Updated July 21, 2020 (see update below in grey)
Eligible employers may now apply for the Canada Emergency Wage Subsidy (CEWS). The easiest way to apply now is via the CRA My Business Account. CEWS applications will be processed on May 4th.
What is the Canada Emergency Wage Subsidy (CEWS)?
On March 27, the Government of Canada proposed a new wage subsidy for Canadian employers suffering as a result of the COVID-19 pandemic called the Canada Emergency Wage Subsidy.
This CEWS could help all-sized businesses keep employees on the payroll during the COVID-19 crisis or bring back furloughed employees.
The CEWS is a payment from the federal government to provide for 75% of an employee’s pay. It is not a loan.
On April 11, the legislation enacting the subsidy, titled “COVID-19 Emergency Response Act, No. 2“, received royal assent.
Employers must pay the employee wages first, then apply for the CEWS.
How much does the Emergency Wage Subsidy pay?
The CEWS is worth 75% per cent of an employee’ remuneration, up to a maximum of $847 per week per employee.
Eligible remuneration may include salary, hourly wages, and other monies that an employer usually has to withhold or deduct funds from to remit to the CRA. However, severance pay, stock options or the personal use of a corporate vehicle are not eligible.
Is there a maximum limit on the CEWS for large employers?
There is no limit on the CEWS subsidy amount that an eligible employer may claim. Rather, the CEWS provides a wage subsidy to eligible employers for up to a maximum of 12 weeks. EDIT JULY 21 2020: see below for new timetables.
Canada Emergency Wage Subsidy Eligibility
Number of Workers: The number of workers a company employs will not determine its eligibility. Therefore, large, medium and small employers will qualify for the CEWS.
Kinds of Employers: Furthermore, all kinds of employers are eligible for the CEWS, including individuals, sole-proprietorships, corporations, partnerships, charities and non-profits.
Types of eligible employers (CEWS)
Eligible employers for the CEWS include:
- individuals (including trusts)
- taxable corporations
- persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:
- non-profit organizations
- agricultural organizations
- boards of trade
- chambers of commerce
- non-profit corporations for scientific research and experimental development
- labour organizations or societies
- benevolent or fraternal benefit societies or orders
- registered charities
- partnerships consisting of eligible employers
Public institutions are not eligible for the subsidy. This includes municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals.
CEWS Revenue Benchmarks: To be eligible for the CEWS, employers must be able to show that revenues in each month of the CEWS program (March 15 to June 6, 2020) are 30 per cent less than they were in the same month in 2019. However, just for March, the 30-per-cent benchmark is reduced to 15 per cent in recognition of the fact that many employers were not affected by the coronavirus economic crisis until halfway through the month. EDIT JULY 21 2020: See new eligibility below in grey.
CEWS Revenue Test
To count applicable revenue benchmarks, employers measure revenues with their usual accounting methods, either on the basis of accrual accounting or cash accounting. The difference between cash and accrual accounting is when sales are accounted for. “Cash accounting” accounts revenue only when money changes hands, while “accrual accounting” accounts revenue when it’s earned but not paid (i.e. revenue is recognized on the date the sale occurs not the date cash changes hands).
CEWS Eligibility is determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began. However, all employers are allowed to calculate their change in revenue using an alternative benchmark to determine their eligibility. Under this alternative approach, employers are allowed to compare their revenue using an average of their revenue earned in January and February 2020. Employers must select either the monthly year-over-year calculation or the January/February calculation when first applying for the CEWS and thereafter must use the same calculation method every other month.
What is Revenue vis-a-vis the CEWS? Qualified revenue is cash, receivables or other consideration arising in the course of ordinary business activities. However, for the CEWS, employers will be able to exclude revenues from extraordinary items and amounts on account of capital. Furthermore, when measuring an employer’s revenue loss, any CEWS amount received in a particular month is excluded. See below for special revenue rules for non-arms length entities.
CEWS eligible revenue generally includes revenue earned in Canada from:
- selling goods
- rendering services, and
- others’ use of business resources
Update: July 17, 2020
Canada’s Finance Minister announced proposed changes to the CEWS that would expand the eligibility of the program. Canada’s draft legislative CEWS proposals would:
- Allow the extension of the CEWS until December 19, 2020, including redesigned program details until November 21, 2020.
- Make the subsidy accessible to a broader range of employers by starting July 5, 2020, by removing the required 30% reduction in an employer’s revenue to qualify for the CEWS. This means that employers who have experienced any decline in revenue are eligible for the CEWS.
- Introduce a top-up subsidy of up to an additional 25 per cent for employers that have been most adversely affected by the pandemic.
- Provide certainty to employers that have already made business decisions for July and August by ensuring they would not receive a subsidy rate lower than they would have had under the previous rules.
This update is a just proposal, not legislation yet. We will update this post if and when the proposals become law.
Update: July 21, 2020
The above-referenced July 17, 2020 proposals introduced by the Canadian federal government to change the CEWS wage subsidy eligibility requirements and add a top-up passed the House of Commons today by unanimous consent.
See this document from the federal government for a summary of the new changes to the CEWS.
Effective July 5, 2020, the CEWS would consist of two parts:
- a base subsidy available to all eligible employers that are experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
- a top-up subsidy of up to an additional 25 per cent for those employers that have been most adversely affected by the COVID-19 crisis.
Expanded Rate structure of the CEWS
July 5 – August 1
|Period 6*: August 2 – August 29||Period 7: August 30 – September 26||Period 8: September 27 – October 24||Period 9:|
October 25 – November 21
|Maximum weekly benefit per employee||Up to $677||Up to $677||Up to $565||Up to $452||Up to $226|
|50% and over||60%||60%||50%||40%||20%|
|0% to 49%||1.2 x revenue drop|
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
|1.2 x revenue drop|
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
|1.0 x revenue drop|
(e.g., 1.0 x 20% revenue drop = 20% base CEWS rate)
|0.8 x revenue drop|
(e.g., 0.8 x 20% revenue drop = 16% base CEWS rate)
|0.4 x revenue drop|
(e.g., 0.4 x 20% revenue drop = 8% base CEWS rate)
Top-up over the preceding three months after July 5, 2020
|3-month average revenue drop||Top-up CEWS rate||Top-up calculation = 1.25 x (3 month revenue drop – 50%)|
|70% and over||25%||1.25 x (70%-50%) = 25%|
|65%||18.75%||1.25 x (65%-50%) = 18.75%|
|60%||12.5%||1.25 x (60%-50%) = 12.5%|
|55%||6.25%||1.25 x (55%-50%) = 6.25%|
|50% and under||0.0%||1.25 x (50%-50%) = 0.0%|
Rate structure of the combined base CEWS and the top-up CEWS
|Timing||Period 5*: July 5 – August 1||Period 6*: August 2 – August 29||Period 7: August 30 – September 26||Period 8: September 27 – October 24||Period 9:|
October 25 – November 21
|Maximum weekly benefit per employee||Up to $960||Up to $960||Up to $847||Up to $734||Up to $508|
|Revenue drop in the current 1-month reference period|
|50% or more||85%|
(60% base CEWS + 25% top-up)
(60% base CEWS + 25% top-up)
(50% base CEWS + 25% top-up)
(40% base CEWS + 25% top-up)
(20% base CEWS + 25% top-up)
|0% to 49%||1.2 x revenue drop + 25% (e.g., 1.2 x 20% revenue drop + 25% = 49% CEWS rate)||1.2 x revenue drop + 25% (e.g., 1.2 x 20% revenue drop + 25% = 49% CEWS rate)||1 x revenue drop + 25% (e.g., 1 x 20% revenue drop + 25% = 45% CEWS rate)||0.8 x revenue drop + 25% (e.g., 0.8 x 20% revenue drop + 25% = 41% CEWS rate)||0.4 x revenue drop + 25% (e.g., 0.4 x 20% revenue drop + 25% = 33% CEWS rate)|
Importantly, the federal government is proposing the extension of the CEWS until December 19, 2020, with details released up to November 21, 2020:
|New CEWS Dates|
|Period 5||July 5 to August 1, 2020|
|Period 6||August 2 to August 29, 2020|
|Period 7||August 30 to September 26, 2020|
|Period 8||September 27 to October 24, 2020|
|Period 9||October 25 to November 21, 2020|
Over the periods beginning July 5 until December 19, there will be a gradual reduction in the CEWS for employers rather than a sudden stop (see the first chart in grey above).
What about new businesses (startups)?
For new businesses created after February 2019, eligibility would be determined by comparing monthly revenues to an average of January or February 2020.
What about high-growth businesses or those financed by private equity or other venture capital?
Companies that are scaling quickly, where it would be impossible to show a decrease in revenue for spring 2020 vs Spring 2019, but are still facing hardship, will be able to compare revenue earned from arm’s length sources in January or February 2020 to March – June 2020.
Affiliated employers who normally calculate consolidated revenue are eligible for relief in that each member of the affiliated group may determine its qualifying revenue separately.
Moreover, the CEWS has a special rule in case most of an eligible entity’s qualifying revenue is from non-arm’s length entities. In this scenario, the CEWS allows the entity to determine its decline in revenue based on the decline in arm’s length revenue experienced by non-arm’s entities from which it earned revenue.
For example, if a manufacturing company sells all of its output to a related company, Company X, and Company X, in turn, sells to arm’s length parties, the manufacturing company would be able to determine its revenue decline based on the decline in arm’s length sales experienced by Company X.See: New Details on the Canada Emergency Wage Subsidy: CPA Canada.
Are new employees included in the CEWS?
Employers will be eligible for the CEWS to help pay existing and new employees who are hired during the COVID-19 pandemic.
Is the CEWS taxable?
Yes, the CEWS will be taxable to the employer as government assistance.
Are foreign owed employers eligible for the Canada Emergency Wage Subsidy?
There is no draft legislation yet and we don’t have an answer. However, it appears that Canadian subsidiaries of foreign-controlled companies may also be eligible. A good indication showing that foreign-owned business will be eligible for the Canada Emergency Wage Subsidy is that, in this April 1 press release, the government said this about the reduction in revenue requirement: “An employer’s revenue for this purpose would be its revenue from its business carried on in Canada earned from arm’s-length sources”.
This may indicate that foreign-owned businesses operating in Canada would be eligible for Canada Emergency Wage Subsidy because the specific requirement for our purposes seems to “business carried on Canada”. This would make sense too as many Canada employers are foreign-owned.
Canada Emergency Wage Subsidy timeline
On April 8, the Department of Finance announced the CEWS would not launch until about “3 weeks”. Accordingly, we can assume the CEWS will begin applications on or around May 1.
The Prime Minister said on March 27 that the CEWS will be backdated to March 15, 2020. Therefore, we can assume eligible employers may get a larger lump sum first payment to account for 1.5 months backpay promised.
Once it launches, the CEWS program will be in place for a 12-week period, from March 15 to June 6, 2020.
The CEWS would be claimed against wages in three claiming periods:
- March 15-April 11 for March; and
- April 12-May 9 for April; and
- May 10-June 6 for May.
Update May 15, 2020: The CEWS will be extended to August 29, Prime Minister Justin Trudeau said on May 15, 2020. More details will follow shortly.
Update May 8, 2020: The CEWS program is going to be extended beyond June. The CEWS was set to end June 6. Prime Minister Justin Trudeau said on May 8 that he will offer more details about the extension next week.
UPDATE April 27, 2020: Eligible employers may now apply for the Canada Emergency Wage Subsidy. The easiest way to apply now is via the CRA My Business Account. CEWS applications will be processed on May 4th.
CEWS and layoffs and paid leaves
To be eligible for the CEWS, employees do not have to bring back every employee laid off, nor are they not allowed to layoff off further employees. Even more, employers do not have to bring employees back to work to be eligible for the CEWS – all that is required is that employees are brought back onto the payroll – work is not required. Accordingly, employers can use the CEWS to subsidize paid leaves.
How to apply for the Canada Emergency Wage Subsidy?
The Government of Canada will likely launch a web portal on the Canada Revenue Agency’s My Business Account to apply for the CEWS. Considering the extremely high number of expected applications, we do not expect that employers will have to show accounting when they first apply for the CEWS. Rather, it will be a trust system, although employers will have to declare they are eligible and promise to provide accounting at a later date once the coronavirus pandemic is over.
Employers will be required to reapply each month for the CEWS using the same portal.
It is important to stress that employers will be required to repay amounts paid under the Canada Emergency Wage Subsidy if it is later determined they did not meet the above-noted eligibility requirements. There will be penalties. Already proposed is a 250% interest rate on ineligible subsidies, fines and jail time. Greater penalties could apply to employers who accept the CEWS but do not use the money to pay their employees.
Will employers need to reapply for the CEWS?
No, once approved once, employers will automatically qualify for the next period of the CEWS. However, the Canada Revenue Agency should be notified where an employer is no longer eligible for the CEWS because of revenue increases above the benchmarks noted-above.
What about the old 10% wage subsidy?
If an employer was receiving the previously announced 10% wage subsidy, then their entitlement to the new 75% CEWS subsidy would be reduced by 10%.
The CEWS and payroll remittances
In addition to the 75% subsidy, the CEWS will refund 100% of employer-paid contributions (i.e. contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan) for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim the CEWS for those employees.
To be clear, employers are required to continue to collect and remit employer and employee contributions to each payroll remittance program as usual. Eligible employers apply for a remittance refund at the same time that they apply for the CEWS.
How does the CEWS affect the CERB?
An employee cannot receive payments subsidized through the CEWS and the Canada Emergency Relief Benefit (CERB) at the same time. The CERB only applies to employees with no income, and, of course, the CEWS is income. In summary, workers working can receive CEWS payments, while workers who are furloughed, laid-off, on leave or terminated can receive the CERB.
Consider reading all about other employer options in the COVID-19 pandemic.
Can employers fire employees on the CEWS?
There is nothing in the CEWS legislation preventing an employer from firing or terminating an employee while it is receiving the CEWS as a whole. However, the employer will have to update the government on the number of employees the employer still has, and if there was an overpayment for a subsidy period, the employer would have to pay that amount back.
The CEWS is based on a per-employee basis, and therefore the CEWS only pays the employer for money actually paid to an employee.
Dutton Employment Law advises employers in all industries in Ontario on employer rights, employment law, human rights law and occupational health and safety law. Call for a free consultation with an employment lawyer.