Complexity of program will inevitably reward those who can afford expert advice over those who do not
by Stuart Rudner and Ayesha Adamjee
Last month’s update to the Canada Emergency Wage Subsidy (CEWS) extended the subsidy until December and eradicated the 30 per cent revenue decline threshold for eligibility, expanding the reach of the program to a wider group of employers while introducing a sliding scale of subsidies. For more information on the changes, click here and here.
When the CEWS was first introduced, the government announced that it would subsidize wages as long as the employer’s revenue declined by at least 30 per cent in any four-week period. Any qualifying employer would receive a 75 per cent wage subsidy for all eligible wages it would normally pay its employees during that period. The subsidy was initially supposed to extend no farther than Sept. 30, 2020.
Now that the 30 per cent threshold has been replaced with a sliding scale model, the subsidy has been further subdivided into “base CEWS” and “top-up CEWS”. The top-up CEWS amount provides an additional 25 per cent, which is added to the base amount for employers who have suffered greater financial damages during the pandemic. All amounts gradually reduce every four-week period to ease employers off the subsidy.
This change was adopted to reduce the “cliff effect” that rendered support entirely inaccessible for those who did not fall within the 30 per cent threshold required by the original CEWS. In addition to the feeling that the system was unfair, employers reported that the threshold induced inefficient decision-making processes. The scaled system is aimed at providing additional support to those who suffered the greatest impact during the pandemic while also allowing those who suffered less than a 30-per-cent decline to receive some support as they reopen and bring workers back.
The problem
While these improvements certainly have their advantages, it seems that some businesses that do not need extra help have benefited far more than those who do.
For instance, Rogers Communications recently announced a 17-per-cent revenue decline in its quarter ending on June 30. But Rogers, which had a net income of $279 million in the same quarter and paid $252 million in dividends, will receive a substantial subsidy. With 25,000 active employees and a 17-per-cent revenue decline in July, their subsidy for the month would be around $25 million.
Similarly, Royal Bank of Canada is another eligible employer under the new CEWS guidelines. With 70,000 active employees in Canada and a 10-per-cent revenue decline in the quarter ending on April 30, the bank is likely to receive a $40-million wage subsidy, as long as their decline persisted through July. RBC earned $1.5 billion in its most recent quarter and paid the same in dividends.
While these companies did experience decreases in revenue, they could still receive a payout if they had an increase in revenue compared to this time last year, because of the nature of the new changes. If the previous three months had a 50-per-cent decline but that was still an overall increase over last year, they would qualify for the top-up CEWS amount regardless of their revenue for the current month.
In comparison, smaller businesses tend to have much smaller profit margins. The cost of social distancing measures and safety precautions, added to the lost revenue from being closed, puts small business owners in a far more difficult situation.
Family-owned businesses are at an even greater disadvantage, as “non-arm’s length” employees qualify for a very limited CEWS rate and must be paid after all other employees have already been compensated. In order to be considered for CEWS, a relative must also have already been paid as a wage employee during one of the few optional calculation periods before March 15, 2020. Dividends do not count as eligible remuneration and will not be reimbursed under CEWS.
The complexity of CEWS will inevitably reward those who can afford expert advice over those who do not.
This puts small and family-operated businesses at a disadvantage and might make it even more difficult for them to bring workers back, which is not helpful to those businesses, our economy, or our community, and is contrary to the government’s goal of ensuring that all businesses can afford to bring their staff back and help heal the economic damage caused by the last few months.
Ayesha Adamjee is a summer student at Rudner Law in Toronto.
