Which COVID-19 Wage Subsidy Program Is The Best Choice For My Employees and Why.

JRF Chartered Professional Accountants Inc. |

Blog by JRF Chartered Professional Accountants Inc

In response to the ramifications of the COVID-19 Pandemic the Federal Government has put in place several measures for the benefit of your employees. The Canada Emergency Response Benefit (CERB) Employment Insurance (EI) and The Canada Emergency Wage Subsidy (CEWS). The question is what is the best alternative for your employees to take? This article will look at the benefits available to your employees under each program and will provide an opinion as to which would be the best program to recommend.

Canada Emergency Response Benefit (CERB)

This program will pay an employee a gross monthly benefit of $2,000 for each month that they qualify for. At present the program is expected to extend for four months being a total benefit of $8,000. The criteria to apply are as follows

  1. The employee must have reported income from employment or self employment of at least $5,000 in the prior 12 months or as reported on their 2019 personal tax return.
  2. The employee will need to have been out of work for at least 14 consecutive days due to the COVID 19.

CERB vs Employment Insurance

Employment insurance will pay an employee up to 55% of their gross weekly wages to a maximum of $573 per week which is based on $54,200 of annual insurable earnings.

Following this same logic, the CERB pays a weekly max benefit of $461.53 being $2,000 per month which would be based on annual earnings of $43,636. As such for any person earning $43,636 per year or less they would have a higher entitlement through the CERB compared to EI. If an employee has applied for EI and is receiving a lesser amount they will automatically be transitioned to the CERB program.

CERB vs. Minimum wage.

Although the CERB is more closely aligned with the EI program. An employee who is earning minimum wage in Manitoba will effectively receive more gross earnings through the CERB program than what they would have made working assuming that they were working 37.5 hours per week full time. As full time minimum wage under this scenario would be $22,717.50 vs $24,000 per year under the CERB.

CERB vs Canada Emergency Wage Subsidy (CEWS) 75% Gross Wage Subsidy to Business Owners.

Employers that maintain employees even thought they are not working may be eligible for a gross payroll subsidy of up to $847/ week per employee.

In order for a business to qualify for this program the business would need to meet the following criteria.

  1. Due to the COVID-19 Pandemic the business has experienced a 15% drop in Revenue for the month of March 2020 vs March 2019.
  2. For the months of April and May the similar decline in revenue should be 30% or greater.

The options available for the calculation of the reduction in revenue and related reporting periods are as follows:

Option 1: You can compare your revenue for the month you wish to receive the subsidy with your revenue for the same month last year and show a 30% decrease or a 15% for March.

As the subsidy is for salaries paid since March 15, the three claiming periods are the following:

  • March 15 to April 11: compare March 2020 over March 2019.
  • April 12 to May 9: compare April 2020 over April 2019
  • May 10 to June 6: compare May 2020 over May 2019

Option 2: You can compare your gross revenue for the month you wish to receive the subsidy with your average of gross revenue from January and February 2020.

Once you chose an option, you will have to keep using it for all the claiming periods you are applying for.

Regardless of the options you use, you will have the option to use accrual or cash accounting. Once you chose an accounting method, you will also have to keep using it for all the claiming periods you are applying for.

The maximum benefit under the CEWS is $847 per week. If we use the max insured earnings of $54,200 as a base, we will find that the maximum weekly benefit under this program would be only $782 per week. At maximum the $847 per week would effectively cover 75% of the wage of a person earning up to $58,725. The subsidized wage would now be the equivalent of approx. $3,670 per month.

If we look at the employee earning $43,636 per annum, they also will benefit greater from the CEWS being eligible for $629 per week compared to the $461.53 per week under the CERB or EI. The sweet spot comes in at regular annual gross wages of about $32,000. At this point all program would provide the same weekly benefit of $461.53.

Having looked at the wage subsidy programs available I would conclude the following

  1. For Employees earning Minimum wage the CERB would provide you with max benefit. These would be the best employees to lay off first.
  2. For employees earning $43,636 per year or less they will find a greater benefit from the CERB program vs regular Employment Insurance but will find a greater or equal benefit under the 75% wage subsidy program if they make greater than $32,000 per annum.
  3. In short to maximize the benefit available to the employee it would be the best approach to lay off any employees that are earning $32,000 or less per annum.