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Understanding the Canada Emergency Wage Subsidy (CEWS)

April 13, 2020

EXCLUSIVE REPORT FOR RETAILERS

The best way to approach CEWS is to think of it as three distinct but consecutive time blocks, each one covering four weeks of payroll. 

Those time blocks are as follows: March 15 – April 11; April 12 – May 9; and May 10 – June 6

Businesses may qualify for CEWS support in one, two, or all three of those periods (or none of them). 

However, and this is an important recent change in the program, if your business qualifies for CEWS support for remuneration paid in one of those time blocks, it qualifies automatically for support in the next consecutive time block, irrespective of revenues.

If your business qualifies for CEWS support for remuneration paid in one of those time blocks, it qualifies automatically for support in the next consecutive time block, irrespective of revenues.

Hence, if you qualify for CEWS support for remuneration for the period March 15-April 11, you automatically qualify for CEWS support in the period April 12 – May 9.  You would be required to reapply for the period May 10 – June 6.

If you do not qualify for the period March 15-April 11 but do qualify for the period April 12 – May 9, you automatically qualify for CEWS support in the period May 10 – June 6.

Qualifying for CEWS

The primary criterion for qualification is revenue in the each of the three consecutive months March, April and May 20202, each one measured against revenues in a pre-COVID-19 period.

Each of the three months 2020 are compared with the same month in 2019, so…
March 2019 > March 2020
April 2019 > April 2020
May 2019 > May 2020

However, the option also exists to compare revenues in each of March, April and May 2020 with the weighted average of revenues of January and February 2020.  That will help start-ups and newer businesses that either had no revenues in 2019 or were too early-stage to make 2019 numbers a fair basis for comparison. 

Using this method will also help businesses that may have experienced an unusual situation in one of the comparator months in 2019, e.g., a fire, strike, interruption in supply chain, labour force shortages, etc. that would have led to depressed revenue numbers.

It is important to note that you cannot cherry-pick between these methods.  If you choose to use the January and February 2020 average as the basis for comparison, you must use that for all three of March, April and May 2020.

Threshold for CEWS

The revenue loss threshold is less stringent for March 2020 than it is for April and May 2020. Essentially, the government recognizes that the first two weeks of March were prior to the effects of COVID-19 being broadly felt in Canada but that the month was still problematic enough to justify the provision of the subsidy. So…

Month Threshold for CEWS
March, 2020 Down ≥15%
April, 2020 Down ≥30%
May, 2020 Down ≥30%

If you experienced revenue reductions at or greater than these percentages in any one of March, April or May 2020, you would qualify for CEWS for the corresponding payroll time block, as follows:

Month Revenue CEWS Qualified for Payroll Paid Between
March, 2020 Down ≥15% March 15 – April 11
April, 2020 Down ≥30% April 12 – May 9
May, 2020 Down ≥30% May 10 – June 6

Accounting Method

Irrespective of your usual practice, a business may use either cash accounting or accrual accounting as the basis for comparison of revenues but must do so consistently, so no cherry-picking of different methods for different months.  This recognizes that accounts receivable may be uncollectible for extended periods or at all and that cash may be the more relevant metric,

Type of Employer That May Qualify For CEWS

The list of potentially eligible entities includes individuals, taxable corporations, partnerships consisting of eligible employers, non‑profit organizations and registered charities.

Public sector entities are excluded from CEWS.

What CEWS Pays if Your Business Qualifies

If qualified for the subsidy for a given time block, the CEWS covers you for 75% of the remuneration of each employee in Canada whom your company paid during that time block, subject to a maximum subsidy of $847 per week per employee (and subject to the 14-day rule that we will cover below). 

This remuneration may include salary, wages, commissions and taxable benefits. These are amounts on which employers would generally be required to withhold income tax. Excluded are severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.

The CEWS legislation distinguishes between employees who were already on your payroll as of March 15, 2020 and any new hires that you make thereafter. 

The government presumably did this to avoid having any unscrupulous employer game the system by giving large pay hikes in order to have the government pick up a greater level of compensation. For similar reasons, there is a provision to deny the wage subsidy where salaries are reduced post-crisis.

The CEWS legislation distinguishes between employees who were already on your payroll as of March 15, 2020 and any new hires that you make thereafter.

For employees already on payroll, the remuneration on which the subsidy is based is the average weekly remuneration of that employee between January 1, 2020 and March 15, 2020 (excluding any period of 7 days or more during which that employee did not receive any remuneration, e.g., for new hires made this year before March 15 or for those on unpaid leave). 

Employers are expected, wherever possible – but not compelled – to pay the additional 25% of remuneration themselves.

There is no such restriction on the subsidy for wages that you pay employees hired after March 15, 2020 other than the subsidy caps of 75% and $849 per week per employee.

Payroll Taxes

The government will refund employer-paid contributions for Canada Pension Plan (CPP), Quebec Pension Plan (QPP), Employment Insurance (EI) and Quebec Parental Insurance Plan (QPIP) for any employee who is on leave with pay during a time-block for which the employer qualifies for the CEWS in respect of that employee.

What this means is that the government will only refund those payroll taxes for employees who remain on your payroll but do not perform any work for you.  This will be assessed on a weekly basis rather than for the entire time block for which the employee’s remuneration qualifies for CEWS.

For further clarity, employers will still be required to remit these payroll contributions, whether for employees working or for those on leave with pay but will be eligible for a refund for the latter, for which employers will apply at the same time as their CEWS applications.

14-Day Rule and CEWS Interrelationship with CERB

The government wants to avoid a situation in which an individual is receiving both a wage subsidy through the employer and the $2000 Canada Emergency Response Benefit (CERB) during the same time block.  The time blocks for CEWS and CERB are the same, namely March 15 – April 11, April 12 – May 9 and May 10 -June 6.

Consequently, the CEWS rules requires that any employee for whom the CEWS is paid must not have had more than 14 days without remuneration during that time block.  In parallel, the CERB rules require that the applicant must have experienced or be about to experience a period of 14-days in a row without income within that time block. 

That means that if you make a new hire or bring someone back from layoff or furlough with fewer than 14 days remaining in any given time block, that employee’s wages would not be eligible for CEWS for that time-block.  Similarly, if business circumstances require you to lay-off an employee with more than 14 days remaining in a time block, that employee’s wages would not be eligible for CEWS for that time-block.

Other Observations on CEWS

CEWS payments are not treated as revenue for the purpose of making revenue calculations for subsequent CEWS applications

CEWS payments are treated as revenue to the business for income tax purposes.

Eligible employers will be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account.

Any amounts paid to the employer under either EI Work-Sharing or under the earlier 10 per cent wage subsidy for small businesses will be deducted from the CEWS for that specific period in which the additional benefit is paid.

Abuse of the program will carry penalties up to and including criminal prosecution.

View the Government of Canada’s resource for further details.

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