Some Practical Challenges with CEWS (Updated May 15, 2020)
Since the onset of the COVID-19 pandemic, an unprecedented number of employers have been forced to place their employees on lay off.
In an effort to support those employers facing financial hardship and encourage organizations to get their workers back on payroll, employers were able to start applying for the Canadian Emergency Wage Subsidy (CEWS or the “Subsidy”) on April 27, 2020. The Subsidy is designed to be available retroactively to March 15, 2020. More details about the program are available here.
According to the government’s CEWS page, employers who have seen a specific drop in revenue can apply for the Wage Subsidy for each of their employees who are employed in Canada between March 15 and August 29, 2020. So far so good. However, employers will not qualify for the Subsidy if there was a period of 14 or more consecutive days in the March 15- August 29, 2020 window when their employees did not receive any pay from the employer.
Practically speaking, this may be problematic. Many businesses that have been required to close and have seen sales plummet have not been paying their employees for well over 14 consecutive days. As a result, in order to qualify for CEWS, employers must take the following steps:
- The employer must recall their employee.
- If the employer intends to apply for the CEWS benefit retroactively, they must make the recall retroactive.
- Before they can apply for CEWS, the employer must also pay their employee retroactive remuneration for the pay periods that they intend to claim CEWS.
This obligation to pay the employee first, and get a reimbursement later, is likely to represent a significant hurdle for many employers. In fact, for many employers who have been shut for the past month or so, the ability to retroactively pay a month’s worth of payroll (even at a discounted rate) plus make payments for the next “eligibility period” may simply not be an option. It may, therefore, in some cases be necessary to forgo the retroactive option and focus only on what can be done on a go forward basis.
The speed with which employers receive the Subsidy from the government is critical. As of May 15, 2020 we were aware of at least one employer who had applied for the CEWS as soon as it is was possible to do so (on April 27, 2020) but continues to wait for the Subsidy. Without any sales or other form of income, a delay in the receipt of the Subsidy may mean that some employers do not have the cash to be able make payroll for those employees they have now called back to work.
Employers are also concerned about how CEWS will impact their employees. Business owners have been asking: Can we apply for CEWS if our employees have been /are collecting the Canadian Emergency Response Benefit (CERB)? While the short answer is yes, what this means is that employees may subsequently be required to repay some or all of the benefit they have received. This unanticipated repayment obligation may create a certain level of frustration and anxiety for workers who may have concerns about how they will financially manage that repayment.
We will continue to monitor new developments.