Kane Shannon Weiler LLP is here to support you during these uncertain and challenging times. Our Employment & Labour Group and our Tax Group hosted a Let’s Talk webinar answering all of your questions surrounding COVID-19 and your workplace. We want to help you, your business and your employees by sharing our knowledge and information.
Chris Drinovz, Mike Weiler and Kevin Scott had a candid discussion on topics covered in your questions, including the new Canada Emergency Wage Subsidy legislation (CEWS), layoffs, reducing hours, work-sharing, EI sub plan, work refusals, Canada Emergency Response Benefit, and more.
We posted most of the questions that were covered below accompanied by their answers for your information. For a copy of the full webinar recording, please email Chris Drinovz at email@example.com.
**Please be advised that this Q&A is only applicable to the first four reporting periods of the CEWS (March 15 to July 4). For reporting periods after July 5, 2020, please stay tuned as the federal government is in the process of introducing amendments to the CEWS program that would result in new formulas for calculating the subsidy amounts. We expect to have further updates as more information becomes available.***
Here are some highlights from our webinar:
Intro and Overview of Support Programs Available
Overview of CEWS Program by Kevin Scott, Partner, Tax Group
Do owner/managers, non-arms length employees qualify for the Canada Emergency Wage Subsidy (75% - CEWS)?
Do you need to provide a notice letter for reducing hours or layoffs? Had to lay off some staff, do we still qualify for Canada Emergency Wage Subsidy (75% - CEWS)? Do we need to bring back all employees to qualify?
How does the Canada Emergency Wage Subsidy work for sales people with some income based on commission?
Can an employer lay off an employee who has just transitioned from EI to long term disability?
Are layoffs appropriate for employees who are at high risk due to pre-existing health conditions and COVID-19?
Is the 10% subsidy program the same as the 75%? What are the requirements to qualify for 10% program? Do you still need to suffer same loss?
Do you have to pay back Canada Emergency Wage Subsidy? How do you show proof of revenue decline to meet the minimum standard? Will this be subject to a CRA audit at the year end?
What does an employees obligation to mitigate financial loss look like during a pandemic? (for example, agreeing to workshare, agreeing to temporary layoff, reduced hours etc.) How will the reasonable notice period be affected for wrongfully dismissed employees?
How does the CEWS, CERB or EI benefits affect someone moving into or coming out of maternity leave? Are they eligible for EI or CERB?
Does the CEWS and CERB apply to employees and corporations including employees who own the voting shares?
Does vacation pay get included in eligible renumeration/wages when checking for CEWS eligibility?
Can the CEWS (75% wage subsidy program) still be used if we get paid director/management fees instead of as employees?
What's the best process for employees who refuse to work because they feel unsafe due to COVID-19? We have some employees we need to bring back as work is picking up but they prefer to stay on CERB and don't want to return to work.
Here are some of the additional questions that came in during and after the webinar, and our answers for your reference:
There was something about the EI by the employer that would be "not payable". Is it a deferred payment or grant sort of thing? And how do I access this info?
I believe you are referring to my comment that in certain cases, an eligible employer for the CEWS can receive a refund for EI and CPP premiums paid on eligible remuneration claimed for eligible employees during the qualifying period. The legislation provides that if you qualify for CEWS, put employees back on payroll and claim the subsidy on wages paid to them but they are not actually working i.e. on leave with pay, you will receive not only the 75% subsidy on the wages you pay but also a refund on the CPP and EI premiums you remit on those wages.
If we cannot get the subsidy for some day labourers because of their "employment status" with our company, can we change them to put them on payroll, and would that qualify now? And furthermore, would it be cost effective with all the tax payments and EI etc that the employer has to pay on an employee's behalf?
This is a particular situation in which you should discuss details with a lawyer and seek legal advice. If the remuneration paid to the day labourers was not paid as employment income during the qualifying period(s) (i.e. they were paid as independent contractors), then you would not be entitled to claim the CEWS for those payments. It is possible that if you put them on payroll now, you could claim the CEWS on wages paid going forward HOWEVER there are some risks there, both within the CEWS legislation and generally, as you would be assuming all of the liabilities of an employer by treating them as employees (additional taxes, employment standards, severance pay).
You mentioned you could take advantage of the 10% subsidy by not sending in money. Could you elaborate on that please?
Yes, the 10% subsidy is gained simply by calculating the 10% amount you are entitled to and then withholding that amount from your next employee income tax remittance. You are entitled to a subsidy of 10% of your payroll for the period March 18 to June 19, 2020 – up to a maximum of $1,325 per employee and $25,000 per eligible employer. In order to be eligible you must have taxable capital of less than $15M in the preceding tax year. You don’t have to officially apply, you just do the calculation and withhold the amounts. Note that you only withhold the income tax amounts, you must still remit CPP and EI. The 10% subsidy is taxable income and can still be claimed after June, 2020. You can find further details on how to calculate and report the subsidy here:
For the 10% wage subsidy is the criteria the same for "employees" arm’s length/non arm’s length?
Yes, for the 10% temporary wage subsidy, it makes no difference if the employee is arm’s length or not. You can find further details on how to calculate and report the 10% TWS here:
I missed the answer to whether vacation pay or sick pay qualifies as wages for CEWS
Yes, taxable remuneration paid to an eligible employee as vacation pay would qualify as eligible remuneration for the purposes of the CEWS. For sick pay, assuming that we are talking about taxable wages paid to the employee pursuant to sick leave entitlement (instead of money paid by short or long term disability insurance), then these payments would qualify as eligible remuneration as well.
Will CWS apply to new employees hired after the crisis began?
Yes. If you qualify as an eligible employer, you can claim the CEWS on wages paid to new employees hired after March 15, 2020, so long as they are arm’s length employees (i.e. not a family member, etc). You are eligible to receive 75% of the eligible remuneration actually paid to the new employees during the qualifying periods, up to a maximum of $847/week, per employee.
Can you wait until the end of the year to claim the wage subsidy?
For the 10% Temporary Wage Subsidy, the answer is “yes”. If you are an eligible employer, but choose not to reduce your payroll remittances during the year, you can still calculate the 10% Temporary Wage Subsidy on remuneration paid from March 18, 2020 to June 19, 2020. At the end of the year, the CRA will pay the amount to you or transfer it to your next year’s remittance. You can find further details on how to calculate and report the 10% TWS here:
For the 75% CEWS, eligible employers must apply for the subsidy before October 2020.
"... employers may be eligible for a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries of existing employees." What does this "first" mean?
I think you are quoting from the government website, which states: “In effect, employers may be eligible for a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries of existing employees.”
This simply means that the maximum amount of the subsidy for eligible employers will be 75% of the pre-crisis wages paid to eligible employees. If you have continued to pay employees 100% of pre-crisis wages, then only the “first” 75% is subsidized and the remaining 25% continues to be paid by the employer. Note also that the subsidy is only available on the first $57,825 paid to the employee, which results in a maximum possible amount of $847 per employee per week. Any amounts paid to the employee above the $57,825 threshold are not subsidized.
What is the consequence if you are not able to pay the 25% corporately?
The government’s original language around the employer having to pay the “25% difference” has caused some confusion. In our view, since the 75% subsidy for eligible employers is based on amounts actually paid to the eligible employee, if the employee receives the subsidy based on 75% of amounts paid, then they will have already paid 100% or at least 25% more than the subsidy amount.
There are some exceptions to this. For example, if the employer has reduced the employee’s salary by more than 25% during the qualifying period, then the subsidy amount is actually the entire amount paid to that employee. For example, if Sally made $40,000 per year before March 15 and has been reduced by 50% to $20,000 per year, then the employer can claim 100% of the wages paid to Sally under the CEWS.
All of that said, the more recent language from the government is that employers receiving the subsidy must make best efforts to pay employees their pre-COVID-19 wages. Therefore, if you are claiming the subsidy based on a wage that is less than the employee’s pre-crisis wage, you must make best efforts to top-up the employee to their pre-crisis wage. While this does not appear to be a legal requirement, the legislation requires the person who has principal responsibility for the financial activities of the eligible entity to certify the completeness and correctness of the application submitted. It is possible that the application will require that person to provide details of the best efforts made to top-up employees to pre-crisis wages.
What documentation is needed for CEWS?
The CEWS application form is not yet available so we can’t say for certain. However, we don’t believe that you will need to submit any documents with the online application itself. However, you should retain all of the documentation used to calculate the qualifying revenues and revenue deduction, along with all documentation showing eligible remuneration paid to the employee for which you are claiming the subsidy. If you are not able to top-up employees to pre-crisis wages, you should retain all documentation that would justify this decision, as the application may require an attestation that you have made best efforts to do so.
When can we start applying for CEWS?
We expect the application will be available via the CRA My Business Account portal in the next several weeks. I would check back for regular updates on this. April 21, 2020 Update: it has been announced that applications can be submitted starting on Monday, April 27, 2020 and will be processed by May 5, 2020.
Can you claim both the TWS and the CEWS?
Yes. You can claim the 10% temporary wage subsidy and then apply for the 75% CEWS, however any amounts claimed under the 10% will be deducted from the 75% refund received under CEWS for the same period. Note the subsidy is gained simply by withholding income tax in the amount you qualify for whereas the CEWS is an actual payment from the CRA to your account. As the CEWS money is at least several weeks away, we recommend taking advantage of the 10% TWS now. You can find further details on how to calculate and report the 10% TWS here:
Is the weekly $847 based on gross or net salary?
The CEWS formula looks at gross eligible remuneration paid to the employee during the qualifying period when calculating the amount of the subsidy an eligible entity will qualify for. You are entitled to 75% of the first $57,825 (gross) paid to the employee, which results in a maximum possible amount of $847 per employee per week. You can find a summary of additional government benefits available for businesses here: https://innovation.ised-isde.canada.ca/s/list-liste?language=en&token=a0B0b00000OGBoqEAH
Is there coverage for job sharing for on the days employees are not working?
If referring to Employment Insurance Work-Sharing program, the CEWS legislation says that if you claim for wages paid to an employee on Work-Sharing, the subsidy will be reduced by the total amount of EI benefits received by that employee during the qualifying period.
Is there coverage for loss of wages/income if employees are down to part time? ex. down from 5 to 3 or 2 days a week, Loss of mileage etc.
The short answer is “yes”. For eligible employers, the CEWS is available on wages paid even if the employees have been reduced to part-time. Note that if the wages claimed for represent a deduction of 25% or more of the employee’s pre-crisis wage, then the amount of the subsidy will be 100% of the wages paid to the employee during each qualifying period. In cases of reduced hours, the employer must be mindful of the risk of constructive dismissal claims. You should therefore consider whether you can use the CEWS to bring those employees back to full-time or as close to full time as possible; as you will recall, the employee is not required to be working in order for you to receive the subsidy on wages paid to them. Perhaps we can have a discussion about this, feel free to give me a call this week if you want to review options.
If we have temporary laid off our employees and they have received their CERB payment from March 15 - April 11th are we able to rehire them within this period or do we need to rehire them effective April 13th? Would this affect their CERB payment they received and make them pay this money back to the government?
If in fact you have rehired employees on or prior to April 11th2020 and paid them in order to collect the CEWS then under the current CEWS rules the employees (not the employer) must repay their total $2000 CERB regardless of what they were paid in that first qualifying period (i.e. March 15th to April 11th). If they were rehired and paid after April 11th 2020 they can keep the 1st $2000 paid for the March 15th to April 11th qualifying period but would be ineligible to collect the $2000 for the second qualifying period i.e. April 12th to May 9th assuming they are back on payroll.
As noted this is under the current CERB rules. However we understand that the CERB will be amended to allow applicants to earn up to $1000 in each period and still collect the $2000 CERB. If that occurs then we believe that employees earning less than $1000 each qualifying period could get the CERB and the employer could then apply for the CEWS payment of the less than $1000 wages.
Are we required to pay the payroll taxes for the 75% that the government is covering? Does the government only give you back 75% of what you have paid - in other words, what we pay to the employee is 100% and the government only gives us back 75% of the money we have paid out?
If you are paying the employee’s salary then you must make employer remittances for premiums and contributions for EI and CPP. The 75% CEWS would only be for the wages. However if you have put employees back on payroll who were laid off (i.e. furloughed) and are paying them salary while not requiring them to work, then the amount of the CEWS will be increased by the total of all amounts payable by you as employer premiums and contributions.
If we have crew members taking this time due to compromised immune systems ether themselves or a family member and are on EI are we supposed to be paying them any wage?
The simple answer is no. If you wanted to pay them more and top up their EI you might be eligible for the EI SUB plan that allows employers in certain circumstances to top up EI without penalty to the employee. If you are interested in that SUB program please contact Chris firstname.lastname@example.org as he has familiarity with that program.
If for some reason you wanted to put them on payroll and pay them but not have them come back to work you can do that as we discussed yesterday. In some cases you would get 75% back on what you pay them as a CEWS subsidy or in some cases you might get 100% back on what they are paid to maximum $847. As we mentioned in all cases of bringing back furloughed employees you need to discuss with them the options.
Finally please note that this employee would likely have the job security protection of the COVID 19 related leave provisions recently added to the BC Employment Standards Act.
The 40K loan was mentioned by the govt, but no mention on how to apply. The banks do not have answers yet either...
The requirements for the $40k loan are much easier to meet then the 75% wage subsidy. There is no requirement to show any revenue loss. All you need to show is:
- That the company had active 2019 payroll between $20,000 and $1.5M in salaries, as declared on its T4 summary; and
- Someone with the company must attest that the loan proceeds will be used for certain eligible expenses (including payroll, rent utilities, etc.)
Clarification on whether CEWS can be claimed on management fees where those fees paid under separate GST number than directors fees.
Currently, the computation for the wage subsidy only includes “eligible remuneration” paid to an “eligible employee”. It does not include individuals receiving dividends or contractors receiving management fees, subject to GST.
In regards to the 40k loan, if the company account has a healthy balance account is the company still eligible for the loan?
The requirements for the $40k loan are much easier to meet then the wage subsidy. There is no requirement to show any revenue loss.
I don’t think that CEWS provides support for non-revenue generating businesses (e.g. privately funded research and development companies) whose staffing levels have been temporarily reduced due to COVID. What options exist, if any, for companies in this situation?
The CEWS does provide support for certain tax exempt entities. Eligible revenue for these entities includes membership fees and other amounts received in the course of its ordinary activities. Such entities may elect to exclude or include government funding sources in the determination of its qualifying income.
Specifically, the definition of “eligible entity” in Bill C-14 includes tax exempt entities under paragraphs 149(1)(e), (j), (k), and (l) of the Income Tax Act (Canada). Paragraph (j) refers to non-profit corporations that were constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development.
Similar question for the $40,000 relief loan, if the only people on payroll are the owner-managers and immediate family does this qualify for the loan? If so are there any additional rules to follow?
This benefit has the same test for arm’s length and non-arm’s length employees.
The requirements for the $40k loan are much easier to meet then the 75% wage subsidy. There is no requirement to show any revenue loss. All you need to show is:
- that the company had active 2019 payroll between $20,000 and $1.5M in salaries, as declared on its T4 summary; and
- someone with the company must attest that the loan proceeds will be used for certain eligible expenses (including payroll, rent utilities, etc.)
Employment & Labour Group
Note to our Readers: Information regarding COVID-19 is rapidly evolving. We are working to bring you up-to-date articles as the legal issues unfold. This is not legal advice. If you are looking for legal advice or are dealing with an issue in relation to COVID-19, please contact our Employment & Labour Group: Chris Drinovz at email@example.com, Mike Weiler firstname.lastname@example.org, Melanie Booth at email@example.com, or Jesse Dunning at firstname.lastname@example.org or our Tax Group: Kevin Scott at email@example.com