Canada Emergency Wage Subsidy Update
Prepared as of April 1, 2020
What?
75% wage subsidy for qualifying businesses up to three months, retroactive to March 15, 2020.
75% of the first $58,700 normally earned salary per employee, up to a maximum of $847 per week.
Who?
All employers (including proprietors and partnerships), except public sector entities.
If your gross revenue is derived from business activity in Canada and you pay remuneration to employees in Canada, you may qualify.
Additional details to come for non-profit organizations and charities.
Criteria?
At least 30% decline in gross revenue in March, April or May, as compared to the same month in 2019.
Flexibility applies for businesses not active in the prior year’s comparable month.
When?
Estimating between three and six weeks; six weeks being the worst case scenario.
How?
TBD, aiming for direct deposits to employers.
What if your business does not qualify?
May still qualify for 10% remuneration paid from March 18 to June 20.
Up to $1,375 per employee and $25,000 per employer.
Example: Tom, employee at ABC Inc.
Note: Wage subsidy is 75% of pre-crisis / normal wages.
Employer To-Dos:
Pay employee $750 / week.
Visit CRA system to:
Attest $750 in wages paid.
Attest to the 30% or more revenue drop.
Keep all documentation and records.
Reality Check
There are several concerns and unanswered questions that may hinder the program’s objective of reducing layoffs. We’ve summarized the key concerns below:
A. Criteria
Businesses with tight margins may be suffering significantly without meeting the 30% gross revenue decline.
Unfair to new businesses and seasonal businesses impacted to meet criteria.
Unfair for businesses that experienced a one-off major impact to operations last year to meet criteria.
B. Timing: 3 - 6 weeks out
Expects small businesses to float over three payroll periods before receiving funds.
Small business loans are unlikely to be funded before six weeks, unless businesses already have existing banking instruments in place.
The $40,000 small business loan may help but would be additional debt burden on businesses already fighting for survival.
$40,000 small business loan most likely requires established or established relationship between bank and company.
Small businesses with negative cash flows are unlikely to bring back staff that have already been laid off.
Technicalities
Based upon pre-crisis level of earnings.
Comparable month in previous year as basic guideline. Flexibility only applies for businesses not active in the prior year’s comparable month. May allow companies to use other comparisons then.
No double dipping: if firm has claimed 10%, that amount will be subtracted from the 75% subsidy application.
For professional corporations and non arms length corporations, employees need to be on payroll before March 15.
$40,000 small business loans to be provided by banks or financial institutions, not by CRA. Businesses to apply for loan on financial institution websites and meet certain bank criteria to qualify.
With wage subsidy, employees are not entitled to EI or CERB funding.
Conclusion
The current wage subsidy program appears to be more suited to medium to large businesses with the resources to fund salaries within the 6-week time frame before funding becomes available. This includes access to existing operating lines to float near term cash requirements. The program is less effective for small businesses already facing a near-term cash flow crunch.
For more information visit: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html