Breaking Down New Changes to CEWS

Kalen Ingram
Posted July 21, 2020 Category: Businesses, Individuals/Families
Share on facebook
Facebook
Share on twitter
Twitter
Share on email
Email
Share on linkedin
LinkedIn

Today’s post is focused on the federal government’s announcement on Friday of proposed amendments to the Canada Emergency Wage Subsidy (CEWS) legislation which, if passed, would introduce substantial changes to the programme. 

We also address:

  • the Safe Restart Agreement between the federal government and the provinces/territories;
  • the extension of the emergency declaration in Ontario to July 24; and
  • the extension of certain emergency orders in Ontario to July 29 (and potentially beyond that date).

First, the news we have all been waiting for…

1.Proposed Changes to the CEWS

The changes to the programme are complicated. We will try to unpack them for you here. Before getting into the complexities, here are the quick-hit headlines:

  • Effective Dates: A new formula will be effective for the current (5th) Qualifying Period (Jul. 5 to Aug. 1) through to the 9th Qualifying Period (Oct. 25 to Nov. 21). For the current (5th‑ – Jul. 5 to Aug. 1) and next (6th – Aug. 2 to Aug. 29) Qualifying Periods, if an employer would receive a higher subsidy under the current formula (described in our blog post here), then the employer will receive the higher subsidy.Starting in the 7th Qualifying Period (Aug. 30 to Sep. 26), the new formula will completely replace the current formula.
  • No More ‘All or Nothing’: The changes eliminate the “cliff effect” whereby support under the existing program is completely inaccessible if a qualifying entity cannot demonstrate the required 30% drop in revenue. Instead, the proposed amendments introduce new formulae for calculating the wage subsidy whereby all employers with revenue reductions are eligible for a subsidy, with the applicable subsidy amount being calculated based on a multiplier of the revenue reduction percentage. 
  • Gradually Declining Subsidy: While the revised wage subsidy will be available to a greater number of employers, the amount of the subsidy will gradually decline with each passing Qualifying Period.
  • Alignment of CEWS with CERB for Workers on Leave with Pay: the new subsidy formulae (discussed below) will not apply for workers who are on a leave of absence with pay. The proposed amendments indicate that starting in the 7th Qualifying Period (Aug. 30 to Sep. 26), the subsidy amount for workers who are not actively working but still being paid (through CEWS) would be determined by regulation. The Government has announced its intention to align the CEWS for these inactive workers with the benefits provided to laid off workers under the CERB and/or EI.
  • Two-Part Subsidy: The updated CEWS will consist of two subsidies. These two subsidies will be added together and then applied to the eligible remuneration paid to an eligible employee, up to $1,129 per week. The two subsidies are:
  1. BASE SUBSIDY: available to all eligible employers that are experiencing a decline in revenue. The amount of this base subsidy will vary depending on the revenue decline experienced in the current month compared to a reference month.
  1. TOP-UP SUBSIDY: a top-up of up to 25% for the hardest hit employers who are experiencing a revenue decline of more than 50% when comparing the 3-month rolling average to a reference period.

Let’s dig deeper on the two-part subsidy rates.

The BASE SUBSIDY

The current CEWS formula has a subsidy rate of 75% but is only available to employers who experienced a revenue decline of 30% or more. The proposed amendments introduce a gradually decreasing base subsidy, with an initial maximum rate of 60%. A subsidy would be available to all eligible employers who have experienced a decline in revenue, regardless of the quantum of that decline.  The following table specifies the base subsidy rate, which is dependent on the revenue decline experienced by the employer.

Qualifying
Period
Qualifying Period
Dates
Revenue Decline
≥ 50%
Revenue Decline
< 50%
5July 5 to Aug. 160%1.2 x Revenue Decline
6Aug. 2  to Aug. 2960%1.2 x Revenue Decline
7Aug. 30  to Sept. 2650%1.0 x Revenue Decline
8Sept. 27 to Oct. 2440%0.8 x Revenue Decline
9Oct. 25 to Nov. 2120%0.4 x Revenue Decline

A Quick Explanation on Revenue Decline.

Revenue Decline is a comparison of:

generally, the current or prior calendar month vs. the same calendar month in 2019;       
or
alternatively, the current or prior calendar month vs. the average revenue in January & February 2020.

Employers who opted to use the general comparison method for Qualifying Periods 1 through 4 will have the option to switch to the alternative comparison method for the current (5th) Qualifying Period. Similarly, employers who opted to use the alternative comparison method for Qualifying Periods 1 through 4 will have the option to switch to the general method for the current Qualifying Period. Whatever comparison method is selected for the current Qualifying Period will apply for all subsequent periods.

For the current Qualifying Period and all subsequent Qualifying Periods, eligible employers will be able to select the revenue decline produced by using the current calendar month or the prior calendar month (whichever produces the greater revenue decline).

The TOP-UP SUBSIDY

The proposed legislation introduces a top-up subsidy of up to 25% for employers who have experienced a drop in revenue that is greater than 50%. The formula for determining the top-up subsidy is:

1.25 x (3-Month Revenue Decline % – 50%),

This formula means that employers with a 3-Month Revenue Decline of 50% or less would not qualify for a top-up subsidy.

The 3-Month Revenue Decline is generally determined by comparing the revenues in the preceding 3 months to the same months in 2019. Alternatively, the 3-Month Revenue Decline can be determined by comparing the average monthly revenue in the preceding 3 months to the average revenues in January and February 2020.

The following table provides some examples of Top-Up Subsidy rates depending on the 3-Month Revenue Decline experienced by the employer:

3-Month
Revenue Decline
FormulaTop-Up
Subsidy
70% or more1.25 x (70% – 50%) = 25%25%
65%1.25 x (65% – 50%) = 18.75%18.75%
60%1.25 x (60% – 50%) = 12.5%12.5%
55%1.25 x (55% – 50%) = 6.25%6.25%
50%1.25 x (50% – 50%) = 0%0%

The Wage Subsidy to be provided to an eligible employer for a given week in a Qualifying Period under the new proposed legislation would be:

As a final note, the deadline to apply for the CEWS has been amended to January 31, 2021.

There is certainly more to discuss regarding these proposed amendments. Keep your eye out for further updates from our office.

2.Federal Government’s Safe Restart Agreement with the Provinces

On July 16, the federal government announced that it had reached an agreement with the provinces and territories that could see funding provided for various initiatives aimed at restarting the Canadian economy.  The agreement stipulates that the funding will address 7 key areas and that the provinces/territories must provide the feds with a plan outlining how they will spend the funds. One of the 7 initiatives is a temporary income support program to provide 10 paid COVID-related sick days for workers who do not have paid sick leave. We will await further announcements from the provincial government as to how it intends to introduce such a paid sick leave plan and keep you informed of the details as we learn them. Further particulars about the Safe Restart Agreement, including information about the other 6 targeted initiatives, can be found here.

3.Ontario’s State of Emergency Extended to July 24

Back on July 13, the provincial government extended the province’s emergency declaration to July 24.  Recall that in a previous blog post/e-blast, we discussed a new Regulation under the Employment Standards Act which declared that workers in Ontario who were laid off in Ontario due to COVID-19 would be considered to be on Infectious Disease Emergency Leave (“IDEL”) by operation of the ESA Regulation. The deemed IDEL created by this Regulation could remain in place until up to 6 weeks after the emergency declaration ends.

What does this mean for employers? If the emergency declaration ends on July 24, and if an employer has workers who were previously laid off but then considered to be on IDEL by virtue of the ESA Regulation, those employees will cease to be on IDEL as of September 4 (the Friday before Labour Day). Employers will then have to consider what steps they intend to take with these workers including (but not limited to):

  • whether to keep these employees off work on a temporary layoff (if the employer has the contractual right to layoff workers);
  • whether to recall workers, potentially by accessing the newly reconfigured CEWS; and/or
  • whether these workers continue to be entitled to the IDEL, potentially due to childcare or elder care responsibilities.

4.Emergency Orders Extended to July 29

On July 16, the provincial government announced that it was extending most of the emergency orders currently in force until July 29.  These orders are issued under the Emergency Management and Civil Protection Act, which allows emergency orders to remain in place for up to 14 days after the state of emergency is terminated in the province. A full list of the emergency orders that have been extended to July 29 can be found here.

The provincial government has also proposed legislation that would permit it to extend emergency orders for a longer period after the emergency declaration ends. The Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 would permit the provincial government to extend emergency orders for successive periods of up to 30 days after the emergency declaration is terminated in the province. It would also allow the provincial government to amend certain emergency orders after the emergency declaration ends; it does not, however, permit the government to issue new emergency orders.  That legislation is currently at 2nd reading. It remains to be seen whether it will be enacted into law.

We will continue to monitor government announcements and update you accordingly.

Stay Safe. Enjoy phase 3, everyone.

Share on facebook
Facebook
Share on twitter
Twitter
Share on email
Email
Share on linkedin
LinkedIn
Tags
Kalen Ingram
Posted July 21, 2020 Category: Businesses, Individuals/Families

Newsletter Signup

Sign up for our Newsletter

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.