Canada: The Basics Of The Federal Government Wage Subsidy Programs

With each passing day during the COVID-19 pandemic, there seem to be more programs, lists and rules to be aware of. It can feel overwhelming to keep it all straight, so this blog will focus on the Federal Government's two wage subsidy programs: the 10% Temporary Wage Subsidy and the 75% Canada Emergency Wage Subsidy.  

The 10% Temporary Wage Subsidy for Employers

The first subsidy program to be announced and passed into law by the federal government (as of March 25, 2020) was the Temporary Wage Subsidy for Employers ("TWS"). The TWS is a three-month measure providing eligible employers with a subsidy equal to 10% of the remuneration paid to employees from March 18, 2020 to June 19, 2020, up to $1,375 for each eligible employee and to a maximum of $25,000 total per employer.  

Employers  do not need to apply for the subsidy. Rather, they are permitted to reduce current payroll remittances of federal, provincial, or territorial income tax sent to the CRA by the amount of the subsidy. The reduction in remittances can start in the first remittance period which includes remuneration paid after March 18, 2020. For most employers, this will be the April 15, 2020 remittance. 

Eligible employers are non-profits, charities, individuals, partnerships (with some exceptions) and Canadian-controlled private corporations (CCPC) provided their taxable capital employed in Canada for the preceding tax year is less than $15M and:  

•                   they have a business number and payroll account with CRA; and 
•                   they pay salary, wage, bonuses, or other remuneration to an eligible employee.  

Employers who receive the TWS must report the total amount as income in the year in which it is received. Employers who did not pay salary, wages, bonuses or other remuneration to an eligible employee between March 18, 2020 and June 19, 2020 will not be eligible for the subsidy. 

You can find more information on the TWS here.

The 75% Canada Emergency Wage Subsidy

The second federal government wage program, passed into law on April 11, 2020, is the Canada Emergency Wage Subsidy ("CEWS"). The CEWS provides a wage subsidy of up to 75% to eligible employers, retroactive to March 15, 2020. The program is currently structured to provide wage subsidies for up to 12 weeks but may  be extended in the future until as late as September 2020. Employers can apply for the subsidy through the CRA's My Business Account  portal. The government has not yet released specific details about exactly how or when to apply.  

Eligible employers include individuals, taxable corporations, partnerships, non‑profit organizations and registered charities. Public bodies such as municipalities, local governments, Crown corporations, public universities, colleges, schools and hospitals, are not eligible.  

To be eligible, employers must see a drop of at least 15% of their revenue in March 2020 and then a drop of 30% on a monthly basis for April and/or May. To determine the percentage of revenue lost, employers may opt to consider either  the revenues from the same month in 2019, or  the average of January and February 2020. Using January and February as benchmarks is intended to help employers in high-growth sectors, businesses that faced difficulty in 2019, non-profits and charities, as well as employers established after February 2019. Note that once an approach is chosen, the employer must apply it throughout the program period. For registered charities and non-profit organizations, they may choose whether to include revenue from government sources as part of the revenue calculation. 

In practice, this will require employers to carefully review the Eligibility Periods, which are: 

Once an employer is found eligible for a specific period, it automatically qualifies for the next period. The government has provided the following example of how this will operate in practice: 

ABC Inc. is a start-up that started its operations last September.  It reported revenues of $100,000 in January and $140,000 in February, for a monthly average of $120,000. In March, its revenues dropped to $90,000. Because revenues in March are 25%  lower  than $120,000, ABC Inc. would be eligible for the  CEWS  for the first and second claiming period. To be eligible for the third claiming period, ABC Inc. revenues would have to be $84,000 or less for the month of April or May (that is, 30% lower than $120,000).   

The subsidy will be up to 75% of an employee's pre-COVID-19 remuneration, up to a maximum benefit of $847 per week. There is no overall cap for the full amount of CEWS an employer can receive and the CEWS can apply to new hires.  

While employers can technically receive both the CEWS and the TWS, if an employer is eligible for both, the CEWS will be reduced by the amount of the TWS. Any EI benefits received by employees through a Work-Sharing program will also reduce the employer's CEWS benefit. 

To be eligible to receive the CEWS for an employee, s/he must not have had any period of 14 consecutive days in an Eligibility Period (see above) during which s/he received no remuneration from the employer (in other words, where the employee qualified for the CERB).  

For example, if an employer laid off employees on March 23 and did not recall them before April 11, the employer will not be entitled to the CEWS for Period 1 because the employees did not receive remuneration for more than 14 consecutive days in that period. However, if an employer recalls employees starting on April 14, then the employer may be eligible for the CEWS in Period 2 so long as there is no period of 14 consecutive days during which its employees receive no remuneration in that period (in addition to the other eligibility criteria).  

Employers should also be aware that they could lose eligibility for reasons outside their control in some circumstances – including if an employee quits during an eligibility period and, as a result, earns no remuneration for more than 14 consecutive days during that period.   

It is now clear that employees do not have to be actively at work in order for the employer to be eligible for the CEWS. In fact, the government has also introduced a 100% refund of certain employer-paid contributions to Employment Insurance and the Canada Pension Plan for eligible employees for weeks during which those employees are "on leave with pay" (i.e. being paid but not performing work, which the government has referred to as a "furlough") and for which the employer is eligible to claim the CEWS for those employees. This refund is not available for employees who actually performed work for all or part of the week. 

Must employers top-up employees to their pre-COVID-19 wages? Although the government initially said that employers would be required to attest that they were making efforts to do so, this requirement is not contained in the current legislation and there is no reference to it on the government's website. In fact, an example on the government's CEWS website indicates that a top-up is not necessary (emphasis added): 

Maude and Stéphane own a corporation that operates an automobile repair shop in Saint Boniface, Manitoba. They are working full time, each drawing a salary of $1,300 per week, and have three part-time employees, each earning $800 per week, for a total weekly payroll of $5,000. Maude and Stéphane have reduced their opening hours due to decreased demand for their services. They had initially laid off their employees, but they have now decided to re-hire them following the announcement of the Canada Emergency Wage Subsidy.  Their employees are not being asked to report to work during this challenging period.   

Maude and Stéphane are now keeping their employees on the payroll, paying them 75 per cent of their pre-crisis salary ($600 per week).  Maude and Stéphane would be eligible for a weekly wage subsidy  of  $3,494 ($847 for each of themselves and  $600  for each of their employees).  Maude and Stéphane would also be eligible for a 100-per-cent refund of their employer-paid contributions to Employment Insurance and the Canada Pension Plan  in respect of their employees, providing an additional benefit of up to $124 per week.       

A penalty of 25% of the CEWS will be assessed in the case of fraudulent claims, in addition to repayment of any CEWS received. As with TWS, employers receiving the CEWS will be taxed on the subsidized funds.  

You can find more on CEWS here.

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.