 2020 claiming period. The government stated this change was made to help more employers and to recognize that the economic consequences of COVID-19 were still evolving in March 2020, so the actual revenue reduction may be lower for some employers in March as the impacts of the pandemic were not yet felt.
Employers will still be required to show a 30% reduction in revenue to be eligible for the CEWS in respect of wages paid to employees in April and May 2020, except if they are automatically eligible for one of those months by being approved for the previous month, as described below.
An employer that meets the eligibility criteria in one claiming period is now automatically eligible to receive the CEWS in the subsequent month. For example, if an employer experienced a 15% decline in revenue in March 2020, and is thereby eligible to receive the CEWS for the period from March 15 to April 11, 2020, then it would also automatically be eligible to receive the CEWS for the April 12 to May 9, 2020 claiming period, without needing to show a 30% drop in revenue in April 2020. However, the employer would need to reapply to receive the CEWS again in the May 10 to June 6, 2020 claiming period. An employer that did not experience a 15% drop in revenue in March 2020 will be required to show a 30% reduction in revenue on April 2020 to receive the CEWS for April 12 to May 9, 2020. An employer that successfully does so will be automatically eligible to receive the CEWS for May 10 to June 6, without needing to show a 30% reduction in revenue in May 2020.
Employers will also have the option of comparing their current revenue with two possible benchmarks to demonstrate the required revenue reduction to receive the CEWS in any given month. In addition to comparing current revenue with revenue in the same month in 2019, employers will have the option to compare their revenue in a given month with their average monthly revenue in January and February 2020 to demonstrate the required drop in revenue for CEWS eligibility.
As with the changes to the eligibility criteria, the changes to the potential reference period for eligibility were made to ensure that the CEWS is available to as many employers that have been significantly impacted by COVID-19 as possible, and to recognize that new businesses and businesses that have grown substantially in the last year could have been disadvantaged if they could only demonstrate the required drop in revenue by using 2019 as a benchmark.
The claiming period, reduction in revenue, and reference period for eligibility can be summarized as follows:
|Claiming period||Required reduction in revenue||Reference period for eligibility|
|Period 1||March 15 to April 11||15%||March 2020 over: – March 2019 or – Average of January and February 2020|
|Period 2||April 12 to May 9||30%||Eligible for Period 1 OR April 2020 over: – April 2019 or – Average of January and February 2020|
|Period 3||May 10 to June 6||30%||Eligible for Period 2 (if applied specifically for Period 2) OR May 2020 over: – May 2019 or – Average of January and February 2020|
Employers now have the option to calculate their revenues in order to show the required revenue reduction by using either of two accounting methods: the accrual method, or the cash method. This change is also intended to provide employers with more flexibility and to ensure that affected employers that need the CEWS will be able to receive it. However, once an employer has chosen a method, it cannot change methods to calculate its revenue reduction in subsequent claiming periods.
Non-profits and charities will also be allowed to choose whether or not they include government funding that they have received as revenue for the purposes of CEWS eligibility. However, once they make that choice, they have to maintain it for all future claiming periods.
Pension and Employment Insurance Contribution Refunds
The CEWS now includes a 100% refund for certain employer contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan for eligible employees, for each week that the employees are on a paid leave and the employer is eligible to claim the CEWS for the employees. This amount is in addition to the $847 weekly maximum of the CEWS for each employee.
Employers should also note that the Act allows (but does not require) the Minister of National Revenue to publish the name of any person or partnership that has claimed the CEWS, meaning that whether an employer has claimed the wage subsidy may be made public.
How to Apply
Eligible employers can apply for the CEWS through their CRA My Business Account online portal. The government has stated that further details about the application process and requirements will be available soon.
The government has promised that funds from the CEWS will be available in two to five weeks.
Penalties for Abuse
If, after the subsidy has been paid, an employer is determined to be ineligible for the subsidy, the employer will be required to repay any overpayment received. If the overpayment is found to be the result of the employer’s “gross negligence”, the employer may be liable for a penalty of 50% of the overpayment under the Income Tax Act.
Employers that engage in transactions or take actions to purposefully lower their revenue to meet the required reduction will be required to repay the subsidy amount they received and will be liable for a penalty of 25% of the subsidy received.
Employers that apply for the CEWS will be required to designate an individual that has control over their finances, who will need to attest to the accuracy and completeness of their CEWS application.
Interaction with the 10% Temporary Wage Subsidy
Employers that are eligible for both the Canada Emergency Wage Subsidy and the previously announced 10% Temporary Wage Subsidy should consider how the two benefits will interact. Generally, if employers are receiving benefits from the Temporary Wage Subsidy, those benefits would reduce the amount employers can claim under the Canada Emergency Wage Subsidy in the same period.
Interaction with the Work-Sharing Program
Employers who have entered into a work-sharing agreement with their employees and Service Canada, under the federal government’s Work-Sharing Program should note that EI benefits received by employees through the Work-Sharing Program will reduce the amount of the CEWS that the employer can receive.
For more information about the Work-Sharing Program, take a look at the FAQ Videos available on this Resource Centre.
Key Considerations for Employers
The changes to the CEWS announced this week are great news for employers, in that more employers will be eligible for the CEWS than before. This is because the eligibility criteria have been lowered for March 2020 and the availability of an additional benchmark and accounting method will enable more employers to qualify for March, April, and May.
On the other hand, given the severe penalties for those that abuse the CEWS that were announced this week, employers that plan to apply for the CEWS should designate a trusted individual with control over their finances who is familiar with the rules and requirements for the CEWS, to ensure compliance and avoid severe penalties.
As noted above, the Act allows the government to extend the CEWS to September 30, 2020. This legislative mechanism suggests that the government is aware that the effects of the COVID-19 pandemic may last longer than this spring, and is prepared to assist employers (and employees) by extending the CEWS if the government determines it is necessary to do so.
On April 1, 2020, when the government provided some detail on the CEWS, it stated that employers would be required to attest that they are “doing everything that they can” to provide their employees with the remaining 25% of their wages in order to receive the subsidy. However, this requirement did not make its way into the legislation. As a result, employers that are considering applying for the CEWS no longer need to consider potential penalties if they are considered not to have “done everything that they can” to pay the remaining 25% of employees’ wages, if there is any possibility that they may not be able to pay these remaining wages each month.
Given the new information about the interaction between the CEWS and the Work-Sharing program, employers who have been considering one or the other should carefully calculate which makes sense for their business, because they will not be able to fully take advantage of both due to the EI benefits paid as part of Work-Sharing reducing the amount of CEWS the employer can receive.
As employers consider whether they can use the CEWS to keep their employees at work, or recall those who are laid off, there are a few additional factors that employers should carefully consider in amending their business continuity plans. Specifically, where an employer’s workplace is still operating as a result of being declared an essential workplace, and work-from-home arrangements are not feasible for the employer’s business, employers should carefully revisit and revise their social distancing guidelines for the workplace as necessary before bringing significant numbers of employees back into the workplace. This should include hygiene requirements, and an assessment of whether workstations need to be (and can be) moved to ensure that employees are sufficiently distant from one another. Failure to do so could put the health of employees and the community at risk and expose the employer to liability under Occupational Health and Safety Act and the Emergency Management and Civil Protection Act.
For more information about the CEWS, take a look at the FAQ Videos and other information available on this Resource Centre, or contact a member of our team for more information about what the recent developments mean for your business.
This blog is provided as an information service and summary of workplace legal issues. This information is not intended as legal advice.