The proposed legislation (Bill C-14) on the Canada Emergency Wage Subsidy (CEWS) first announced back in late March has now been enacted as of April 11, 2020. Employers can now have some certainty on the eligibility criteria and what’s involved in accessing CEWS funds as we know it today. Here are some common questions to outline the key facts employers need to know.
What does the CEWS provide?
It provides eligible employers with 75% wage subsidy to help them retain or return their employees on payroll so as to minimize layoffs. The wage subsidy is available for up to 12 weeks retroactively from March 15 – June 6, 2020. The amount of subsidy is based on the first $58,700 an employee earns which equates to a maximum of $847 per week per employee. There is no limit set with respect to the total amount an eligible employer may claim.
In addition, employers may also access a 100% refund for certain employer-paid contributions including the Canada Pension Plan (CPP) and Employment Insurance (EI) premiums. This refund applies to those employees who are categorized as being on a “leave with pay” and are not performing any work for any part of a week claimed. This would represent additional savings above the $847 maximum weekly benefit for eligible employers as part of the CEWS program (note: current employer contribution rates for CPP and EI in Ontario is 5.25% and 2.21% respectively).
Employers would be required to continue to collect and remit both employer and employee contributions to CPP and EI as normal. Eligible employers would simply apply for reimbursement at the same time as applying for the CEWS.
Who is eligible?
Other than public institutions, employers of all sizes and across all industries employing Canadian employees are eligible, including:
- An individual (i.e. sole proprietor)
- A partnership consisting of eligible employers
- A taxable corporation
- A non-profit or registered charity
- Canadian subsidiaries of foreign-controlled companies
All eligible employers must have a CRA business payroll account number as of March 15, 2020.
What is needed for employers to qualify?
In order to qualify for the CEWS, businesses must retain records that show at least a 15% drop in revenue in the first period and a 30% reduction in the subsequent two periods as per the chart below:
To determine if the business meets the reduction in revenue test for a specific period, employers can choose between two methods to calculate the change in revenue:
1) Compare their revenue for the same month in the current year with that of the prior year; or
2) Compare their revenue in the specific month against an average of the revenue from January and February of 2020.
To provide certainty to employers, once an employer qualifies for a specific period by meeting the revenue reduction test, they would automatically qualify for the subsidy in the next period irrespective of revenues. The employer will need to re-apply for the CEWS following the next period and meet the reduction in revenue test for the third period.
For example: If an employer qualifies for Period 1, they will automatically qualify for Period 2 as well. To be eligible for Period 3, they will need to re-apply and meet the revenue reductions test for Period 3.
In calculating qualifying revenue, businesses can use either the cash or accrual methods of accounting. For non-profit organizations, they can also decide whether or not to include revenue from government sources. Whatever the method chosen initially, the same calculation method must be applied consistently throughout the program.
How is the wage subsidy calculated?
The 75% government wage subsidy is calculated based on the weekly remuneration paid to a maximum of $847 per employee. In the event an employee’s pay is reduced or varies from week to week (i.e. part-time employees), employers will need to calculate the eligible “pre-crisis or baseline remuneration” paid which includes salary, wages, and other remuneration (i.e. overtime pay, commission, taxable benefits). Specifically, it is based on the average weekly eligible remuneration paid between January 1 and March 15, 2020 inclusively, excluding any seven-day periods for which the employee did not receive pay.
Eligible employers are expected to make their best effort to top-up the employee’s pay to the same level as their pre-crisis employment earnings. However, it is not yet known what exactly constitutes “best effort” or even how this will be checked. Further guidance will likely be included in the details of the application process yet to be released.
Can employers recall employees from layoff to benefit from the CEWS program?
Yes, that is the intent. Even if there is no work to be performed, eligible employers can return the employees back on payroll and place them on a “leave with pay” in the interim. In this case, on top of the 75% wage subsidy that may be available, eligible employers may also benefit from getting 100% refund on the employer paid portions of the CPP and EI premiums paid for this category of employees.
Companies would be required to continue to collect and remit CPP and EI contributions from payroll as per normal practice. Eligible employers would apply for the refund at the same time as applying for the CEWS.
How will the subsidy be affected by other government assistance programs supporting businesses?
Businesses may be eligible for other support programs included in the COVID-19 Economic Response Plan, namely the Temporary 10% Wage Subsidy and the Work Sharing Program. The CEWS subsidy amount available to be claimed will be reduced by any benefits received under the other two programs.
How to apply?
Employers will be able to apply through the Canada Revenue Agency’s (CRA) web application or directly through the company’s “My Business Account” upon registration with the CRA. The application launch date is scheduled for April 27, 2020. Although employers will not need to submit proof of eligibility at the time of application, it is expected that businesses will need to keep records to attest to the decline in revenue for the period applied as well as the remuneration paid to employees. To help businesses assess eligibility and better calculate how much wage subsidy can be claimed, the Government of Canada has rolled out a CEWS online calculator or tool for employers to access.
When will employers start receiving CEWS funds?
The Finance Minister has committed that 90% of the applications submitted in the week of April 27, will likely be processed by May 4, 2020 and employers can start receiving money from the program shortly thereafter.
How is the subsidy treated for income tax purposes?
Any funds received under the CEWS program is considered government assistance and is included in the employer’s taxable income.
What are the potential penalties for abuse?
If an employer is found to be ineligible for the CEWS, the company will be required to repay all benefits received. The government has also stated there will be severe consequences for any employers who try to abuse the CEWS program or make fraudulent or false claims. The penalties can include steep fines of 25% of the subsidies received plus full repayment requirements and up to five years in prison.
You can find more information on the Canada Emergency Wage Subsidy at the following links: