Changes to the Canada Emergency Wage Subsidy (CEWS)
The Canada Emergency Wage Subsidy (“CEWS”), originally introduced to maintain employment by subsidizing employers who have experienced a decline in revenue as a result of COVID-19, will now undergo certain changes. According to the new changes, any eligible employer (excluding any public institutions), experiencing any decline in revenue, may now qualify for the Canadian Emergency Wage Subsidy.
The subsidy was initially set to run for three 4-week periods, beginning March 15th and extending until June 6th. To qualify in either the second or third period, an employer would need to be able to demonstrate a reduction in gross revenue of at least 30%.
Eligible employers would then submit an application on CRA’s “My Business Account” portal to recover the greater of:
- 75% of the amount of remuneration paid to its employee (up to a maximum of $847/week); and
- The lesser of either
- the amount of remuneration paid to its employee, (up to a maximum benefit of $847 per week); or
- 75% of the employee’s pre-crisis weekly remuneration
Extending the Deadline
The government has extended the wage subsidy period until November 21, 2020, with the intent to provide further support until December 19, 2020.
For the period of June 6th to July 4th, 2020, the eligibility requirements will remain the same. Meaning, an employer would need to demonstrate a reduction in gross revenue of at least 30%, and if eligible would qualify for the subsidy in an amount as set out above.
In the subsequent periods, the government has expanded the eligibility requirements to employers who otherwise may not have previously qualified. Employers with a decline in revenue of less than the former 30% threshold may now qualify. The idea being, that because there is a considerable gap between a 30% reduction in revenue and operating at normal business levels, rather then disqualifying those businesses who are slowly beginning to recover, the federal government will continue to subsidize employee wages such that as revenue’s increase the CEWS gradually decreases. Accordingly, any eligible employer may now qualify for CEWS if they are experiencing any decline in revenue.
Calculating the decline in revenue has not changed. Employers can either compare to revenue generated within the same 4-week period in 2019, or against the average gross monthly revenue earned in January and February 2020. If you elect to compare against the average gross revenue in January and February for any period, you will need to compare against the average gross revenue in January and February for any subsequent periods, and vice versa if comparing to the 2019 gross revenues.
Beginning in the period from July 5 to August 1, the following proposed changes are set to take place, consisting of two parts:
- A BASE SUBSIDY: available to all eligible employers that are experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
- A TOP-UP SUBSIDY: of up to an additional 25 per cent for those employers that have been most adversely affected by the COVID-19 crisis.
The Base Subsidy would be a specified rate towards wages being paid to eligible employee’s earning up to $1,129/week. Therefore, for the purposes of the table below, if you have an employee making more than the maximum weekly allowable earnings, calculations will be based on a percentage of the $1,129 figure. The rate being applied will vary based on the level of revenue decline experienced by the employer.
Employers experiencing a decline in revenue of 50% or more would be eligible for the maximum Base Subsidy rate. As employers gradually increase their revenues, the rate is also adjusted:
Base Subsidy’s Rate Structure:
(July 5-Aug 1)
(Aug 2- Aug 29)
(Aug 30 – Sep 26)
(Sep 27-Oct 24)
(Oct 25 – Nov 21)
|Revenue decline 50% (or more)||60%||60%||50%||40%||20%|
|Revenue decline 0% – 49%||1.2 x revenue drop
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
|1.2 x revenue drop
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
|1.0 x revenue drop
(e.g., 1.0 x 20% revenue drop = 20% base CEWS rate)
|0.8 x revenue drop
(e.g., 0.8 x 20% revenue drop = 16% base CEWS rate)
|0.4 x revenue drop
(e.g., 0.4 x 20% revenue drop = 8% base CEWS rate)
For example, if you have an employee earning $2,000 per week, and you as an employer have experienced a decline in revenue of 25%, the base subsidy would be calculated as:
($1,129 x 4) 🡨 Because the subsidy only applies to the first $1,129 and there are 4 weeks in the period
X (0.3) 🡨 Being 1.2 x 25% revenue drop
= $1,354.80 subsidy for the eligible employee during period 5.
*Note, that during Period #5 and Period #6, if an employer would have received a larger subsidy using the original CEWS criteria, and if they have experienced a revenue decline of 30% or more, they will instead be eligible for the 75% wage subsidy.
The Top-Up Subsidy is only available to those businesses most heavily impacted by COVID-19 who have experienced a decline in revenue of more than 50% in the preceding 3-month period. To qualify, the employer would:
- Calculate the gross revenue generated within the past 3 months;
- Divide the number by 3 to calculate the average monthly revenue;
- Compare that number to either:
- The 2019 monthly average of the same 3-month period; or
- The average monthly revenue in January and February 2020.
If having compared the above the employer has experienced a decline in revenue of more than 50%, the following formula can be used to calculate the Top-Up rate:
1.25 x [ (3 month revenue drop as a %) – (50%) ]
The formula will Top-Up to a maximum of 25% and, like the Base Subsidy, will only apply to the first $1,129/week (per employee).
For example, if you have an employee earning $1,000 per week, and you as an employer have experienced a decline in revenue of 70%, an eligible employer could apply for the following subsidies:
The Top-Up Subsidy Rate would equal 25%. 🡨 1.25 x [ (70% drop) – (50%) ]
($1,000 x4)🡨 Being the weekly wage x 4 weeks
X (0.85) 🡨 Being the maximum Base Subsidy Rate (60%)
+ the Top-Up Subsidy Rate (25%)
= $3,400 subsidy for the eligible employee during the 4-week period
For more information on this or other COVID-19 related resources and supports, and how they may apply to your specific circumstances please contact the team at PKF Lawyers. We’re here to help you get through this.
By: Stéphane Warnock
Stéphane Warnock is licenced to practice in Manitoba and Ontario, with a preferred area of practice in corporate and commercial law at PKF Lawyers in Morden, Manitoba.