COVID-19: Technical analysis of the Canada Emergency Wage Subsidy Extension

Overview

As a follow up to our communication last week, the federal government announced changes to the expanded CEWS program. The new CEWS rules extend the program to December 19 (from a previous extension to August 29), and make the subsidy proportional to revenue declines. The maximum pay used to calculate the per-employee subsidy will be $1,129 per week.

Employers were previously subject to a 30% revenue decline test, which made them eligible for a payroll subsidy of 75% (to a weekly maximum of $847).

The CEWS now consists of two parts (effective for the current CEWS period):

  • a base subsidy available to all eligible employers experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
  • a top-up subsidy of up to an additional 25% for employers most adversely affected by COVID-19 (those with more than a 50% revenue drop).

For example, for businesses with a revenue decline of less than 50%, the base subsidy rate will be 1.2 times revenue drop. Revenue drops of 50% or more will receive a 60% top-up. These rates will be gradually reduced starting in Period 7 (August 30 to September 26).

For the current period (July 5 to August 1) and the next one (August 2 to August 29), a safe harbour provision allows for a business that would have been better off under the prior rules (i.e., 75% wage top-up for revenue declines of 30% or more) to receive that prior subsidy amount.

Given that the subsidy rate declines as the CEWS periods pass, the maximum weekly benefit per employee is set to fall from $960 in the current period to $508 in the final one (October 25 to November 21).

Excluding the top-up, the maximums are $677 in the current period and $226 in the final one.

Base Subsidy

Effective July 5, 2020 (Period 5 and subsequent periods), all employers that have been effected by the COVID-19 pandemic would be eligible for a base CEWS amount for active employees. This base CEWS will be a specified rate, applied to the remuneration paid to each employee on payroll for the eligibility period. The specified rate would be determined based on the change in an eligible employer’s monthly revenues, as outlined in the below table provided by the Department of Finance. The base CEWS rate would apply to remuneration of up to $1,129 per week. The maximum base CEWS rate would be provided to employers with a revenue drop of 50 per cent or more. 

TimingPeriod 5*:
July 5 – August 1
Period 6*:
August 2 – August 29
Period 7:
August 30 – September 26
Period 8: September 27 – October 24Period 9:
October 25 – November 21
Maximum weekly benefit per employeeUp to $677Up to $677Up to $565Up to $452Up to $226
Revenue drop     
50% and over60%60%50%40%20%
0% to 49%1.2 x revenue drop
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
1.2 x revenue drop
(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)
1.0 x revenue drop
(e.g., 1.0 x 20% revenue drop = 20% base CEWS rate)
0.8 x revenue drop
(e.g., 0.8 x 20% revenue drop  = 16% base CEWS rate)
0.4 x revenue drop
(e.g., 0.4 x 20% revenue drop = 8% base CEWS rate)
* In Periods 5 and 6, employers who would have been better off in the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more. As described further below (see Safe harbour rule for Periods 5 and 6).

Source: Department of Finance Canada

Top-up Subsidy

A top-up CEWS would be available to employers that experienced a 3-month average revenue drop of more than 50 per cent. The top up rate would be equivalent to 1.25 times the average revenue drop that exceeds 50 per cent, up to a maximum top-up CEWS rate of 25 per cent, which is attained at a 70 per cent revenue decline. The top-up CEWS rate would apply to remuneration of up to $1,129 per week.

3-month average revenue dropTop-up CEWS rateTop-up calculation = 1.25 x (3 month revenue drop – 50%)
70% and over25%1.25 x (70%-50%) = 25%
65%18.75%1.25 x (65%-50%) = 18.75%
60%12.5%1.25 x (60%-50%) = 12.5%
55%6.25%1.25 x (55%-50%) = 6.25%
50% and under0.0%1.25 x (50%-50%) = 0.0%

Source: Department of Finance Canada

Reference Periods for the Drop-in-Revenue Test

Base CEWS

For the base CEWS, eligibility would be determined by the change in in an eligible employer’s monthly revenues, year-over-year, for the applicable calendar month. For Period 5 and all subsequent periods, an eligible employer would be able to use the greater of its percentage revenue decline in the current period and that in the previous period for the purpose of determining its qualification for the base CEWS and its base CEWS rate in the current period. Employers that have elected to use the alternative approach for the first 4 periods would be able to either maintain that election for Period 5 and onward or revert to the general approach.

Claim PeriodGeneral ApproachAlternative Approach
Period 5July 5 to August 1, 2020July 2020 over July 2019 or June 2020 over June 2019July 2020 or June 2020 over average of January and February 2020
Period
6
August 2 to August 29, 2020August 2020 over August 2019 or July 2020 over July 2019August 2020 or July 2020 over average of January and February 2020
Period
7
August 30 to September 26, 2020September 2020 over September 2019 or August 2020 over August 2019September 2020 or August 2020 over average of January and February 2020
Period
8
September 27 to October 24, 2020October 2020 over October 2019 or September 2020 over September 2019October 2020 or September 2020 over average of January and February 2020
Period
9
October 25 to November 21, 2020November 2020 over November 2019 or October 2020 over October 2019November 2020 or October 2020 over average of January and February 2020

Source: Department of Finance Canada

Top-up CEWS

For the top-up CEWS, eligibility would generally be determined by the change in an eligible employer’s revenues for a 3-month period. The table below from the Department of Finance outlines each claim period and the relevant period for determining an eligible employer’s average change in revenue.

Claim PeriodGeneral ApproachAlternative Approach
Period
5
July 5 to August 1, 2020April to June 2020 over April to June 2019April to June 2020 average over January and February 2020 average*
Period 6August 2 to August 29, 2020May to July 2020 over May to July 2019May to July 2020 average over January and February 2020 average*
Period 7August 30 to September 26, 2020June to August 2020 over June to August 2019June to August 2020 average over January and February 2020 average*
Period 8September 27 to October 24, 2020July to September 2020 over July to September 2019July to September 2020 average over January and February 2020 average*
Period 9October 25 to November 21, 2020August to October 2020 over August to October 2019August to October 2020 average over January and February 2020 average*

Source: Department of Finance Canada

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