As the federal government takes steps to slowly wind down COVID-19 relief measures such as the Canada Emergency Relief Benefit, its economic recovery strategy is becoming clearer after it was announced on Friday that the Canada Emergency Wage Subsidy would be extended to November 21st, 2020 (or nine claim periods) and possibly to December 31st, 2020, with a significant overhaul of several program features and rules.
This version of the wage subsidy is far more targeted and, frankly, better designed than the previous iteration. It is complex, but for good reason. More than a band-aid solution, Version 2 eliminates the so-called ‘cliff’ that limited the benefit to employers that had experienced a 30 per cent decline in revenue, along with myriad qualification rules. In this case, it will benefit businesses that need it most, while still providing assistance to other businesses through a sliding-scale approach based on revenue decline.
With that more tailored approach comes the aforementioned complexity. There is a very good chance that most business owners and their finance departments will require assistance in determining their wage subsidy entitlements, but the effort is worthwhile—the government aid will no doubt be welcomed in the months ahead.
As we noted in previous blogs, the Canada Emergency Wage Subsidy was originally designed to provide a subsidy of up to 75 per cent of the first $58,700 earned by employees of qualifying companies (those that experienced a revenue decrease of 15 per cent in March or 30 per cent in April and May)—to a maximum of $847 per employee per week. The goal was to encourage employers to retain workers or re-hire those that had been laid off due to COVID-19. The program was slated to end on June 6th before it was extended to August 29, 2020.
The government’s ‘fiscal snapshot’ earlier this month noted that more than $18 billion had been paid out through the wage subsidy to more than 252,000 companies that needed support to keep workers employed.
The mini-economic update boosted the program’s budget to $82.3 billion—since increased slightly to $83.6 billion—a move intended to provide adequate funding to broaden its reach, deliver ongoing support to struggling employers, help them adjust to the new business normal and (eventually) return to bottom-line growth.
Under the new rules, the Canada Emergency Wage Subsidy program would:
- Now be available to employers with a revenue decline of less than 30 per cent, with a gradually reduced base subsidy available to all employers. The base subsidy would “… be a specified rate, applied to the amount of remuneration paid to the [active or ‘furloughed’] employee for the eligibility period, on remuneration of up to $1,129 per week.” The change would allow organizations that previously benefited to continue qualifying for the program even if their revenue returns to pre-pandemic levels.
Claim periods 1 to 4 have already been paid, so subsequent claim periods will be in effect for the following dates:
Period 5—July 5th to August 1st
Period 6—August 2nd to August 29th
Period 7—August 30th to September 26th
Period 8—September 27th October 24th
Period 9—October 25th to November 21st
The specified base rate would be determined based on the year-over-year change in an eligible employer’s monthly revenue for the applicable calendar month, with the maximum rate being available to employers that have logged revenue losses of 50 per cent or more. The maximum base wage subsidy rate would be gradually reduced from 60 per cent for payment periods 5 and 6, to 20 per cent for period 9.
For periods 5 and 6, employers will calculate their subsidy based on both the original method and a revised methodology, and will be eligible for the greater of the two. For period 7 onwards, employers will use the revised methodology. The new deadline for filing CEWS submissions is now January 31st, 2021, extended from the previous date of September 30th, 2020.
The new methodology uses the current month’s revenue decline and average prior three months’ revenue to determine subsidy entitlements.
- Provide an additional top-up subsidy of up to 25 per cent for those employers most acutely impacted by the pandemic—a benefit designed to aid struggling industries such as hospitality and travel. Eligibility for the top-up would be determined using the revised methodology outlined above.
As the Department of Finance notes, “Employers that have experienced a 3-month average revenue drop of more than 50 per cent would receive a top-up CEWS rate equal to 1.25 times the average revenue drop that exceeds 50 per cent, up to a maximum top-up CEWS rate of 25 per cent, which is attained at a 70‑per‑cent revenue decline. As with the base CEWS rate, the top-up CEWS rate would apply to remuneration of up to $1,129 per week.”
- Guarantee that employers would not receive a subsidy rate lower than what they would have received under the previous rules, meaning that employers with a revenue decline of 30 per cent or more in a reference period would receive a wage subsidy rate of at least 75 per cent, with the most adversely affected employers receiving up to 85 per cent.
- Waive the previous rule that limited the definition of eligible employees to those that had gone unpaid for 14 or more consecutive days within a claim period. That restriction has been eliminated from Period 5 onward.
- Allow employers to hire new employees (or rehire laid off employees) and still qualify for CEWS.
- Allow companies to claim CEWS for furloughed employees as long as they can demonstrate a revenue reduction or top-up eligibility.
The Trudeau government has not changed the definition of eligible remuneration, or the list of employers eligible to receive the subsidy. It has pledged to address “certain technical issues identified by stakeholders” to enable greater access to the program.
As more Canadians flocked to apply for the CERB measure as the pandemic intensified, the Canada Emergency Wage Subsidy was largely underutilized relative to other relief initiatives. The government hopes its changes will reverse that trend, particularly as it moves forward with plans to wind down the CERB this fall.
As always, if you have questions about the Canada Emergency Wage Subsidy or any other government relief program, please contact a member of our team.
Armando Iannuzzi, Co-Managing Partner