UPDATE: What Does the 75% Wage Subsidy Mean for Employers?
April 1, 2020
The Government of Canada continues to announce details of the Canada Emergency Wage Subsidy (the “Subsidy”). On April 1, 2020, the following details were provided:
- The Subsidy is available to companies (including partnerships and sole proprietors), not-for-profits and charities.
- Eligible organizations will need to demonstrate at least a 30% decrease in gross revenues. Such a decrease will be measured by comparing gross revenue from the same month last year (being March, April or May 2019). There has not been clear direction with respect to the comparator for newer organizations but it is suspected that the comparison will likely compare gross revenues in previous months.
- As part of the application process, employers will need to attest to the fact they are doing “everything they can” to pay the remaining 25% of wages. However, the ability to top-up 25% is not a requirement to receive the Subsidy. The Government announced the Subsidy is intended to be flexible.
- Organizations will have to apply for the Subsidy every month.
- Applications for the Subsidy will be available on the CRA portal soon.
- Funds will be available in approximately 6 weeks.
- Employees will be entitled to receive either the Canada Emergency Response Benefit OR the Subsidy, but not both.
- Small businesses that do not qualify for the Subsidy will still be able to access the 10% wage subsidy, which was previously announced.
The relevance and applicability of the Subsidy to employers is outlined below. We will continue to provide additional details of the Subsidy as they are announced in the coming days.
On March 30, 2020 the Government of Canada provided further details regarding the wage subsidy, now referred to as the Canada Emergency Wage Subsidy (the “Subsidy”). The Subsidy will be available to companies, not-for-profits and charities that have suffered a drop in revenues of at least 30%. There is no minimum or limit on the number employees employed by the organization in order for the organization to be eligible for the subsidy.
As previously announced, the Subsidy will cover up to 75% of an employee’s wages. Today’s announcement included limits on the Subsidy. The 75% amount will be of the first $58,700 of an employee’s income, resulting in a maximum payment per employee of $847 per week. The Subsidy will be paid for up to 3 months and is backdated to March 15, 2020. The Government has stated that more details about the Subsidy will be released on March 31, 2020.
What does this mean for employers? As noted in our March 27, 2020 alert, the Subsidy may allow employers to delay or avoid temporary layoffs or terminations of employment. Additionally, it may open up an opportunity for employers to engage in a phased form of temporary layoff where they temporarily layoff part of their work force for a period of time, then recall those employees and temporarily layoff other employees for a period of time.
Employers may also be able to come to an agreement with an employee to reduce wages for the period of the COVID-19 crisis and then have 75% of that reduced wage covered by the Government and top-up the remaining 25% of the reduced wage.
The following illustrates how the Subsidy could be a win-win for employers and employees.
Employer cost = $0
Employee receives Employment Insurance (“EI”) = 55% of their wage to a maximum of $573/week
Employer-Employee relationship is strained. Recalling employees may delay business recovery once the crisis passes.
From the date of the lay-off, a 60-day clock starts (unless benefits are continued or a continuing payment instead of wages is made). Under the Employment Standards Code, after 60 days, the employee is deemed terminated and is owed termination pay. Depending on the number of laid-off employees, this may represent a significant cost. There is also the common law issue of reasonable notice to be dealt with if the employee’s agreement doesn’t clearly specify notice entitlements upon termination.
Employer cost = 25% of the employee’s wage (for employees earning a yearly wage of $58,700 or less)
Employee receives 100% of their wage
Employer-Employee relationship is maintained. Once the crisis passes, the employer is positioned to resume operations rapidly and exploit what will likely be a short-term surge in consumer demand.
The issue of Employment Standards Code deemed terminations is eliminated.
For ease of numbers, say the employee earns $1,000 a month. An employer could layoff the employee, retain the employee under the new Subsidy at 100% of their wage or, retain the employee under the new Subsidy and negotiate a temporary wage roll-back with the employee. In exchange for the temporary wage roll-back, the employer agrees not to lay-off the employee.
Lay-off = $0 paid by the employer and the employee receives $550 on EI
Subsidy without a Roll back = $750 paid by the Subsidy, $250 paid by the employer and the employee receives their full wage of $1,000 and retains their job.
Subsidy with a 25% Roll back = a new wage of $750, the Subsidy pays 75% or $562.50, the employer pays 25% or $187.50 and the employee receives a wage of $750 and retains their job.
What Does This Mean?
Small- and medium-sized employers that can afford to wait for the details of this subsidy to be released before proceeding with temporary layoffs or terminations may want to consider doing so. That being said, if employers have already issued temporary layoff notices to employees, they may be able to rescind the notice if the temporary layoff has not yet started or recall employees to employment. Of course, this will depend on whether or not the employer determines that the subsidy will allow them to continue to pay employees for some period of time.
We note that the Subsidy may be of particular interest to employers that fall under the definition of non-essential in Alberta and have been required to close. More information on the required closure of non-essential businesses can be found in the Chief Medical Officer of Health’s order dated March 27, 2020.
Field Law's Labour + Employment Group is able to answer your questions about temporary layoffs, including rescission of temporary layoff notices or recall of employees on temporary layoffs. We will continue to keep you informed as more details of the subsidy are made available by the Government.