Canada Emergency Wage Subsidy: What do I need to know?
If symptoms of COVID-19 are a cough, fever and muscle aches, a symptom of the Canada Emergency Wage Subsidy (CEWS) is accelerated baldness. The country’s entrepreneurs are pulling their hair out faced with the complexity of the calculations required to obtain a partial reimbursement of remuneration paid to their personnel since the beginning of the pandemic. So much so, that many are simply not applying, reveals CTV News.
Are you an employer, overwhelmed by all of this? We’ve got you covered. To help you see things more clearly, we have scoured the Web and recorded the questions most frequently asked by employers. We addressed them to Pierre Garant, president of Operio, a Raymond Chabot Grant Thornton affiliate, which offers consulting services to SMEs in accounting. Since the start of the pandemic, the expert hosts webinars explaining the subsidy eligibility criteria, exceptions, and impacts, as well as the procedure to follow to benefit from it.
Q1: The government has announced important adjustments to the Canada Emergency Wage Subsidy. How can I find out if I still qualify and what amounts I would be entitled to?
“As of July 5, 2020 (namely for Periods 5 to 9), you can obtain basic support as soon as you experience even a minimal drop in revenue; you no longer need a reduction of at least 30%. Your subsidy total will be proportional to your losses. The more important they are, the greater the subsidy, as shown in the following table. You can refer to it to evaluate the minimum coverage you are entitled to (‘base rate’).
|Claim period||CEWS base rate according to the % of revenue drop|
|50% or more||Less than 50%|
|July 5 to August 1 (P5)||60%||1.2 x % of revenue drop|
|August 2 to August 29 (P6)||60%||1.2 x % of revenue drop|
|August 30 to September 26 (P7)||50%||1.0 x % of revenue drop|
|September 27 to October 24 (P8)||40%||0.8 x % of revenue drop|
|October 25 to November 21 (P9)||20%||0.4 x % of revenue drop|
For example: If you experience a revenue drop of 40% during Period 5, the eligible remuneration paid to your employees from July 5 to August 1 (up to a maximum of $1,129) will be reimbursed at a rate of 48% (1.2 x 40%). However, if your losses amount to 50% or more, your base coverage will be 60%.
For each claim period, you are expected to prove the drop in revenues by comparing them with:
- your revenues for the same month in 2019;
- your revenue for January and February 2020.
The good news is that you are not obliged to apply the same calculation approach as you did for Periods 1 to 4. You are free to choose the comparative approach that is the most advantageous for you. You must, however, keep the approach chosen for Period 5 until the end of the program.”
Q2: Can I obtain additional coverage?
“To help the most adversely affected businesses, the government provides additional help for up to 25% of eligible wages. To benefit from it, your revenues must have dropped more than 50%.
To know if you are entitled to this top-up subsidy amount, you will once again need to calculate your revenue drop, but this time by taking the average of the three months preceding the claim period.
For Period 5 (from July 5 to August 1), for example, you will first need to calculate the average revenue for the months of April, May, and June 2020, and compare it to the average revenue for the same months in 2019 or January and February 2020, depending on the approach chosen to determine your base subsidy.
The top-up CEWS rate is equal to 1.25 times the average revenue drop that exceeds 50%.
Therefore, if your revenue drop is 70%, your top-up subsidy rate will be 25% ((70% – 50%) = 20% and 20% x 1.25 = 25%), and your total subsidy rate 85% (60% + 25%).
For your calculations, you can still resort to the accrual or cash accounting method to determine your qualifying revenue. As with the reference periods, the accounting method selected must be the same for Periods 1 to 4, but can be revised for Period 5 and subsequent periods.”
Q3: The Canada Emergency Wage Subsidy was more advantageous for my business before it was adjusted. What can I do?
“For Periods 5 and 6, you can calculate the CEWS according to either the original or the new method and choose the one that is better for your SME. For Period 7 and subsequent periods, however, you must use the new method.
Here is a short recap of the first rendering of the CEWS: If you experience a revenue drop of at least 30% (15% in March) for Periods 1 to 4 (from March 15 to August 29, 2020), the government offers to reimburse 75% of remuneration paid, up to a maximum of $847 per week, per employee.”
Q4: The Canada Emergency Wage Subsidy is extended until when?
“Until December 19, 2020. However, the eligibility criteria for Period 10 (from November 22 to December 19, 2020) have not yet been specified on the Canada Revenue Agency (CRA) website.”
Q5: I have already benefited from the 10% Temporary Wage Subsidy for employers by reducing my source deduction remittances to CRA. I would also like to take advantage of the Canada Emergency Wage Subsidy. Can I submit an application?
“Yes. However, you must subtract the 10% Temporary Wage Subsidy amount deducted, from the CEWS amount you are claiming, as it is not possible to cumulate them. For Periods 1 to 4, for example, those who qualify for both subsidies can only benefit from a maximum cumulative amount of 75% of eligible earnings.
If you are eligible for the 10% Temporary Wage Subsidy and haven’t yet applied, to make things easier, you may decide to apply for the CEWS only. You will not lose any money, but you will spare yourself fastidious calculations. You must inform CRA of this by filling out a form.”
Q6: To calculate the amount to which I am entitled to, must I take into account all amounts earned by my employees?
“The subsidy is based on the eligible remuneration paid to an employee for each week included in the period. This remuneration includes salary, wages and other remuneration, commissions, fees, and other amounts paid for services.
To be eligible, this remuneration must have been paid to the employee at the time of the claim.”
Q7: I have hired new employees since the beginning of the crisis. Is their remuneration eligible?
“Yes. If in doubt regarding your eligibility to the CEWS program, it is best to review its main objective. The federal government has implemented it with the goal of helping you to maintain employment ties with your employees, despite an important loss in revenue.
In other words, it is hoped that you will be able to continue to pay them their wages even if your activities are disrupted. It is therefore logical that you could claim it if you are having a hard time paying your recruits.”
Q8: Are bonuses, overtime, vacation, sick leave and statutory holidays considered to be eligible remuneration for this subsidy?
“Yes, these forms or remuneration are eligible for the subsidy as long as they are for a week that is included in the claim period. However, a lump-sum amount that was accrued prior to the claim period would not be.”
Q9: Can I claim the Canada Emergency Wage Subsidy for an employee who has received payments under the CERB?
“Under certain conditions. For Periods 1 to 4, it was possible to the extent that the employee was not without remuneration for a period of 14 consecutive days.
Example: In March, your marketing expert Danny was laid off because all of your advertising initiatives fell through due to the pandemic. You rehired him a little while later, once you decided to take advantage of the CEWS. Therefore, Danny was only paid for one week during Period 1, between March 15 and April 11. You cannot claim the subsidy to cover Danny’s wages for that period. It is possible, however, to do so for the subsequent periods.
From July 5 to November 21 (Periods 5 to 9), employees who were unpaid for 14 consecutive days are no longer excluded from the CEWS. Hence, you could claim the subsidy for Danny even if he only works one week in September.
Keep in mind that your marketing specialist will be responsible for reimbursing the CERB payments received if his income for the period exceeds $1000. Refer him to the CRA website in order for him to make sure that he is still eligible.”
Reimbursement of employer contributions
Under certain conditions, the Employment Insurance, Canada Pension Plan, Quebec Pension Plan, and Quebec Parental Insurance Plan employer-paid contributions for employees on paid leave will also be totally reimbursed. In other words, you will obtain a reimbursement for each employee that is not working.
Q10: Can I apply for the Canada Emergency Wage Subsidy later in order to benefit from it retroactively?
“You have until January 31, 2021, to submit CEWS applications. Many businesses with sufficient liquidity, essentially larger ones, decide to postpone applying in order to have a better overview and avoid amendments or reimbursements in the event of errors.”
Q11: Must my employees work a minimum number of hours in order for me to qualify for the Canada Emergency Wage Subsidy?
“In certain SMEs, it is difficult to maintain a regular schedule. Even if your employees only work five hours a week, you can still claim the CEWS. Once again, keep in mind that for Periods 1 to 4, you cannot claim a wage reimbursement for your workers if they were not remunerated for 14 consecutive days.”
Q12: What are possible overpayment consequences?
“If they do not meet the eligibility requirements, employers will be obliged to reimburse the CEWS overpayment amounts. They could also incur a penalty of 25%, as well as expose themselves to a fine and a prison sentence. Better be safe than sorry!”
Canada Emergency Wage Subsidy: What do I need to know?
- The 10% Temporary Wage Subsidy that you received must be deducted from the CEWS amount that you are claiming.
- To calculate your CEWS, the remuneration paid is required.
- Bonuses, overtime, vacation, parental leave, and the wages paid to new hires are all eligible remuneration.
- The CEWS can be claimed for an employee that is receiving the CERB.
- The application deadline is January 31, 2021.
- A minimum number of hours is not required to apply.
- Be careful of abusive claims and overpayments!
You must submit a separate CEWS application for each eligible claim period, with the help of the CRA calculator. For additional details regarding the CEWS, refer to the Frequently Asked Questions.