When states of emergency were being declared across the country in March of this year, thousands of businesses were forced to close their doors and, as a result, were faced with the necessity of laying off some or all of their employees.
The question of when, or even whether, those employees could and would be recalled to work was essentially unknown at that time. To address that reality the federal government established the Canada Emergency Wage Subsidy (CEWS) program. As the name implies, the program involved the payment of a subsidy to the employer, who would use those funds to keep employees on the payroll pending the re-opening of the business and the return to work.
The initial launch of the CEWS is probably best described as a partial success. While some employers did avail themselves of the subsidy, there were criticisms that the eligibility criteria were too rigid or too narrow and that the time frame for providing support was too short. As well, employees whose income had been curtailed for pandemic-related reasons could often claim benefits under the Canada Emergency Response Benefit (CERB) program, which in some cases provided them with a better financial result.
Following consultations with interested groups, the federal government addressed the identified deficiencies of the CEWS and, on July 17, announced both that changes would be made to the program’s eligibility criteria to improve flexibility and that the program would be extended to provide support until December 19, 2020 (the original program end date had been August 29, 2020).
Inevitably, greater flexibility means greater complexity, but the basic structure of the CEWS program beginning July 5, 2020 is that the amount of subsidy payable will be calculated based on the percentage of revenue loss experienced by the employer over a specified time period, with different amounts payable depending on whether the employee in respect of whom the subsidy is paid has returned to work, or is still “furloughed”.
For “active” employees (those who have returned to work) the CEWS would consist of two parts;
- abase 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 the time period involved; and
- a “top-up” subsidy of up to an additional 25% for those employers that have been most adversely affected by the pandemic crisis.
For purposes of the base subsidy, employers will be assigned to one of two groups, depending on whether their revenue loss is more or less than 50% over a particular period. The calculation of the available subsidy will then differ for each group, in each time period, as shown on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2020/07/adapting-the-canada-emergency-wage-subsidy-to-protect-jobs-and-promote-growth.html.
The amount of the top-up subsidy benefit, for employers who have been particularly hard-hit, will be based on the employer’s three-month average revenue drop, as measured on a year-over-year basis, where that drop exceeds 50%.
For employees who are still furloughed, a subsidy benefit will still be provided, with the amount of such benefit dependent on the time period for which the subsidy is paid. Generally, for the July 5 to August 29 period, the available subsidy for a furloughed employee would be the greater of the following two amounts:
- for arm’s-length (generally meaning non-related) employees, 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
- 75% of the employee’s pre-crisis weekly remuneration up to a maximum benefit of $847 per week or the amount of remuneration paid, whichever is less.
After August 29th, the CEWS subsidy for furloughed employees would be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI).
The changes to the CEWS program, while addressing many of the concerns expressed by stakeholders, have undoubtedly increased the complexity of the program. However, Finance Canada has prepared and posted on its website a backgrounder and guide showing how the subsidy amount is actually calculated for each category of business and employee, over several different time periods. That guide can be found on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2020/07/adapting-the-canada-emergency-wage-subsidy-to-protect-jobs-and-promote-growth.html.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.