On July 17, 2020, the federal government announced proposed changes to the Canada Emergency Wage Subsidy (“CEWS”) which would broaden eligibility criteria for employers seeking to access the subsidy.

Prime Minister Justin Trudeau had previously announced that the CEWS will be extended until December 2020. The new proposed legislation confirms that this extension would be until December 19, 2020 and would address previous concerns from businesses that the eligibility criteria prevent many employers from accessing the subsidy. The changes would take effect retroactive to July 5, 2020.

Previously, businesses that had experienced at least a 30% decline in revenue were eligible for a 75% wage subsidy, according to the eligibility terms, calculation approach, and reference periods detailed in our earlier article.

Now, all employers that have experienced any level of revenue decline will be eligible for a base subsidy amount proportional to their decline in revenue. This would also allow employers who previously benefited from the CEWS to continue to qualify, even if their revenues no longer meet the 30% decline threshold. The base CEWS would be a specified rate applied to the amount of wages paid to each employee on wages of up to $1,129 per week.

The proposed changes would ensure that employers will not receive a subsidy rate lower than they would have under the previous rules, to provide certainty to employers that have already made business decisions for the next few months based on the previous subsidy rules.

The subsidy rates will also gradually decline throughout the CEWS period. As shown in the table below, employers with revenue declines of 50% or more would be eligible for a base CEWS rate of 60% of eligible wages for Period 5, which would decrease to a base rate of 20% by Period 9. This rate represents an initial maximum of $677 on wages of up to $1,129 per week during Period 5, which would drop to up to $226 by Period 9. Meanwhile, employers with revenue declines of under 50% would be eligible for a base CEWS rate of 1.2 times their revenue drop during Period 5, which would gradually drop to a rate of 0.4 times their revenue drop during Period 9.

Rate structure of the base CEWS
Timing Period 5*:
July 5 – August 1
Period 6*: August 2 – August 29 Period 7: August 30 – September 26 Period 8: September 27 – October 24 Period 9:
October 25 – November 21
Maximum weekly benefit per employee Up to $677 Up to $677 Up to $565 Up to $452 Up to $226
Revenue drop
50% and over 60% 60% 50% 40% 20%
0% to 49% 1.2 x revenue drop
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
1.2 x revenue drop
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
1.0 x revenue drop
(e.g., 1.0 x 20% revenue drop = 20% base CEWS rate)
0.8 x revenue drop
(e.g., 0.8 x 20% revenue drop  = 16% base CEWS rate)
0.4 x revenue drop
(e.g., 0.4 x 20% revenue drop = 8% base CEWS rate)
* In Periods 5 and 6, employers who would have benefited more under the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more.

 

For the purpose of calculating drop in revenues, employers have the choice between a general reference period, based on monthly revenues year-over-year, or an alternative approach, based on average revenues from January-February 2020:

Reference periods for the base CEWS
  Claim period General approach Alternative approach
Period 5 July 5 to August 1, 2020 July 2020 over July 2019 or June 2020 over June 2019 July 2020 or June 2020 over average of January and February 2020
Period 6 August 2 to August 29, 2020 August 2020 over August 2019 or July 2020 over July 2019 August 2020 or July 2020 over average of January and February 2020
Period 7 August 30 to September 26, 2020 September 2020 over September 2019 or August 2020 over August 2019 September 2020 or August 2020 over average of January and February 2020
Period 8 September 27 to October 24, 2020 October 2020 over October 2019 or September 2020 over September 2019 October 2020 or September 2020 over average of January and February 2020
Period 9 October 25 to November 21, 2020 November 2020 over November 2019 or October 2020 over October 2019 November 2020 or October 2020 over average of January and February 2020

 

Top-Up for Most Adversely Affected Employers

The proposal also includes an additional top-up subsidy for employers most severely affected by the pandemic, namely those which have experienced a decrease in revenue of over 50% during a three-month period. The top-up CEWS rate is calculated based on the portion of the employer’s average revenue drop over the preceding three months, and is equal to 1.25 times the average revenue drop that exceeds 50%, up to a maximum top-up rate of 25%.

Employers that experienced a revenue decline of over 70% would be eligible for the maximum 25% top-up, while employers with a revenue drop between 50-70% would receive a proportionally smaller top-up. The overall CEWS rate for these employers would be equal to the base CEWS rate plus the top-up CEWS rate.

The reference periods for the top-up CEWS differs from the reference period for the base CEWS, and are determined according to the table below:

Reference periods for the top-up CEWS
  Claim period General approach Alternative approach
Period 5 July 5 to August 1, 2020 April to June 2020 over April to June 2019 April to June 2020 average divided by January and February 2020 average
Period 6 August 2 to August 29, 2020 May to July 2020 over May to July 2019 May to July 2020 average divided by January and February 2020 average
Period 7 August 30 to September 26, 2020 June to August 2020 over June to August 2019 June to August 2020 average divided by January and February 2020 average
Period 8 September 27 to October 24, 2020 July to September 2020 over July to September 2019 July to September 2020 average divided by January and February 2020 average
Period 9 October 25 to November 21, 2020 August to October 2020 over August to October 2019 August to October 2020 average divided by January and February 2020 average

 

Other Changes

In addition to the changes outlined above, effective July 5, 2020, the CEWS eligibility criteria would no longer exclude employees who do not receive remuneration for 14 or more consecutive days within an eligibility period.

The proposed legislation also includes changes to the subsidy calculation for furloughed (i.e. temporarily laid off) employees. For Periods 5 and 6, the calculation would remain the same as before, being 75% of the amount of remuneration paid up to a maximum of $847 per week. As of Period 7, the amount of CEWS support for furloughed employees would align with the amount of the Canada Emergency Response Benefit (“CERB”) and/or Employment Insurance (“EI”). The intent of this change is to facilitate transitioning employees onto the CEWS, given the elimination of the rule excluding employees who are without pay for 14 consecutive days.

Additionally, refunds of the employer portion of CPP, EI, the Quebec Pension Plan, and the Quebec Parental Insurance Plan in respect of employees who are temporarily laid off would continue to be refunded to the employer.

Takeaways

If passed into law, these proposed changes would be good news for the many employers that have struggled to recover from the economic impacts of the pandemic, but have not previously been eligible for the CEWS. The extension of the subsidy until December is also beneficial for employers that have already accessed the CEWS but are still struggling to recover, and the 25% top-up will benefit those employers most severely impacted by the pandemic. Additionally, the government’s proposed approach will provide certainty to employers that have already made business decisions for July and August by making sure that they would not receive a lower subsidy rate than what they had planned on based on the previous rules.

Employers should consider how these new proposed changes may allow them to keep their employees at work, or recall those who were laid off, as they continue or prepare for their reopening and develop their return to work plans.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.