Executive Summaries Apr 17, 2020
75% Wage Subsidy: What, Who and How, and Several Questions
On April 11, 2020, the federal Parliament passed Bill No. 2, An Act Respecting Certain Measures in Response to COVID-19 (Bill C-14). This Act implements many of the measures that had been announced since March 27 by the federal government and updates some of them.
Essentially, the purpose of the subsidy is to ensure that the employment relationship between businesses and their employees is maintained and in turn, facilitate the resumption of activities when the time comes. The program, managed by the Canada Revenue Agency, includes the following conditions :
- Generally, businesses eligible for the program will receive a grant of 75% of the pre-crisis salary for each employee, up to an annual salary of $58,700.
- The maximum subsidy will be $847 per week per employee.
- Contrary to what was previously announced, a business does not have to demonstrate that it is doing everything in its power to maintain the salary paid before the crisis. However, businesses are invited to do so, but are not obliged to do so.
- The federal government will also reimburse the entirety of certain employer contributions to employment insurance, the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan for employees who are on paid leave. This reimbursement is not subject to the maximum limit of $847 per week per employee.
- The wage subsidy is retroactive to March 15, 2020 and will be paid directly to employers.
- The subsidy will have a maximum duration of three months.
- Contrary to the initial announcement, businesses of all sizes will be able to benefit from the subsidy, regardless of the number of people employed.
- However, this does not apply to public entities such as municipalities, crown corporations, public educational institutions and hospitals.
- NPOs and registered charities can also benefit from the subsidy.
- To be eligible for a given month, a business will have to experience a minimum decrease of 15% of its gross revenues in March 2020, and 30% of its gross revenues in April and May 2020.
- There are two possible methods for calculating the decrease in gross revenues : 1) Compare the revenues of the month for which the grant is requested with the same month of the year 2019, or 2) Compare the income for the month for which the grant is requested with the average income generated for the months of January and February 2020.
- When a business chooses a method of comparing revenues, it cannot change the method when it applies for a wage subsidy for another month, hence the importance of making the right choice when making the first application.
- In addition, businesses are allowed to calculate their revenues using either the accrual or cash method. However, once a business makes an election, it can no longer change it.
- Businesses will have to apply for the subsidy for each month so that a comparison can be made with the previous year's month.
- However, once an employer has been deemed eligible for a given period, it will automatically be eligible for the next period.
Interested businesses would have to submit their application to the Canada Revenue Agency. Applications for wage subsidies could be submitted through the Agency's Web portal My Business Account as of Thursday, April 16, 2020. Funds would be available in the following weeks.
Wage subsidy applications may be submitted in relation to three eligibility periods :
- March 15, 2020 to April 11, 2020;
- April 12, 2020 to May 9, 2020;
- May 10, 2020 to June 6, 2020.
It must be mentioned that an employee who has been without remuneration from the company for a period of at least 14 consecutive days during a given eligibility period cannot be covered by the wage subsidy application.
This has a major impact on your business. Employers who have been laid off will be able to "call back" their employees and continue to pay them at least 75% of the salary paid before the crisis.
Please note that "calling back" does not necessarily mean the physical return of the employee to the workplace. In addition, the program does not require the employee to provide any work. The program is intended to firstly, ensure that the employment relationship is maintained and secondly, that the employee receives remuneration directly from the employer, which is itself directly subsidized by the federal government.
Moreover, for businesses providing essential services that nevertheless had to proceed with temporary layoffs or dismissals, it will be possible, thanks to this subsidy, to call back the employees concerned to work.
In the event that the business has to suspend its operations, it may nevertheless take advantage of the program, provided that it continues to pay the employees' salaries.
Finally, Minister Morneau reminded us that this subsidy system is based on trust. Serious consequences could be inflicted on businesses using this program for fraudulent purposes. The penalties that may be incurred are those provided for in the Income Tax Act, which involve severe fines and even imprisonment. In addition, businesses that artificially reduce their income in order to benefit from the wage subsidy may be subject to a penalty of 25% of the subsidy, in addition to its full repayment.
Answers to Your Frequently Asked Questions
Our clients have raised the following questions and we thought we would share our answers:
1. WHO IS IT FOR? AND WHO DOES IT EXCLUDE?
A : All businesses, small, medium or large as long as they meet the criteria. Registered charities and non-profit organisations will also qualify. However, non-taxable corporations and public bodies will be excluded from the program.
It should be noted that if an entity comprises several enterprises, it cannot multiply its wage subsidy applications.
An entity will be eligible only if it meets the following conditions :
- It has applied before October 2020;
- The natural person with primary responsibility for the entity's financial activities certifies that the application is complete and accurate;
- The entity's qualifying income complies with the revenue decline under the conditions of the law (e.g. 15% decline for the month of March 2020 and 30% decline for the months of April and May 2020);
- As at 15 March 2020, the entity had a business number for making deductions at source.
2. HOW CAN I DEMONSTRATE THAT MY REVENUES HAVE DECREASED BY 15% or 30%?
A : Employers must keep records to demonstrate the reduction in revenue. The demonstration will have to be done by comparing revenues for the month for which the period began with the same month of the previous year or the average revenue generated for the months of January and February 2020.
An employer who meets the criteria for the month of March should be awarded the subsidy for the following months, as long as they still meet the criteria.
3. DO I HAVE TO GENERATE PROFIT?
A : No, this criterion is not relevant for the purposes of calculating the 15% or 30% decrease in gross income.
4. OPERATING SUBSIDIARIES OR CONSOLIDATED COMPANIES? WHO WILL QUALIFY?
A : The calculation of the gross revenue decline will be done on an entity basis and not on a consolidated basis. However, each member of the corporate group will have to use the same method.
A subsidiary would be eligible for the Emergency Wage Subsidy, but the calculation of the income reduction will exclude income from arm's length persons.
5. WHAT ABOUT ENTERPRISES CONTROLLED BY FOREIGN ENTITIES AND PUBLIC COMPANIES? WILL THEY BE ELIGIBLE FOR THE SUBSIDY?
A : The subsidy will be available to all enterprises, including public companies and companies controlled by foreign entities. However, companies that wish to qualify will have to demonstrate that they meet the other criteria, particularly with respect to loss of revenue from Canadian operations.
6. I AM A SEASONAL BUSINESS. DOES THIS MEASURE APPLY TO ME?
A : In special situations such as this one, it appears that the government would accept other evidence to demonstrate a 15% or 30% decrease in gross income. It is also expected that an entity may have the option to use the average income for the months of January and February 2020 to demonstrate a decline in income for the eligibility periods of March 15 to April 11, April 12 to May 9, and May 10 to June 6.
7. WHAT IS INCLUDED IN "SALARY" AND WHO IS COVERED BY THE SUBSIDY?
A : Eligible salary includes wages, salaries and other remuneration, such as taxable benefits. In addition, the Government proposes to expand the scope of the subsidy by introducing a 100-per-cent refund of certain employer contributions to Employment Insurance, Canada Pension Plan, Quebec Pension Plan and Quebec Parental Insurance Plan. This refund will cover 100% of the contributions paid by the employer for eligible employees for each week that these employees are on paid leave and for which the employer can claim the subsidy for those employees.
However, all amounts related to severance pay, vehicle benefits and stock option plan benefits are excluded.
8. Will I be DENIED IF I CANNOT PAY THE EMPLOYEE'S FULL PRE-CRISIS SALARY?
A : No. The government is no longer asking employers to make up the pre-crisis wage gap and the amount of the subsidy. However, the government is encouraging companies to pay the wage difference, if possible.
9. HOW WILL I HAVE THE CASH FLOW TO KEEP MY EMPLOYEES ON PAYROLL FOR THE SIX WEEKS REQUESTED?
A : Several measures have been announced to enable businesses to retain or obtain the funds they need to survive. Read our last article for a summary of these measures.
10. BEFORE APPLYING, DO I HAVE TO RECALL MY LAID-OFF EMPLOYEES OR REHIRE THOSE WHO HAVE BEEN LAID OFF?
A : Currently, it is our understanding that the monthly application is retroactive, so the wage subsidy will be limited to those employees who have actually been paid by the employer during the eligibility period. Furthermore, although the federal government's objective is to have as many employees as possible covered by the wage subsidy application for a given business, the employer is free to take advantage of the subsidy or not and may apply for it for only a portion of its employees.
11. I AM ELIGIBLE FOR THE 10% WAGE SUBSIDY OFFERED TO SMES. CAN I GET BOTH SUBSIDIES?
A : The 75% wage subsidy does not replace the first 10% wage subsidy announced by the federal authorities. The 10% wage subsidy is intended for small businesses and no demonstration of lost income is required.
Any temporary 10% wage subsidy amount will reduce the amount that can be claimed under the emergency wage subsidy. In other words, if an employer receives both the 10% wage subsidy and the 75% wage subsidy, the benefit it will receive as a 75% wage benefit will be deducted from the amounts received as part of the 10% wage subsidy.
12. WHAT WILL BE THE PENALTIES FOR ABUSE OR MISREPRESENTATION?
A : It is expected that the tax authorities will be active in verifying claims that have been made once the crisis is over. Businesses that have abused the application or provided false information may be subject to severe fines that may include the imprisonment of managers. Offences and penalties under the Income Tax Act are applicable and may result in significant consequences, including, at the provincial level, among others, ineligibility for public contracts for a period of five years under the Public Bodies Contracts Act.
13. I HAVE BEEN REDUCING THE SALARIES OF MY EMPLOYEES SINCE MARCH 15, 2020. HOW DO I DETERMINE THE AMOUNT OF WAGE SUBSIDY I WILL RECEIVE PER EMPLOYEE?
A: The amount of the subsidy for a given employee, for eligible remuneration paid for the period between March 15 and June 6, 2020, would be the greater of the following amounts :
- 75% of earnings paid, up to a maximum weekly benefit of $847;
- earnings paid, up to a maximum weekly benefit of $847, or 75% of the employee's pre-crisis weekly earnings, whichever is less.
We invite you to read our article about the fiscal and financial measures announced in response to the pandemic or to view our Labour and Employment Law team's webinar series "COVID-19 : Employers' Challenges" for more information on the measures recently adopted by the government :
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