On April 11, 2020, the Federal Government passed COVID-19 Emergency Response Act; No. 2 (the “Act”), which brought the Canada Emergency Wage Subsidy (“CEW Subsidy”) into existence.
The object of the CEW Subsidy is to preserve jobs, and to encourage businesses to retain or rehire employees who were laid-off due to COVID-19 before the program was launched.
The Act will provide employers who have experienced a qualifying drop in revenues with a wage subsidy of 75% of an employee’s wages, up to a maximum of $847 per week (based on 75% of the first $58,700 earned by an employee). The CEW Subsidy operates retroactively to March 15, 2020, and set to be in effect until June 6, 2020 (12 weeks). Employers may also receive a full refund on certain employer-paid contributions.
Here are the top 5 things you need to know about the CEW Subsidy.
- Who is eligible for the CEW Subsidy?
“Eligible employers” include individuals, taxable corporations, partnerships consisting of eligible employers, non-profit organizations and registered charities. Public bodies (such as government organizations, public schools, and hospitals) would not be eligible.
“Eligible employees” is an individual who is employed in Canada. Employees who have not received remuneration for 14 or more consecutive days between March 15 and June 6 would not qualify. Note that the eligible employee need not necessarily perform work during the period, but must be on the employer’s payroll.
If the employee is not at-arms’-length to the employer (i.e. the employee is related the employer, like a parent or child), then only non-arm’s length employees who were employed prior to March 15, 2020 would qualify. Further, the subsidy amount would be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of the lesser of $847 per week and 75 per cent of the employee’s average pre-crisis weekly remuneration.
- What does “drop in qualifying revenue” mean?
To qualify, employers must show that a drop in revenues compared either to last year’s revenue, or to an average of January and February 2020:
- (Period 1) Between March 15 to April 11, there is a 15% drop in revenue compared to March 2019 OR average of January and February 2020
- (Period 2) Between April 12 to May 9, there is a 30% drop in revenue compared to April 2019 or the average of January and February 2020
- (Period 3) Between May 10 to June 6, there is a 30% drop in revenue compared to May 2019 or the average of January and February 2020
To calculate “revenue”, the employer can use normal accounting methods, including the use of the accrual method or cash method of accounting. It is important to note that in calculating the qualifying drop in revenue, the employer will be required to use the same formula going forward for each qualifying period. In other words, the employer cannot elect to compare the drop in qualifying revenue in period 1 to last year’s revenue, and then in period 2, compare the drop in qualifying revenue to the average of January and February 2020. Employers will also be required to apply for the subsidy in each qualifying period.
While payments received under the CEW Subsidy program is not included for the purpose of calculating an employer’s “revenue”, the CEW Subsidy payments are considered taxable income.
- How much is the wage subsidy?
The amount is calculated as the greater of:
- 75% of the amount of eligible remuneration paid to the employee in that week, up to a maximum benefit of $847 per week; and
- The least of:
- The amount of eligible remuneration paid to the employee in that week, or
- 75% of the employee’s average pre-crisis weekly remuneration (between January 1, 2020 and March 15, 2020, excluding any 7 day period the employee did not receive remuneration), or
- maximum benefit of $847 per week.
“Eligible remuneration” includes salary, wages, and other taxable benefits.
The amount an employer receives for the CEW Subsidy will also be reduced by:
- Any amount the employer has received from the COVID-19 Emergency Response Act 10% wage subsidy program; and
- EI benefits received by the employees from the Work-Sharing Program between March 15 and June 6, 2020.
- How does the additional refund on payroll contributions work?
If the employee is paid by the employer, but does not perform any work (i.e. on leave with pay), then the employer is eligible for a full refund for contributions to the employee’s Employment Insurance, Canadian Pension Plan, Quebec Pension Plan, and the Quebec Parental Insurance Plan.
Employers must still collect and remit employer and employee contribution to each program as usual, but can apply for a refund from the government.
This refund is over and above the wage subsidy, and is not included in the calculation of the $847 maximum weekly benefit.
- How do I apply?
Employers can apply for the CEW Subsidy online through the Canada Revenue Agency’s My Business Account portal.
For more information about the CEW Subsidy or to see how we can assist you navigate complex employment related matters, please contact Jordanna Cytrynbaum.
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CEW Subsidy program overview: https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html
CEW Subsidy program update released on April 11, 2020: https://www.canada.ca/en/department-finance/news/2020/04/government-introduces-covid-19-emergency-response-act-no-2-to-help-businesses-keep-canadians-in-their-jobs.html
Additional Details on CEW Subsidy: https://www.canada.ca/en/department-finance/news/2020/04/additional-details-on-the-canada-emergency-wage-subsidy0.html