On April 11, 2020, the Federal Government introduced and passed a new law that provides financial support to Canadian businesses facing difficulties due to COVID-19. The new law introduces the Canada Emergency Wage Subsidy (“CEWS”), which is designed to assist businesses to keep workers on payroll and encourage employers to re-call workers who were laid-off as a result of COVID-19.
What is the Canada Emergency Wage Subsidy (“CEWS”)?
• The government is providing a wage subsidy to all eligible employers who have seen a drop in revenue (of at least 15% in March, and 30% in April and May) during the eligible periods.
• The amount of the wage subsidy is the greater of
• Employers will attest (swear an oath) as to the decline in revenue when applying for the subsidy
• Employers must keep records demonstrating their reduction in arm’s length revenues and remuneration paid to employees
• The CEWS is considered government assistance and therefore part of the employer’s taxable income
• The CEWS also reduces the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration
• Employers are obliged to top-off the remaining 25% of insured remuneration, and use their best efforts to top up an employee’s entire remuneration.
• 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% of their revenue in March 2020 and 30% for the months of April and May 2020, compared to either (a) the same month in the previous year, or (b) the average revenue collected in January and February 2020.
• This includes revenue from its business carried on in Canada earned from arm’s length sources, revenue generated during the regular course of business, as well as revenue generated from a related business.
• Revenue is calculated using the employer’s regular accounting methods, and excludes revenues from extraordinary items and amounts on account of capital.
• Employers are 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 CEWS?
• The amount will be the greater of:
• Employers are expected to use their “best efforts” to top up their employee’s remuneration to bring them to their pre-crisis baseline remuneration.
What is considered “wages”?
• “Pre-crisis remuneration” or “baseline remuneration” is defined as
• 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 a retiring allowance, severance pay, stock option benefits, the personal use of a corporate vehicle, or anything contractually agreed between the employer
and employee over and above the base salary
Refund for Certain Payroll Contributions
• The CEWS legislation also includes a new 100 per cent refund for certain employer-paid contributions to EI and CPP.
• This refund covers 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. Importantly, this refund is not 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 qualifying period?
• There are two methods to calculate the change of the eligible employer’s monthly revenues.
The first is a comparison of the year-over-year change in revenue.
The second is an alternative benchmark where employers can compare their revenue using an average of their revenue earned in January and February 2020
• Employers can select either the general year-over-year approach or this alternative approach when first applying for the CEWS, but employers are required to use the same approach for the entire duration of the program.
• There are 3 eligible qualifying periods for the CEWS
To Which Employees Does the CEWS Apply?
• Eligibility for the CEWS is available to employees other than those who have been without remuneration for 14 or more consecutive days in the qualifying period described above.
• In other words, if an employee has not received remuneration for the qualifying period, an employer will not be able to receive a subsidy for that employee.
To Which Employees Does the CEWS Apply?
• Eligibility for the CEWS is available to employees other than those who have been without remuneration for 14 or more consecutive days in the qualifying period described above.
• In other words, if an employee has not received remuneration for the qualifying period, an employer will not be able to receive a subsidy for that employee.
How and when to Apply?
• The government has said there will be a two part application that employers can make before October 2020:
• An employer is required to repay amounts paid under CEWS if they do not meet the eligibility requirements for the program.
• Penalties may apply for fraudulent claims, including fines or imprisonment.
• Anti-abuse rules will be put in place to ensure the CEWS is not inappropriately obtained, and to ensure that employees are paid the amounts they are owed.
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
KMB Law is here to assist your business with any of your legal needs for employment, corporate, real estate, franchising, construction, wills & estates, family law, and litigation needs.
Please contact our Employment Law Department for more information about CEWS and any other employment law matters.
What is the Canada Emergency Wage Subsidy (“CEWS”)?
• The government is providing a wage subsidy to all eligible employers who have seen a drop in revenue (of at least 15% in March, and 30% in April and May) during the eligible periods.
• The amount of the wage subsidy is the greater of
- 75% of the amount of remuneration paid to an employee, up to a maximum benefit of
- the amount of remuneration paid, up to a maximum benefit of $847.00 per week or 75% of the employee’s weekly remuneration (whichever is less)
• Employers will attest (swear an oath) as to the decline in revenue when applying for the subsidy
• Employers must keep records demonstrating their reduction in arm’s length revenues and remuneration paid to employees
• The CEWS is considered government assistance and therefore part of the employer’s taxable income
• The CEWS also reduces the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration
• Employers are obliged to top-off the remaining 25% of insured remuneration, and use their best efforts to top up an employee’s entire remuneration.
• 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% of their revenue in March 2020 and 30% for the months of April and May 2020, compared to either (a) the same month in the previous year, or (b) the average revenue collected in January and February 2020.
• This includes revenue from its business carried on in Canada earned from arm’s length sources, revenue generated during the regular course of business, as well as revenue generated from a related business.
• Revenue is calculated using the employer’s regular accounting methods, and excludes revenues from extraordinary items and amounts on account of capital.
• Employers are 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 CEWS?
• The amount will be the greater of:
- 75% of the amount of remuneration paid to an employee, up to a maximum benefit of $847.00 per week; and
- The lesser of (a) the amount of remuneration paid, up to a maximum benefit of $847.00 per week or (b) 75% of the employee’s pre-crisis weekly remuneration
- 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
• Employers are expected to use their “best efforts” to top up their employee’s remuneration to bring them to their pre-crisis baseline remuneration.
What is considered “wages”?
• “Pre-crisis remuneration” or “baseline remuneration” is defined as
- the average weekly remuneration paid between January 1 and March 15 inclusive (ie the first 10.5 weeks of the year), excluding any seven-day periods in respect of which the employee did not receive 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 a retiring allowance, severance pay, stock option benefits, the personal use of a corporate vehicle, or anything contractually agreed between the employer
and employee over and above the base salary
Refund for Certain Payroll Contributions
• The CEWS legislation also includes a new 100 per cent refund for certain employer-paid contributions to EI and CPP.
• This refund covers 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. Importantly, this refund is not 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 qualifying period?
• There are two methods to calculate the change of the eligible employer’s monthly revenues.
The first is a comparison of the year-over-year change in revenue.
The second is an alternative benchmark where employers can compare their revenue using an average of their revenue earned in January and February 2020
• Employers can select either the general year-over-year approach or this alternative approach when first applying for the CEWS, but employers are required to use the same approach for the entire duration of the program.
• There are 3 eligible qualifying periods for the CEWS
- 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
- References will be made to at least a 15% drop in revenue when comparing March 2020 to either
- 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
- References will be made to at least a 30% drop in revenue when comparing May 2020 to either
To Which Employees Does the CEWS Apply?
• Eligibility for the CEWS is available to employees other than those who have been without remuneration for 14 or more consecutive days in the qualifying period described above.
• In other words, if an employee has not received remuneration for the qualifying period, an employer will not be able to receive a subsidy for that employee.
To Which Employees Does the CEWS Apply?
• Eligibility for the CEWS is available to employees other than those who have been without remuneration for 14 or more consecutive days in the qualifying period described above.
• In other words, if an employee has not received remuneration for the qualifying period, an employer will not be able to receive a subsidy for that employee.
How and when to Apply?
• The government has said there will be a two part application that employers can make before October 2020:
- On the CRA’s My Business Account, and
- A separate web-based form
• An employer is required to repay amounts paid under CEWS if they do not meet the eligibility requirements for the program.
• Penalties may apply for fraudulent claims, including fines or imprisonment.
• Anti-abuse rules will be put in place to ensure the CEWS is not inappropriately obtained, and to ensure that employees are paid the amounts they are owed.
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
KMB Law is here to assist your business with any of your legal needs for employment, corporate, real estate, franchising, construction, wills & estates, family law, and litigation needs.
Please contact our Employment Law Department for more information about CEWS and any other employment law matters.
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.
