On Saturday, April 11, the Government of Canada passed legislation creating the expanded Canada Emergency Wage Subsidy (CEWS). This legislation expanded the 10% wage-related subsidy previously announced. On July 13 2020, the Government of Canada extended the length of the program to November 21, 2020 with a possible extension to the end of December.
What is the CEWS?
The CEWS is intended to prevent layoff and to encourage the re-hiring of laid off employees. It provides a payment directly to employers who apply and qualify for it. There are two “phases” of the CEWS program: subsidies available to July 5, 2020, and those available between July 5 and November 21, 2020. Employers are expected to re-hire laid off employees, retain existing employees, and even hire news employees using the subsidy.
The subsidy available to qualifying employers for the periods prior to July 5, 2020 is 75% of an employee’s remuneration up to $847 per week per eligible employee. The subsidy available for periods between July 5 and November 21, 2020 is determined on a sliding scale, but is capped at rates as follows:
• July 5 – August 29: 85% / $960
• August 30 to September 26: 75% / $847
• September 27 to October 24: 65% / $734
• October 25 to November 21: 45% / $508
In addition, if an employer has employees on paid leave, CEWS also provides for 100% refund of employer-paid contributions to Employment Insurance (“EI”) Canada Pension Plan (“CPP”), Quebec Pension Plan (“QPP”) and Quebec Parental Insurance Plan “(QPIP”). Employee contributions to EI, CPP, QPP and QPIP must continue.
Although the CEWS is called a wage subsidy, the Government of Canada is not paying employees’ wages. It is more accurate to call it a “wage-related subsidy” because the amount of the subsidy is tied to the remuneration an employer is paying to an employee. The payment is made to the employer, and the employer pays the employee their wages. All other terms and conditions of employment remain the same: an employer must pay pension and benefit contributions where applicable, deduct and remit union dues or professional dues, and all other terms and conditions of employment continue to apply.
When is an employer eligible for the CEWS?
There are two steps in determining if an employer is eligible. First, they must meet the definition of “eligible entity”, which includes almost all businesses in Canada, but excludes public sector employers. “Eligible entity” includes “labour organizations” as defined in the Income Tax Act, which includes trade unions, as well as non-profits and charities. Public sector employers such as municipalities, school boards, hospitals and universities and colleges are not eligible.
If an employer is eligible, then the next step is to determine if it qualifies for the subsidy. An employer will qualify if it has experienced a 15% reduction in revenues in March 2020 compared to either March 2019 or the average of January and February 2020.
For April to June, 2020, the drop in revenues must be at least 30%. There are other technical details about the accounting methods to be used by the employer, and the treatment of subsidiaries and related parties.
For any period between July 5 and November 21, 2020, any drop in qualifying revenues will make an employer entitled to the subsidy, in an amount determined on a sliding scale and in proportion to the drop in an employers’ qualifying revenues.
Can an employer get CEWS if its employees are on leave, are receiving the Canada Emergency Response Benefit (CERB), or are work-sharing under the EI program?
Yes. If an employer is eligible and qualifies, it can receive payments in respect of any employees to whom it pays remuneration for the three periods Mach 15 to April 11, April 12 to May 9 and May 10 to June 6.
However, the amount the employer will receive will be set off against:
- any EI payments an employee receives in the work sharing program; and/or
- the 10% wage-related subsidy already received by any employee.
In addition, if an employee is recalled to work and receives back-pay for the March or early April period, the employee may have to repay any CERB benefit they received.
Does the employer have to use the subsidy to pay wages to employees?
Yes. The Government of Canada states that “employers will do their part by using the subsidy in a manner that supports the health and well-being of their employees” and “employers are expected to make their best efforts to top-up employees’ salaries to bring them to pre-crisis levels.”
The Canada Revenue Agency will enforce this program in a similar way to its enforcement of other incentives delivered through the tax system. The Income Tax Act has been amended to allow the examination of an employer’s finances to ensure that it does not engage in any impermissible accounting in order to qualify for the CEWS. If an employer receives the subsidy but does not use it for employee wages, the employer may be liable for repayment of the subsidy and penalties or fraud.
Do employers still have to deduct and remit pension and benefits contributions, and union or professional dues?
Yes. Employee deductions at source, such as employee contributions to EI and CPP, must continue to be deducted and remitted. Other deductions, such as pension plan contributions or union or professional dues, are not exempted from payment by the legislation. Therefore, they continue to be legally enforceable obligations of all employers.
Some employers may take the position that these kinds of deductions and remittances are only payable based on the subsidized or non-subsidized portion of an employees’ compensation. This is not correct. There is no exemption or limitation in the legislation that would relieve an employer of the obligation to deduct and remit 100% of all required deductions.
Does the subsidy apply to employees who make more than the maximum subsidy amount?
Yes. The subsidy is based on all “eligible remuneration” of all eligible employees. The subsidy is capped at either (a) 75% of that remuneration or $847 per week in a qualifying period, whichever is less, for periods between March 15 and July 4, and capped at the following amounts for subsequent qualifying periods:
• July 5 – August 29: 85% / $960
• August 30 to September 26: 75% / $847
• September 27 to October 24: 65% / $734
• October 25 to November 21: 45% / $508
Can an employer pay pension and benefit contribution amounts only for periods actually worked, and not periods of paid leave?
Each case may differ with the particular language of a collective agreement, employment agreement and/or pension or benefit plan text. Generally, however, all pension and benefit plan contributions in Ontario must continue for statutorily protected leaves unless an employee elects in writing to discontinue coverage. In our view, employers must continue such contributions and accruals for all paid leaves.
Can a laid off employee receive the CERB, and then be recalled and participate in the subsidy scheme?
Yes. However, to the extent that the application of the subsidy is retroactive, the employee will likely have to repay the CERB benefits they received while laid off.