NOTE: This article was updated on April 2, 2020. Because the COVID-19 situation is dynamic, with new governmental measures each day, employers should consult with counsel for the latest developments and updated guidance on this topic.
On March 30, 2020, the federal government revealed additional details about the 75% wage subsidy it will provide to employers, first announced on March 27, 2020. The wage subsidy is intended to support and motivate business owners to keep their employees employed during the unprecedented COVID-19 crisis. Prime Minister Justin Trudeau encouraged companies to rehire or recall employees that they laid off over the past couple of weeks.
The Prime Minister stated that all companies – large, medium, small, and non-profits – that have had a reduction in revenue of 30% will be eligible for the 75% wage subsidy, regardless of their number of employees. Prime Minister Trudeau announced the following key points:
- The subsidy will apply to 75% of the first $58,700 earned, which could amount to payments of up to $847 per week;
- Employers are encouraged to top up their employees' wages with the remaining 25% of their salaries; and
- Payments will be backdated to March 15, 2020.
The Prime Minister warned companies not to abuse the program, as there will be consequences. A system of checks and balances will be implemented.
It is understood that the program will be based on the honour system, with the assessment of reduction in revenue to be measured after-the-fact. Companies that cannot demonstrate at least a 30% reduction in revenue will be required to pay back the subsidy.
Additional details were provided on April 1, 2020 by Finance Minister Bill Morneau, the Minister of Small Business, Export Promotion and International Trade, Mary Ng, and the Minister of Innovation, Science and Industry, Navdeep Bains.
- The 75% wage subsidy is now referred to as the Canada Emergency Wage Subsidy.
- There will be no overall limit on the subsidy amount that an eligible employer may claim.
- In addition to being available to taxable corporations and non-profits, the subsidy will also be available to individuals who are employers and to partnerships. Eligible employers will include employers of all sizes and across all sectors of the economy, with the exception of public sector entities. Public sector entities include municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals.
- The subsidy will be available for up to a 12-week period from March 15 to June 6, 2020, and it will be retroactive to March 15. When asked if it might be extended beyond this period, Minster Morneau stated that the situation will be evaluated as it unfolds.
- The following claiming periods apply:
Period 1: March 15 – April 11 (reference period for eligibility will be March 2020 over March 2019)
Period 2: April 12 – May 9 (reference period for eligibility will be April 2020 over April 2019)
Period 3: May 10 – June 6 (reference period will be May 2020 over May 2019)
- For eligible employers established after February 2019, eligibility will be determined by comparing monthly revenues to a reasonable benchmark.
- Applications for the subsidy will be required to be made each month.
- In applying for the subsidy, employers will be required to attest to the decline in revenue, i.e., revenue from its business carried on in Canada earned from arm's-length sources.
- The employer's normal accounting method to calculate revenue should be used, and would exclude revenues from extraordinary items and amounts on account of capital.
- The government will work with non-profit organizations and registered charities affected by a loss of revenue to ensure the definition of revenue is appropriate to their circumstances.
- The government is considering additional support for non-profits and charities, particularly those involved in the front line response to COVID-19. Details will be announced in the near term.
- Further guidance with respect to how to define pre-crisis weekly remuneration for a given employee will be provided in the coming days.
- For existing employees, employers may be eligible for a subsidy of up to 100 % of the first 75% of pre-crisis wages. Employers will be expected where possible to maintain existing employees' pre-crisis employment earnings.
- Employers will also be eligible for a subsidy of up to 75% of salaries and wages paid to new employees.
- Eligible remuneration may include salary, wages, and other remuneration: amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee's income tax obligation. It does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.
- A special rule will apply to the subsidy amount for employees that do not deal at arm's length with the employer. That amount will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75% of the employee's pre-crisis weekly remuneration.
- Employers will have to keep records demonstrating their reduction in arm's-length revenues and remuneration paid to employees. More details about the application process will be made available shortly.
- Applicants will be able to apply for the subsidy on the Canada Revenue Agency's My Business Account portal, as well as a web-based application.
- Employers must first pay their employees' wages and, after proving these payments, they will be reimbursed with the subsidy by direct deposit 6 weeks from the date when their application is made.
- All employers will be expected to make their best efforts to top up salaries to 100% of the maximum wages covered (i.e., to pay the remaining 25% of their employees' wages). There will be flexibility based on an understanding that some applicants may be unable to do so.
- An eligible employer's entitlement to this wage subsidy will be based entirely on the salary or wages actually paid to employees.
- It was again emphasized that there will be severe consequences for bad actors that abuse this "high trust system."
- Penalties may apply in cases of fraudulent claims, and anti‑abuse rules will be proposed to ensure that the subsidy is not inappropriately obtained and to ensure that employees are paid the amounts they are owed. The government is considering proposing to create new offences that will apply to individuals, employers or business administrators who provide false or misleading information to obtain access to this benefit or who misuse any funds obtained under the program. The penalties may include fines or even imprisonment.
- On March 18, 2020, the Prime Minister announced a temporary 10% wage subsidy. When an employer is eligible for both the Canada Emergency Wage Subsidy and the 10% wage subsidy for a period, any benefit from the 10% wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the Canada Emergency Wage Subsidy in that same period.
- An employer would not be eligible to claim the Canada Emergency Wage Subsidy for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit (CERB).
- Employers that are not eligible for the Canada Emergency Wage Subsidy would still be able to furlough employees, who will receive up to $2,000 a month.
- The wage subsidy received by an employer will be considered government assistance and it will be included in the employer's taxable income.
- Government assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.
Although the cost of this subsidy will be $74 billion, it will lower the cost of the CERB to $21 billion. Organizations that do not qualify for the 75% wage subsidy may continue to qualify for the previously announced wage subsidy of 10% of remuneration paid from March 18 to before June 20, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Minister Morneau emphasized that Canadians should take into account the totality of the benefits being offered by the federal government, which include:
- Deferral of GST and corporate tax payments until September;
- A $40,000 interest free loan for one year, at the end of which $10,000 will be forgiven if the loan is paid back;
- The continued existence of the previously announced 10% payroll deduction for small businesses; and
- The CERB, which is available immediately until the wage subsidy is in place (although Minister Morneau encouraged employers to rehire their employees without delay).
Bottom Line for Employers
The objective of the Canada Emergency Wage Subsidy is to prevent further job losses, encourage employers to re-hire workers they have already laid off due to the COVID-19 crisis, and make it easier for Canadian companies and other employers to resume normal operations when the crisis ends.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.