On Saturday, April 11, 2020 the federal government passed the Canada Emergency Wage Subsidy (the “CEWS”). This law will be a game changer for many employers.
The following information is from the federal government’s explanation of the CEWS.
If your organization’s revenue in March 2020 was 15% less than in March 2019 (and/or decreased by 30% in April and/or by 30% in May) then the government will pay 75% of each worker’s wages up to $847 a week. In the alternative, employers can elect to use the average of their January and February 2020 revenues as the benchmark for establishing their eligibility. It is important to note that you will be required to use the same approach for the entire duration of the program.
There are some exceptions to the eligibility requirements. The revenue reduction does not have to be caused by COVID-19.
If you decide to re-hire temporarily laid off employees or you decide to hire new employees then your organization is eligible for the wage subsidy even if employees are not required to report to work.
If possible, it is expected that you will top up your employees’ salaries to bring them up to their pre-crisis amounts.
When Are the Wage Subsidy Periods?
Period 1: March 15 to April 11, 2020
Period 2: April 12 to May 9, 2020
Period 3: May 10 to June 6, 2020
How to Calculate Revenue?
The government compares year over year revenues for the relevant Period. Under the alternative approach, your revenues will be compared against your January and February 2020 revenues.
An employer’s revenue is its revenue in Canada earned from arm’s-length sources.
For registered charities and non-profit organizations, the calculation includes most forms of revenue, excluding revenues from non-arm’s length persons. These organizations are allowed to choose whether or not to include revenue from government sources as part of the calculation. Once chosen, the same approach applies throughout the program period.
Revenue is calculated using the employer’s normal accounting method, 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 select an accounting method when first applying for the CEWS and are required to use that method for the entire duration of the program.
When calculating revenue reduction for Period 1 you get to choose one of two approaches:
- Compare your March 2020 revenue to your March 2019 revenue; or
- Compare your March 2020 revenue to the average of January and February 2020 revenue.
Once an approach is chosen, it must be used for Period 2 and 3. If an employer is found eligible for one Period, the employer automatically qualifies for the next period.
Accordingly for Period 2 and Period 3, your organization is eligible for the wage subsidy if you were eligible for a wage subsidy for the preceding Period or there is a 30% revenue reduction in April 2020 over: (a) April 2019 or (b) Average of January and February 2020 revenue (whichever approach you selected in Period 1).
How to Apply for Wage Subsidy
Eligible employers will be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account portal.
You must apply separately for each Period.
Penalties for Violating this Law
Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS will be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed. Penalties may apply in cases of fraudulent claims. The penalties may include fines or even imprisonment.
How Does the CEWS Interact with the 10% Wage Subsidy?
The government previously implemented a temporary 10% wage subsidy on March 25, 2020. If you are eligible for both the CEWS and the 10% wage subsidy for a period, any benefit you receive from the 10% wage subsidy will generally reduce the amount available to be claimed under the CEWS in that same period.
I Think I’m Eligible. What Should I Do?
- Set up a My Business Account with CRA if you don’t have one.
- Call your accountant/bookkeeper to find out if you qualify for a wage subsidy.
- If you qualify for a wage subsidy then apply ASAP.
- The government is not expected to pay the wage subsidy for 2 to 5 weeks. If your organization had a payroll of between $50, 000 and $1,000,000 in 2019 and doesn’t have the money to pay employee wages until you receive the wage subsidy then you can apply for up to a $40,000 line of credit – the Canada Emergency Business Account – from the government that is administered through financial institutions. There is no interest until December 31, 2022 and the government may forgive 25% of this loan if the loan is repaid by December 31, 2022. More details are found here.
- Make sure that all new employees sign a legally enforceable employment contract. I sincerely believe that a well drafted contract is a powerful management tool that can significantly enhance an employer’s rights especially in situations that are not being contemplated at the time of hire. I review about 25 possible terms and conditions of employment with my clients including a clause that gives your organization the right to temporarily lay off employees.
For over 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416-317-9894 or at [email protected]