Federal COVID-19 supports: To CERB or to CEWS…that is the question

On March 27, 2020, Prime Minister Justin Trudeau announced Canada would be creating a 75% wage subsidy for all employers who can demonstrate a reduction in revenue of 30% or more due to COVID-19.  This benefit has since been named the “Canada Emergency Wage Subsidy” or “CEWS”.

On April 1, 2020, Ministers Bill Morneau, Mary Ng, and Navdeep Bains held a press conference to provide more details about the government’s proposed CEWS plan. However, details were scarce and the overall message was that the situation was unfolding and details would be provided in the coming days.

Further details have since been posted on the Government of Canada website, including that the CEWS will be retroactive to March 15, 2020, but there is still not enough information for businesses experiencing immediate cash flow issues to make strategic decisions about payroll liabilities.

We do know that the CEWS is distinct from the federal government’s previously announced Canada Emergency Response Benefit (CERB), which provides $500 per week for up to 16 weeks to eligible individuals. Details about the CERB are available here. How the two programs may interact is set out in the FAQs below.

There are also other existing federal programs that may make sense for employers during this time. The government has amended some of these programs to try to adapt to COVID-19. Please see our chart summarizing the options in our previous article “Government Benefits Supports for Your Workplace during COVID-19“, or the Canada Economic Response page here.

For your convenience, we have summarized what is known so far about CEWS (to April 3, 2020) below in a FAQ format. This may help employers eliminate themselves from the eligibility criteria known so far, however, other possibly eligible employers desiring to support their workers, are still left in an agonizing limbo.

FAQ

What is the name of the 75% wage subsidy benefit?

• The 75% wage subsidy is now called the “Canada Emergency Wage Subsidy” (CEWS).

Is the CEWS the same as the 10% payroll subsidy announced already?

• Sort of. Each has slightly different criteria.
• However, one is an offset for the other. For employers that are eligible for both the CEWS and the 10% wage subsidy for any period, 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.

Can an employee receive both the CEWS and the CERB?

• An employee is either in receipt of the CEWS from their employer or the CERB from the government but not both.

Who applies for the CEWS-the employee or the employer?

• The employer must apply for the CEWS whereas it is the employee who applies for the CERB.

What if an employer wants to access the CEWS but their employee has already applied for the CERB?

• An employer would not be eligible to claim the CEWS for time periods where the employee has been approved or accessed the CERB. Specifically, the Government of Canada’s web page currently states that “for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the CERB” the employer will not be eligible for the CEWS.
• We assume the government is sorting out its security controls and algorithms to prevent ‘double-dipping’ by either connecting CRA with the EI application process or streamlining each application to request an attestation from employee or employer with respect to the status of their claims.

How long will the government provide the CEWS?

• CEWS will be available for “up to 12 weeks” although Premier Morneau did not rule out that this timeline may need to be extended.

What types of businesses are eligible for the CEWS?

• CEWS will be available to all types of businesses including individuals, taxable corporations, partnerships, non-profit organizations, and registered charities.
• CEWS will not be accessible to employers who are public bodies including municipalities, public universities, colleges, schools, and hospitals.

What are the financial criteria for the CEWS?

• These details are still being developed. What we know to date is that employers who experience a 30% or more decline in gross revenues (from this time last year) can apply to receive the CEWS.
• Revenues will be compared to revenues from the previous year to determine whether the decline was 30% or more. For example, revenues for March 2020 will be compared to revenues for March 2019.
• The CEWS will cover 75% of the employee’s salary from the previous year, up to the first $58,700 of normal salary. Thus, the maximum received by an employee will be $847 per week for the duration of the CEWS eligibility.
• The amount of wage subsidy (provided under the COVID-19 Economic Response Plan) received by the employer in a given month would be ignored for the purpose of measuring year-over-year changes in monthly revenues.

How does the CEWS define salary?

• While there is not a specific definition of “salary” provided yet, we know that “salary” will not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.

 Does the employer have to top up the 75% to 100%?

• It will not be compulsory to pay the remaining 25% of the salary, however:
  • Businesses are “strongly encouraged” to do so if they can; and
  • May be required to “attest” to their efforts to provide the 25%.

Is there a limit on the amount an employer can receive under CEWS?

• The government is saying so far that there will be no overall limit on the subsidy amount that an eligible employer may receive.

 What is the tax treatment of the CEWS?

• Money received from the CEWS will be considered government assistance and be included in the employer’s taxable income. It will reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration. We urge employers to consult with accountants in relation to these issues prior to engaging any of these new federal benefit programs.

 How and when do employers apply for the CEWS?

• Businesses will need to reapply each month for CEWS.
• Applications can be made through a CRA My Business Account portal online, which will be available “soon”.
• If you do not have a direct deposit account with CRA businesses should set one up now as the money from the CEWS program will be direct deposited through same.
• Money should start to flow in six weeks.

What documents will employers need to provide the government in order to prove eligibility for CEWS?

• This is unclear at this time. What is clear is that employers will need evidence of payroll payouts for periods from January to March 2020 and evidence of gross revenues from 2019.

How will the government prevent fraud?

• The federal government has said that any amounts which either shouldn’t have been paid by CEWS or, which did not reach employees despite having been sent to employers, will have to be repaid.
• The federal government has announced that there will be “severe consequences” for bad actors and they are exploring all options including fines (administrative penalties) and jail time. We note violations of the Income Tax Act and the Employment Insurance Act already attract such measures.

When and how can I access the CEWS?

• There are CRA Accessibility tools for the disabled.
• It behooves businesses that do not currently have a direct deposit system set up with CRA to do so immediately in order to receive proceeds expediently.
• A portal should be in place in 6 weeks; they are hoping it will be up in 3 weeks but can’t be sure.

We will update you as more details are provided.

Disclaimer: The legal ramifications of the global COVID-19 crisis are constantly changing. The information contained in this document is general only, may not apply to your specific situation, and is not intended to constitute legal advice. For tailored advice pertaining to your particular situation, please reach out to counsel.

Learn more at our COVID-19 Resource Centre.

Sarah Hentschel is a Senior Associate in our Litigation & Dispute Resolution Group and focuses on Workplace and Privacy Law.