On April 11, 2020, Bill C-14 (also known as the COVID-19 Emergency Response Act, No.2), which formalizes the terms of the Canada Emergency Wage Subsidy program (the “CEWS”), received Royal Assent and became law. This has provided us with specific details of the CEWS, including clarifying some key questions that up until now remained unanswered.

The key aspects of the CEWS, as confirmed in the legislation, are as follows:

What is it?

Bill C-14 does not change the essential structure of the CEWS as we understood it previously. In other words, the CEWS continues to provide eligible employers with a wage subsidy of up to 75% of eligible remuneration paid to an eligible employee between March 15 to June 6, 2020, up to a maximum of $847.00 per week, per employee. 

The “qualifying periods” in which the CEWS may apply are broken into three date ranges:

(a) the period that begins on March 15, 2020 and ends on April 11, 2020;

(b) the period that begins on April 12, 2020 and ends on May 9, 2020; and

(c) the period that begins on May 10, 2020 and ends on June 6, 2020.

The legislation also leaves the door open for further qualifying periods to be introduced by regulation, with the caveat that no such period can extend beyond September 30, 2020.

The overarching goal of the CEWS is to provide financial support to employers to mitigate against the need for future layoffs and dismissals, as well as to enable employers to recall employees to work who are currently on a temporary layoff or to rehire employees who were dismissed.

Who Qualifies?

  1. An “eligible entity”;
  2. Who experiences at least a 15% decline in revenue in March 2020 or at least a 30% decline in revenue in April 2020 and May 2020.

The legislation includes a very expansive definition of an “eligible entity” for purposes of qualifying for the wage subsidy. Essentially any entity that is not a public institution may be eligible to receive the wage subsidy.

For purposes of determining whether an employer has experienced a decrease in revenue, the default reference period is the same month in the prior year (i.e. March 2019 compared to March 2020). Alternatively, an employer can elect to have January and February 2020 as the applicable reference period. If an employer elects January and February 2020 as the applicable reference period, this period will apply for purposes of determining an employer’s entitlement for all three qualifying periods. Businesses that did not exist as of March 2019 will not have to make an election – the January and February 2020 reference periods will automatically apply. 

Of significant interest to employers is the fact that the legislation confirms that if an employer is eligible for a particular “qualifying period”, it will automatically qualify for the “immediately following qualifying period”. For example, if an employer qualifies for the wage subsidy for the four week period from March 15 to April 11, it will automatically qualify for the immediately following four week period from April 12 to May 9.

Employers are expected to make their best efforts to top-up employees’ salaries to pre-crisis earnings. In other words, employers will be expected to do everything they can to pay the remaining 25% of the employee’s salary that will not be subsidized. Unfortunately, the legislation has not provided us with clarity on this aspect of the CEWS. 

To receive the CEWS, a qualifying employer must file an application with the Canada Revenue Agency before October 2020, attest that the application is complete and accurate in all material respects and have had, on March 15, 2020, a business number registered with the CRA for the purpose of making tax remittances.

Which Employees can an Employer Claim the CEWS for?

The legislation is clear that an employer cannot receive benefits under the CEWS during any period of time where an employee would otherwise qualify for the Canada Emergency Response Benefit. Specifically, the legislation notes that an “eligible employee” includes “an individual employed in Canada by the eligible entity in the qualifying period, other than an individual who is without remuneration in respect of 14 or more consecutive days in the qualifying period.”

To be clear, an employer would not be able to claim the CEWS for employees who are not in receipt of wages of any kind in an applicable qualifying period (e.g. employees who are on a temporary layoff or on a leave of absence). Employers who want to take advantage of the CEWS in these circumstances will need to recall employees from layoff or offer to pay their employees even where they are unable to work. It should be noted that an employer whose physical locations must remain closed or who do not have work available for staff can still recall employees from a layoff. In these cases, employees can continue to remain at home while being reinstated to the employer’s payroll. 

How much is the CEWS?

For new employees, the CEWS provides 75% of the amount of remuneration paid to the employee, up to a maximum of $847 per week. For existing employees (i.e. employees employed before March 15, 2020), the CEWS will be calculated as the lesser of:

  1. The amount of remuneration paid to the employee, to a maximum of $847 per week, and
  2. 75% of the employee’s baseline weekly remuneration.

An employee’s “baseline weekly remuneration” is defined in the legislation as “the average weekly eligible remuneration paid to the eligible employee by the eligible entity during the period that begins on January 1, 2020 and ends on March 15, 2020, excluding any period of seven or more consecutive days for which the employee was not remunerated.”

The legislation also contemplates an additional benefit that will be provided to employers who make contributions to the Canada Pension Plan, Employment Insurance, Quebec Pension Plan and Quebec Parental Insurance Plan in respect of eligible employees who are on leave, with pay, due to COVID-19. 

The amount of the CEWS received by an employer will be included in the employer’s taxable income for its current fiscal period. 

What Constitutes Eligible Remuneration?

This includes salary, wages, or other remuneration such as commissions or fees. Essentially, eligible remuneration will generally include compensation payable to an employee for which deductions are normally withheld. However, the legislation specifically notes that this does not include a retiring allowance, severance pay, stock option benefits or the use of a corporate vehicle, as well as any amounts that would reasonably be expected to be repaid to the employer. 

Employers are also prohibited from temporarily increasing an employee’s pay in order to qualify for a more significant payment under the CEWS.

What Programs Will Reduce the amount of the CEWS?

Employers who have already taken advantage of the 10% Temporary Wage Subsidy that was previously announced will not be eligible to receive the full amount available under the CEWS. Specifically, any amount received under the Temporary Wage Subsidy program will reduce the amount available to be claimed under the CEWS in the same time period. 

In addition, if employees are receiving EI benefits through the Federal Work Sharing Program, the amount the employer is entitled to receive under the CEWS will be reduced by the amount of EI benefits received by the employees.

What are the Penalties for Abuse?

Employers who receive the CEWS but are ultimately determined not to qualify will be required to repay the CEWS amount claimed in full. Further, employers who deliberately attempt to reduce their revenue to qualify for the CEWS will be required to repay the CEWS that was improperly claimed, and will also be subjected to a penalty equal to 25% of the CEWS amount claimed.

How do Employers Apply?

Employers will be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account portal as well as a web based application. We do not yet know when the application will be available. 

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