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On April 1, 2020, Canada’s Minister of Finance announced the federal government’s plans for a comprehensive wage subsidy program that would cover up to 75 percent of an employee’s regular wages for up to 3 months. As predicted, the proposed Emergency Wage Subsidy Program has undergone significant changes in the last week in order to extend benefits to a wider class of employers.

On April 11, 2020, the federal government enacted the COVID-19 Emergency Response Act, No. 2, which implements the Emergency Wage Subsidy Program.

Changes to the Eligibility Criteria for Employers

When first announced, the Emergency Wage Subsidy Program required that employers demonstrate a decrease in revenue by comparing revenues for March, April, and May 2020, to revenues from the same months in 2019. However, the legislation now permits employers to elect one of two approved benchmarks to compare March, April and May 2020 revenue:

  1. Employers may take an average of revenue (the formula is specified in the legislation) from January and February 2020, and compare the revenue from March, April and May 2020, to that same average; or
  2. Employers may compare the revenue from March, April, and May 2020, to revenue from the same months in 2019.

This change comes in response to concerns that were raised by employers that have been in business for less than one year that they would not be able to demonstrate year-over-year decreases. These changes also respond to businesses who are startups or who were in a growth phase over the last year and would not be able to demonstrate a decrease in revenue year-over-year, despite being severely affected by COVID-19.

It was previously reported that employers would be required to demonstrate a monthly gross revenue decrease of greater than 30 percent due to COVID-19. The legislation now provides that the revenue loss threshold will be based on the period for which the employer is applying for the subsidy:

  • For the March 2020, claiming period, running from March 15 to April 11, employers must be able to demonstrate a 15 percent or greater decrease in revenue;
  • For the April 2020 claiming period, running from April 12 to May 9, employers must be able to demonstrate a 30 percent or greater decrease in revenue; and
  • For the May 2020 claiming period, running from May 10 to June 6, employers must be able to demonstrate a 30 percent or greater decrease in revenue.

An employer’s revenue is defined as revenue from its business conducted in Canada and earned from arm’s-length sources. The government has confirmed that employers will not be required to demonstrate that the decrease in revenue was a direct result of COVID-19.

All private sector businesses, regardless of size or industry, or whether they are for- or non-profit, continue to be eligible to apply for the emergency wage subsidy provided that they can demonstrate that they experienced the minimum decrease in revenue. Publicly-funded businesses (such as crown corporations and government employers) remain ineligible.

Employers will be required to designate a person within the organization who will have control over finances and will oversee the wage subsidy application to ensure that claims are appropriate.

Changes to Accounting Methods

Employers are now able to choose which method of accounting—the cash method or the accrual method—they will use to demonstrate a decrease in revenue. This allows employers that have seen a significant decrease in paid invoices to access the wage subsidy program. Employers must use the same accounting method for all qualifying periods.

Refund of Certain Payroll Contributions

Employers contributions to employment insurance (EI), the Canada Pension Plan (CPP), the Québec Pension Plan (QPP), and the Québec Parental Insurance Plan (QPIP) for each week that an employee is on leave with pay and the employer is eligible to claim the emergency wage subsidy can be eligible for a 100 percent refund. There is no overall limit on this refund, and the refund is not subject to the weekly maximum benefit amount that an employer is eligible for under the subsidy ($847).

Employers must continue to collect and remit the employer and employee contributions for these respective programs and must then apply for the refund at the same time that they apply for the emergency wage subsidy.

Penalties Announced

The government announced that employers that apply for the emergency wage subsidy and are later found to be ineligible would be required to repay the amounts that they received under the subsidy. If employers engage in artificial transactions in order to demonstrate a reduction in revenue, employers may be required to pay a penalty equal to 25 percent of the monies claimed may under the subsidy program.

Where employers are found to be abusing the Emergency Wage Subsidy Program, or engaging in fraudulent claims, the government has announced potential punishment by fines equal to 225 percent of the monies that were received under the subsidy and imprisonment of up to 5 years.

Emergency Wage Subsidy and Work Sharing

For employers affected by COVID-19, the maximum duration of the work-sharing program was increased from 38 weeks to 76 weeks. If employees are participating in a work-sharing program, the EI benefits received by employees through the work-sharing program will reduce the benefit that their employers are entitled to receive under the emergency wage subsidy.

Employee Eligibility

Eligible employees must be employed in Canada. We expect further details from the government on whether employers will be able to apply for the emergency wage subsidy to support the continued employment of a portion of their workforces, while laying off (without pay) or discharging other employees.

Eligibility for the subsidy of an employee’s wages, will be limited to employees that have not been without remuneration for more than 14 consecutive days in the claiming period. If an employee has been without remuneration for more than 14 consecutive days in the claiming period, the employer cannot apply for the emergency wage subsidy for that employee’s wages.

Emergency Wage Subsidy and Temporary Wage Subsidy

On March 18, 2020, the government announced that eligible employers (those eligible for the small business deduction) would be provided with a temporary wage subsidy. This program subsidizes eligible employers 10 percent of the remuneration paid to employees from March 18, 2020, to June 19, 2020, up to a maximum of $1,375 per employee and a maximum of $25,000 per employer. This program remains in place and is still accessible for small businesses.

If an employer is eligible for both the Emergency Wage Subsidy Program (which covers up to 75 percent employees’ wages) and the Temporary Wage Subsidy (which covers 10 percent of employees’ wages) for a period, any benefit from the 10 percent temporary wage subsidy would reduce the amount available to be claimed under the Emergency Wage Subsidy Program in that same period.

While the above information regarding the Emergency Wage Subsidy Program is current as of April 13, 2020, because the current health crisis is dynamic, changes may occur to this and other emergency measures. Ogletree Deakins will continue to monitor and report on developments with respect to the COVID-19 pandemic and will post updates in the firm’s Coronavirus (COVID-19) Resource Center as additional information becomes available. Critical information for employers is also available via the firm’s webinar programs.


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