The Canada Emergency Wage Subsidy (CEWS) program is a 75 percent wage subsidy provided by the Government of Canada for qualifying businesses, retroactive to March 15, 2020. The Canada Emergency Response Benefit (CERB) is a program that provides temporary income support to workers who have stopped working for reasons related to COVID-19 and have earned less than $1,000 in employment or self-employment income. Both the CEWS and CERB allow applicants to apply for these programs according to periods: the CEWS is claimable in four-week periods from March 15, 2020 to August 29, 2020, while each payment of the CERB covers a four-week period from March 15, 2020 to October 3, 2020.

Employers need to be careful about the timing of re-hiring or laying off employees as they may not be eligible to claim the CEWS if not timed correctly. As well, employees may need to repay the CERB if not timed correctly. These are critical considerations as business owners begin rehiring.

Employers and timing of the CEWS

Employers can only claim the CEWS if employees without remuneration for 14 or more consecutive days in the qualifying period. This is the definition of ”eligible employee” under the wage subsidy legislation.

Let’s look at an example. An employer hires someone back to work on June 1, 2020, with the view to re-opening their business on June 9, 2020. Wages paid between June 1 and June 6 would not be eligible for the wage subsidy because the employee in Period 3 (May 10 – June 6) went without pay for more than 14 consecutive days in a qualifying period (May 10 – June 1). Employers would be eligible for the CEWS for Period 4 because the employee would be receiving remuneration from the starting date in the program for the period, or June 7, 2020

This concept is important because an employer could be rehiring employees on the basis that they expect to receive the CEWS, when in fact they may not actually be eligible for it. Some employers may not have the cash flow to rehire employees without the CEWS and need to be aware of the timing of their hiring decisions with respect to the qualifying periods.

Employers who have maintained operations but are now facing the challenge of scaling back their workforce must also be conscious of the timing of laying off employees. Employers may not be eligible for the CEWS during the period in which they laid off the employees; the CEWS is available only if the employees for more than 14 consecutive days in the qualifying period.

For example, where an employer laid off an employee on May 22, the employee would be without remuneration for more than 14 consecutive days in Period 3 (May 23 to June 6) and the CEWS would not be available. On the other hand, if the employee was dismissed on May 24, the employer could claim the CEWS for the period as the employee was not without remuneration for 14 or more days.

Employees and timing of the CERB

Employers should also be conscious of the effect that rehiring has on their employees’ receipt of CERB payments. Individuals apply for the CERB based on the same time periods that employers utilize the CEWS program. Eligibility for the CERB includes a limitation on employment income earned in a qualifying period. The CRA has noted on its CERB application webpage that employees would need to repay the entire $2,000 received for the 4-week period if they earn more than $1,000 of employment income in the period in which they received the CERB.

The limitation on employment income earned by an individual for purposes of the CERB will depend on whether the individual is applying for their initial period or a subsequent period. When submitting an initial claim, an individual can earn no more than $1,000 in employment and / or self-employment income for a period of 14 or more consecutive days in the four-week claim period.

For subsequent claims, the $1,000 limitation on employment and / or self-employment income is for the entire four-week benefit period of that claim. Individuals would need to repay the $2,000 CERB amount if they earned more than $1,000 of employment income during the entire period.

What should an employer do?

Employers should consider rehiring employees at the beginning of a period if they are depending on the CEWS to support the rebuild of their business. This allows the employer to collect the CEWS, assuming other eligibility requirements are met, while also allowing employees to keep the CERB that they received for the prior period.

Another option is to retroactively rehire employees so employees can be paid for more than 14 consecutive days in that period. Employers would be eligible to collect the CEWS if the other eligibility requirements are met. Employees may need to repay the $2,000 CERB that they received for a prior period, but they may end up with more cash in their pockets if their retroactive pay is higher than the CERB.

However, in some provinces, the CERB application allows an individual to access various provincial measures, such as one-time payments and reduced hydro bills. It is unclear how retroactive payments would impact the repayment of provincial incentives. Employment law considerations must be considered when retroactively hiring employees.

Employers need to be conscious of the timing of rehiring employees. In some cases, employees may only be nominally better off going back to work mid-period, and they also may have other associated costs (such as day care) to consider. In some cases, depending on number of hours and wage rates, employees may be better off staying on the CERB. As the ultimate goal for everyone is reemployment and business sustainability, employers must be cognizant of their employees’ situations so the timing can work in everyone’s favour.

We know each situation is unique and you may have questions about your business. To build your reopening strategy, contact:

Marty Clement, CPA, CA                                Michael Saxe, CPA, CA, LL.M
Partner, Tax Services                                     Partner, Tax Services
250.979.1742                                                   647.943.4120
marty.clement@mnp.ca                                   michael.saxe@mnp.ca