Updated on April 21, 2020
The new Canada Emergency Wage Subsidy (CEWS) was officially passed into law as of April 11, 2020. Employers waiting in anticipation can now move forward with planning, analysis and implementation (bearing in mind applicable formalities and deadlines). The CEWS program can have significant implications on employers’ operations, including workforce reductions and/or recalls. Employers would be well advised to develop and implement an appropriate strategy.
We have written extensively about the CEWS. While many details of the new legislation are consistent with previously released public information, additional specifics have been clarified or changed – including deadlines for application, information for corporate groups and penalties. The following practical guide summarizes the new legislation for employers seeking to use and understand the subsidy.
At a glance: Updates
Relaxed rules for eligibility
Significantly, previous announcements concerning the obligation on employers to use “best efforts” to top up the remaining 25 per cent of an employee’s salary are not reflected the legislation. Another welcome update for businesses is found in a provision indicating that employers who qualify in respect of one eligible period will do so more or less automatically for the next one. Furthermore, the Government has followed through on a proposal to lower the threshold for qualification in March 2020 so that entities with a monthly revenue drop of 15 per cent will qualify for that period.
Novel privacy concerns may be raised for employers due to new provisions permitting the Minister of National Revenue (Minister) or Canada Revenue Agency (CRA) to communicate or otherwise make available to the public the name of any person or partnership that applies for the CEWS.
The following types of employers will be eligible for the subsidy, provided that they were registered for a payroll account as of March 15, 2020:
- corporations (other than most tax-exempt corporations, Crown and municipal corporations, and public institutions), including public or foreign corporations
- charities (other than public institutions)
- partnerships composed of eligible persons
- prescribed corporations
Eligible employers must show that they qualify for the subsidy by showing that they have suffered a certain drop in revenue (15 per cent or 30 per cent, depending on the period at issue). Generally speaking, an employer must show a decline in revenue of at least 30 per cent in April 2020 and May 2020, as compared to the same months in the previous year. For March 2020, the employer must show that they have a decline in revenue of at least 15 per cent compared to March 2019. An employer may instead choose to use a reference period of the average of January and February 2020. The qualifying and claim periods remain unchanged:
Mar. 15 - Apr. 11
Mar. 2020 over Mar. 2019
Mar. 2020 over the average of Jan. & Feb. 2020
Apr. 12 - May 9
Apr. 2020 over Apr. 2019
Apr. 2020 over the average of Jan. & Feb. 2020
May 10 - Jun. 6
May 2020 over May 2019
May 2020 over the average of Jan. & Feb. 2020
The legislation includes new language indicating that where an entity meets the revenue decline condition for a particular qualifying period, it will be deemed to meet that condition for the next period. This will alleviate some uncertainty for employers rather than forcing monthly staff turnover.
Calculating revenue decline
- Revenue includes the inflow of cash, receivables, or other considerations arising in the course of the ordinary activities of the eligible entity in Canada in the particular period.
- Revenue excludes:
- amounts derived from persons or partnerships not dealing at arm’s length with the eligible employer
- extraordinary items
- The revenue of a company should be determined in accordance with its normal accounting practices. However, a company may elect to instead use cash-basis accounting, provided that it does so for all claim periods.
- Each member of a group of eligible entities can calculate revenue separately, or on a consolidated basis, provided that each member of the group acts accordingly.
- Special rules apply for companies which receive all or substantially all of their revenue from non-arm’s length sources.
For an employer to apply for a subsidy in respect of an employee, the employee must:
- be employed in Canada
- not be off work without pay for 14 or more consecutive days per claim period
Amount of subsidy
The weekly amount of the subsidy for arm’s length employees will be the greater of:
- 75 per cent of wages and salary paid in respect of the week to a maximum of $847
- 75 per cent of pre-crisis weekly remuneration (or whatever portion thereof is paid to the employee), to a maximum of $847
In addition, employers will qualify for a return of contributions of EI/CPP paid in respect of employees who are kept on payroll but do not work during the qualifying period. The legislation does not appear to retain the previous language from the Department of Finance’s publications indicating that employers must or are “expected to” make best efforts to top up the remaining 25 per cent of employees’ salary to bring them to pre-crisis levels.
The subsidy amounts will be reduced by:
- any amounts received under the (separate) 10 per cent wage subsidy program governed by the COVID-19 Emergency Response Act, if any
- amounts received by the employee as a work-sharing benefit
Application process & logistics
Applications must be filed by no later than September 30, 2020.
The individual who “has principal responsibility for the financial activities of the eligible entity” must attest that the application is complete and accurate in all material respects.
- Businesses are required to re-apply for the subsidy each month.
- The Department of Finance has indicated that a portal will be established on the CRA website and businesses can apply through their “My Business Account.”
- The legislation indicates that employers who qualify in respect of revenue decline for a given period will automatically qualify in that respect for the next period. Despite the automatic re-qualification, it is likely that an employer would still have to re-apply for the subsidy for each eligibility period (barring further administrative relief).
When will businesses receive the subsidy?
- The Government has previously estimated that payments would be processed from anywhere between 3-6 weeks and up to 3 months.
- The legislation indicates that the Minister will deem the amount of the subsidy to be an overpayment of tax for the year. This can be refunded to the taxpayer under the new legislation (however, other debts to the CRA will presumably be deducted prior to any refunds).
- Businesses must pay for wages and administer payroll as usual (i.e., net of EI and CPP) and will apply for the subsidy retroactively.
Tax and privacy risks
The new legislation makes it explicitly possible for the Minister to publish and communicate the names of any entity or person which applies for the wage subsidy. The revenue loss metrics for application mean that material additional information may be communicated as a result of the names of applicants being released. The reputational risks of such communication should be taken into account.
The new legislation has anti-avoidance provisions aimed at:
- limiting organizations from participating in transactions or taking actions aimed at artificially reducing revenue for the purposes of qualifying for the test
- preventing multiple non-arm’s length parties from receiving subsidies in respect of the same employee
The legislation sets out two types of penalties:
- gross negligence penalties of up to 50 per cent of the subsidy apply to any taxpayer or partnership who has knowingly, or under circumstances attributable to gross negligence, made or participated in making false statements or omissions
- an additional penalty of 25 per cent of the overpayment applies to entities artificially deflating their revenue
Due to the attestation process, it is possible (but somewhat unlikely, barring misconduct) that an attestation by a person “familiar with the financial activities” of the company could open that person up to third party penalties.
Examples of labour & employment considerations
Are employers legally required to recall employees that were temporarily laid off?
In general, no, and there is nothing in the legislation indicating that there would be an obligation to recall laid off employees.
Does the wage subsidy affect the legal rights of employers to temporarily lay off employees that are not yet laid off?
Depending on the circumstances, the wage subsidy may affect such rights. Specific legal advice is highly recommended, as the answer to this question will be fact-specific.
Can an employer pay employees and be eligible for this program even if the employee does not perform work?
There is no explicit active work requirement, but the employer will need to meet all other requirements of the program. Employers should consult with their legal advisors on the implications of this, including setting clear expectations with employees with respect to the terms of employment during any non-active working period, expectations of being asked to work during this period and implications on benefit plan participation with service providers.
Should employers take specific action on the basis of this subsidy?
Employers are advised to immediately review the legislation and, as appropriate, consult with legal and financial advisors with respect to:
- determining eligibility (especially for foreign entities)
- calculating revenue declines (especially in the context of corporate groups or affiliated entities)
- considering privacy implications (especially if there are any sensitivities regarding the utilization of the CEWS)
- workforce actions (including layoffs, supplemental unemployment benefit plans and/or recalling employees who have been laid off with appropriate notices)
Multiple considerations are on the minds of employers through this challenging period of time and considerations surrounding the new CEWS program are no different.