Employment Law Authors: J. Geoffrey Howard and James Hsu UPDATED: CURRENT TO APRIL 27, 2020 Urgent Employer Alert: Federal Government Now Implementing Major New 75% Wage Subsidy Program Available to Most Impacted Employers, the Canada Emergency Wage Subsidy With apologies again to our subscribers for the number of new Employer Alerts and the length of this one, we write to provide additional updates on the CEWS. The Federal Government has now released an overview of its Canada Emergency Wage Subsidy for employers facing hardship as the result of the COVID crisis (the “CEWS”) and, as of April 11, 2020 passed implementing legislation.  This is the government’s signature new programme to help both employees and employers. As further details on the terms of the subsidy are still being promised, this Employer Alert may be subject to updating as events, and the law, evolve. Key takeaways are:
  1. The wage subsidy is available to almost all employers who have suffered a 30% or more loss of revenue;
  2. The subsidy is 75% of the wage paid up to a wage cap of $57,800; and
  3. There is no limit to the amount a particular employer can claim and great flexibility as to which employees in respect of which the employer claims subsidy.
Thus the CEWS can be a major aid to employers and allow many of them to avoid lay-offs and even recall employees.  Because it is retroactive to March 15, 2020, employers can make decisions to access the subsidy and thus avoid lay-offs or avoid or minimize pay cuts now, subject to some areas of uncertainty in how it will work, including several discussed below. Those who kept employees at work since March 15 and who meet eligibility criteria can claim a retro-active wages subsidy. Note however, that receipt by employees of CERB for a period will, in most cases, make those employees’ wages ineligible for CEWS wage subsidy. An alternative for some employers with employees on lay-off and low need for their services may be to have the employees part time work hours such that their earned wages stay under $1,000 for the CERB period, which amount does not disqualify them from CERB. These employees will then end up with their earnings and CERB of $2,000 per period but the employer will, in most such cases, not receive any CEWS wage subsidy. Eligible Employers Eligible employers include almost every kind of employer, including: individuals, taxable corporations, Canadian and foreign (or foreign owned) companies, partnerships, and non‑profit organizations and registered charities.  All must have suffered a drop of at least 30% (15% for March) of their revenue over an “Eligible Period” (discussed below) during the COVID-19 crisis. Only public bodies, including municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals will not be eligible for this subsidy. The Amount of the Wage Subsidy 04/09/2020 UPDATE: The legislation clarifies that the formula determining the amount of subsidy per employee will equal the greater of:
  1. The lesser of (i) 75% of eligible remuneration paid to the eligible employee in respect of that week, (ii) $847, and (iii) if non-arm’s length employee: nil; and
  2. The lesser of (i) eligible remuneration paid to the eligible employee in respect of that week, (ii) 75% of “baseline remuneration” in respect of the eligible employee determined for that week, and (iii) $847.
While complexly stated, in most cases, employers will collect wage subsidy equal to 75% of the wages paid during the relevant pay period up to the cap of $847 per week. If as part of the employer’s response to the pandemic, the employer has also decreased the employee’s total remuneration from its pre-crisis baseline remuneration by more than 25%, the amount of the wage subsidy will be equal to the lesser of 100% of eligible (reduced) remuneration actually paid to the eligible employee in respect of that week (i.e. the employee’s reduced actual pay level and $847). Where an eligible employee received EI Work Share benefit during a wage pay period, that amount reduces the wage subsidy for that employee dollar for dollar. Baseline remuneration for a given employee would be based on the average weekly remuneration paid between January 1 and March 15 inclusive, excluding any seven-day periods in respect of which the employee did not receive remuneration This allows for inclusion of variable compensation like commissions, piece work fees or similar “performance based pay” in the wage eligible for subsidy. To simplify things, in most cases, the subsidy will be 75% of wages but up to a cap of $847 per week per employee.  Employers have a “best efforts” duty to pay the 25% balance (see below), although this obligation is not found in the legislation. Special rules apply to non-arm’s length employees e.g. relatives of owners.  “Remuneration” may include salary, wages, and other remuneration that are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Canada Revenue Agency (CRA), but does not include severance pay, or items such as stock option benefits or the personal use of a company vehicle. There is also a general “anti-abuse” provision denying wage subsidy to wages that have been artificially increased to capture wage subsidy. Subject to the per employee limit, there is no limit on the overall dollar amount an eligible employer may claim/week and the subsidy will be available for eligible employers for up to 12 weeks, retroactive to March 15, 2020. In effect, employers have discretion as to which employees participate. Also, wage subsidy will not be available in respect of employees that have been without remuneration (e.g. on lay-off without pay) for more than 14 consecutive days in any of the CWES eligibility periods. This is an incentive for employers to keep employees at work. Duration of Subsidy The CEWS is in effect from March 15, 2020, through June 6, 2020, (unless extended) and can be received retroactively i.e. in respect of wages paid before the CEWS is legally brought into force through legislation. Calculating the 30% Drop in Revenue When applying for the CEWS, employers will be required to attest that they have had a 30% drop in revenue earned from arm’s length sources, calculated using the employer’s normal accounting method (excluding extraordinary items and amounts on account of capital) on a “year-over-year” basis.  Further guidance on defining revenue or revenue drop for non-profits and charities has yet to be released. Employer will be allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both.  Once one method is selected, employers must stick with that method for the entire duration of the program.  For registered charities and non-profit organizations, the calculation will include most forms of revenue, excluding revenues from non-arm’s length persons. These organizations would be allowed to choose whether or not to include revenue from government sources as part of the calculation. Various exceptions to these general rules are also found in the legislation for non-arm’s length entities and among related entities. The Eligible Periods are as follows: Claiming PeriodReference Period for eligibilityPeriod 1March 15-April 11March 2020 over: March 2019 or Average of January and February 2020 Period 2April 12-May 9April 2020 over: April 2019 or Average of January and February 2020 Period 3May 10-June 6May 2020 over: May 2019 or Average of January and February 2020 For eligible employers established after February 2019, eligibility will be determined by comparing monthly revenues to a reasonable benchmark, although further guidance on this has not been released. An alternative benchmark has also been created aimed at employers for which the general approach may not be appropriate, including high-growth firms, sectors that faced difficulties in 2019, non-profits and charities, as well as employers established after February 2019):
  • Employers would be allowed to compare their revenue using an average of their revenue earned in January and February 2020 (as the metric for all 3 periods).
  • Employers would select the general year-over-year approach or this alternative approach when first applying for the CEWS and would be required to use the same approach for the entire duration of the program
What are “Best Efforts” to Top Up the Wage Subsidy? Two major issues are unclear about the employer’s “best efforts” obligation to pay its share:
  1. Whether employers must pay employees earning above the sponsored wage cap of $58,700 per annum their full regular base pay during the programme even if though the subsidy ends at the cap. This is not explicitly stated either way in the legislation, but in the author’s view, it is not required. Indeed, the “best efforts” obligation is not stated in the legislation; and
  2. In respect of the 25% employer contribution to wages, what does “best efforts” really mean? Further guidance is needed but one might speculate that the extent of that obligation should be proportional to the scope of the employer’s loss of revenue as at least one guiding factor.
Several employers such as Air Canada are reported to be taking the position that due to the severity of the impact on their business, they are not required to pay any top up. Another question arises for sales and other employees who earn a large % of their regular total pay from commissions or results-based pay (“variable pay”). It appears that while employers can take into account pre-crisis average “variable pay” (reflecting the government’s goal of maintaining pre-crisis earnings) in setting eligible wages during the CWES period, they do not have to pay something on account of notional historical average variable pay if they prefer to just maintain base wages. “Carrying Cost” of Wages Pending and Disbursement of the Wage Subsidy While the government scrambles to set up its administration, employers must actually pay wages and then claim, on a month-by-month basis the wage subsidy in arrears.  Thus employers need to have the financial resources to pay the wages and wait several weeks and possibly months to get reimbursed by the government. Some may be eligible for loans under other programmes aimed at supporting small and medium sized businesses. Employers will apply to a new division of CRA which the government expects can be processing claims and paying funds in “2 to 5” weeks.  Eligible employers will be able to apply through the Canada Revenue Agency’s My Business Account portal, as well as a web-based application, with further application details to be released soon. Additional Costs to Employers Employers who wish to receive the CEWS also have to remember that they will continue to have to pay mandatory overhead charges on the entire wage paid, including:
  1. Employer EI and CPP premiums at roughly 6.7% of wages up to the wage cap;
  2. In some provinces for larger employers Employer Health Tax (although some provinces are offering payment deferrals); and
  3. In many workplaces, workers compensation premiums,
to which any benefit costs must be added. Employers will want to carefully budget the full cost to them of paying wages under the CEWS with that in mind. However, the government now offers 100% refund for employer contributions to EI, and CPP (in Quebec, both the separate Quebec Pension Plan and the unique Quebec Parental Insurance Plan will be covered) for employees who are remunerated but do not perform any work for that employer for the week in question. Interaction with other Announced Benefits
  • 10% Wage Subsidy for Eligible Small Businesses: Employers eligible for the 10% subsidy announced before the CEWS can still receive the CEWS, however 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 CEWS in that same period.
  • Canadian Emergency Response Benefit: Employers will not be able to claim the CEWS on remuneration paid to an employee that falls within a 4-week period for which the employee is eligible to receive the Canada Emergency Response Benefit. That should not pose problems for most CERB recipients, who will have been laid off thus not receiving wages, although some CERB recipients may qualify based on reduced wages. There can be issues for employees whose eligibility for CERB may be affected if they are recalled to work for part of a CEWS pay period. The government has announced that starting from April 16, CERB recipients can earn up to $1,000 and still receive the full CERB. Receipt of CERB by an employee may also impact the amount of CEWS wage subsidy claimable for the employee. Employers should get advice on this, particularly for low wage earners where the $2K per month CERB may be close to their wages if recalled.
  • Employment Insurance WorkShare Program: The government has now clarified that Work Share EI benefits received by participating employees reduce wage subsidy for the same period on a dollar for dollar basis.
Note both the federal and provincial governments are still working on industry specific relief that may overlap or need to be integrated for the hardest hit sectors such as travel, energy and food service and hospitality. Apply for CEWS The government has actually opened applications for CEWS as of Monday, April 27, 2020. Employers can apply in 3 ways as explained at: General application information page here: https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-how-apply.html The actual application links are: Conclusion We will continue to keep you updated on key changes affecting the workplace during this time.  Our previous posts on the COVID-19 crisis can be found here: For assistance or questions regarding implementing these measures, you can contact Geoff Howard at: ghoward@meplaw.ca; 604 891-1184 and/or James Hsu at: jhsu@meplaw.ca; 604-891-1158 for assistance.