COVID-19 and the workplace: new details on the Canada Emergency Wage Subsidy

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On March 30, 2020 and April 1, 2020, the federal government announced the details of the Canada Emergency Wage Subsidy (CEWS) for employers. While the CEWS remains subject to parliamentary approval, the key details as proposed are summarized below (for details on tax issues related to the CEWS, read our bulletin here).

Further information relating to the CEWS is expected to be released in the coming weeks. Accordingly, the guidance provided in this bulletin may be subject to change. We therefore recommend that employers seek legal advice in respect of the issues noted below, and other employment-related decisions being considered in connection with COVID-19.

Key Highlights

All types and sizes of private sector employers are eligible. The CEWS will be available, retroactive to March 15, 2020, to the following employers: individuals, taxable corporations and partnerships consisting of eligible employers, as well as non-profit organizations and registered charities. Public bodies (including municipalities, local governments, Crown corporations, public universities, colleges, schools and hospitals) will not be eligible for the CEWS.

Eligibility tied to decreased revenues in March, April and May 2020. The CEWS will be available to employers who suffer a drop in gross revenues of at least 30% in March, April or May of 2020 as compared to the same month in 2019. Gross revenues for this purpose are revenues from business carried on in Canada earned from arm’s-length sources, calculated using the employer’s normal accounting method, and excludes revenues from extraordinary items and amounts on account of capital. The government will work with non-profit organizations and registered charities to ensure the definition of revenue is appropriate in their circumstances.

Eligible claiming periods and applicable reference periods for eligibility are set out below.

• Period 1: March 15-April 11 (Reference period for eligibility: March 2020 over March 2019)
• Period 2: April 12-May 9 (Reference period for eligibility: April 2020 over April 2019)
• Period 3: May 10-June 6 (Reference period for eligibility: May 2020 over May 2019)

For employers established after February 2019, eligibility will be determined by comparing monthly revenues to a reasonable benchmark.

Maximum benefit of $847 per week per employee. Although there will be no overall limit on the subsidy amount that an eligible employer may claim, the CEWS amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 will be the greater of:

• 75% of the remuneration paid to an employee up to a maximum of $847 per week per employee (this is expected to apply to employees that deal at arm’s length with the employer); and
• the amount of remuneration paid up to $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less (this is expected to apply to employees that do not deal at arm’s length with the employer).

Eligible remuneration may include salary, wages, and other remuneration that are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Canada Revenue Agency (CRA). Eligible remuneration does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle. Further guidance with respect to calculating an employee’s pre-crisis weekly remuneration is expected in the coming days

Employers expected to make “best efforts” to top-up employee salaries. It is expected that employers will make their best effort to top up employees’ salaries to bring them to pre-crisis levels. However, the Minister of Finance has indicated that there may be flexibility in instances where employers are unable to top up employees’ salaries.

Interaction with 10% wage subsidy. Businesses that do not qualify for the CEWS may continue to qualify for the previously announced wage subsidy of 10% of remuneration paid from March 18, 2020 to before June 20, 2020, to a maximum subsidy of $1,375 per employee and $25,000 per employer. For employers that qualify for both subsidies, any benefit from the 10% wage subsidy for remuneration paid in a specific period would reduce the amount available to be claimed under the CEWS for the same period.

Interaction with the Canadian Emergency Response Benefit. An employer will not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canada Emergency Response Benefit.

How to apply. Employers will be able to apply for the CEWS through their CRA My Business Portal, as well as a web-based application. Employers will have to keep records demonstrating their reduction in arm’s-length revenues and the remuneration paid to employees. The Ministry of Finance has encouraged all businesses to set up direct deposit on their My Business Portal so that when the system is up and running, employers will receive the CEWS as quickly as possible. It is expected that funds will be available under the CEWS within the next six weeks.

Compliance. Employers will be required to repay amounts under the CEWS if they do not meet the eligibility requirements and pay their employees accordingly. Penalties may apply in cases of fraudulent claims. The government is considering the creation of new offences that apply to employers who provide false or misleading information to obtain access to the CEWS or misuse any funds obtained under the program.

The CEWS is designed to keep employees on the payroll. The federal government has made it clear that the purpose of the CEWS is for employers affected by the COVID-19 crisis to keep employees on payroll. The government’s hope is that companies will think twice about laying off employees, and re-hire those that have been laid off in the previous weeks due to COVID-19. The Minister of Finance’s message to employers was: “Get ready to re-hire workers.”

Read all our coronavirus-related updates on our COVID-19 guidance for organizations resource page.