Today is application day for the Canada Emergency Wage Subsidy (CEWS), and in certain circumstances, you can get up to 100 per cent subsidy of your payroll costs.

Before you apply for CEWS, it is important to ensure your business qualifies. For assistance with determining if your business qualifies, refer to our CEWS eligibility test.

CEWS vs. CERB

If your business is eligible (“qualifying entity”) and you wish to apply for CEWS, then you may be considering rehiring all or some of your employees. The first period that you are applying for today is March 15, 2020 to April 11, 2020.  For an employee to be an eligible employee in this qualifying period they need to be employed in Canada by the qualifying entity and cannot have been without remuneration from the qualifying entity for 14 or more consecutive days in the qualifying period. If your business remains closed due to COVID-19, then your employees would simply be on paid leave during this period of closure.

If you have rehired your employees retroactively during the qualifying period (March 15, 2020 to April 11, 2020), any employee who has employment income in excess of $1,000 for 14 consecutive days during this first application period will be required to repay their Canada Emergency Response Benefit (CERB)¹. The repayment of the CERB is the responsibility of the employee. It may not be financially beneficial to rehire employees if they remain unable to work due to COVID-19 and their employment income is in excess of $1,000 and less than the CERB repayment. However, in the examples provided below the employees could be in a better financial position than they are in receiving the CERB without any cost to the employer.

In our example below, we are assuming all employees for the first application period will be receiving employment income in excess of the $2,000 CERB payment making it financially beneficial for each employee to be rehired retroactively back to March 15.

CEWS program

Depending on the employee’s baseline remuneration for the period of January 1, 2020 to March 15, 2020, under the CEWS program, the government may provide a subsidy between 75 and 100 per cent of the employee’s remuneration up to a maximum of $847 per week. If the employee remains on leave during this period (paid leave), the employer can increase this subsidy by the amount of employer-paid EI, CPP or provincial equivalent to CPP (i.e. QPP).

In our example, we have five arm’s length employees who were all laid off from the company on March 16, 2020. The employer is considering rehiring the five employees and using the CEWS program to manage the cashflow related to the payroll costs². In order to complete the subsidy calculation, the employer must first determine the average weekly baseline remuneration, which is the remuneration paid to each employee during the period of January 1, 2020 to March 15, 2020. Secondly, the employer must retroactively calculate the eligible weekly remuneration accruing to each employee during the first application period of March 15, 2020 to April 11, 2020³. It is a requirement of the program that the employment income during the application period be paid. Due to delays in setting up the program it is acceptable to pay the employees now retroactively back to March 15.

The formula used to calculate the wage subsidy is as follows:

Total of all amounts, each of which is for an eligible employee in respect of a week in the claim period, equal to the greater of:

1. the least of
   1. 75 per cent of eligible remuneration paid to the eligible employee in respect of that week,
   2. $847, and
   3. if the eligible employee does not deal at arm's length with the eligible employer in the claim period, $0, and
2. the least of
   1. the amount of eligible remuneration paid to the eligible employee in respect of that week,
   2. 75 per cent of baseline remuneration in respect of the eligible employee determined for that week, and
   3. $847.

In our example, the employees have weekly baseline remuneration ranging from $1,000 to $2,000 during the period of January 1, 2020 to March 15, 2020, and eligible remuneration for each employee during the period of March 15, 2020 to April 11, 2020 ranging from $750 to $2,000 (as shown in the first table).

The eligible weekly remuneration paid to Anu of $750 is equal to 75 per cent of his baseline weekly remuneration equal to $750 ($1,000 x 75%). As a result, the subsidy does not exceed the baseline cap of $750 (75% of baseline remuneration) resulting in a 100 per cent subsidy of the $750 of employment income.

The eligible weekly remuneration paid to Rob of $847 is less than 75 per cent of his baseline weekly remuneration equal to $1,125 ($1,500 x 75%). As a result, the subsidy is not capped based on his baseline weekly remuneration resulting in a 100 per cent subsidy of the $847 of employment income.

The eligible weekly remuneration paid to Brenda of $1,000 is less than 75 per cent of her baseline weekly remuneration equal to $1,500 ($2,000 x 75%). As a result, the subsidy is not capped based on her baseline weekly remuneration, but it is capped based on the maximum weekly subsidy per employee of $847. The subsidy in respect of Brenda would be equal to an 85 per cent subsidy of the $1,000 of employment income.

The eligible weekly remuneration paid to Bill of $1,130 is less than 75 per cent of his baseline weekly remuneration equal to $1,500 ($2,000 x 75%). As a result, the subsidy is not capped based on his baseline weekly remuneration, but it is capped based on the maximum weekly subsidy per employee of $847. The subsidy in respect of Bill would be equal to a 75 per cent subsidy of the $1,130 of employment income.

The eligible weekly remuneration paid to Sonia of $2,000 is greater than 75 per cent of her baseline weekly remuneration equal to $1,500 ($2,000 x 75%). As a result, the subsidy is not capped based on her baseline weekly remuneration. It is further capped based on the maximum weekly subsidy per employee of $847. The subsidy in respect of Sonia would be equal to a 42 per cent subsidy of the $2,000 of employment income.

Conclusion

As you can see from the above example, the CEWS can be beneficial to the employer with between 75 to 100 per cent subsidy by the government of employment income up to a maximum weekly employment income of $1,130 per employee. As the employment income of an employee exceeds $1,130, and the maximum subsidy of $847 is reached, the percentage of the subsidy will become less than 75 per cent.

The employer can receive an additional subsidy related to employer-paid EI, CPP and QPP on behalf of employees receiving employment income while remaining on leave.

An employer who qualifies for the CEWS program should review each employee’s situation before including the employee in the subsidy calculation to ensure they are not in a worse position under the CEWS program versus the CERB program.

1. ¹ A repayment of the CERB can be done by mailing a cheque to Revenue Processing – Repayment of CERB, Sudbury Tax Centre, 1050 Notre Dame Avenue, Sudbury ON P3A 0C3.  Make payment out to “Receiver General of Canada” and indicate “Repayment of CERB” on the cheque. Be sure to include your social insurance number or temporary tax number on the cheque.
2. ² In this example, we are assuming the employer must remain closed due to COVID-19 and is hiring the employees back using the government subsidy under the CEWS program, but the employees will remain on paid leave for the immediate future.
3. ³ For assistance with calculating the wage subsidy, you can use Tax Templates Inc.’s free subsidy calculation tool: https://www.taxtemplates.ca/wage-subsidy
4.