In this unprecedented period of COVID-19, many employers are fighting an uphill battle against the dire economic situation. With so much uncertainty, employers have to ask tough questions to determine whether their business can weather the storm or need to shut down permanently. To prevent immediate shut down and combat uncertainty, some employers might consider temporarily laying off employees. However, layoffs can be a costly decision and the new Canada Emergency Wage Subsidy program offers an alternative for employers to consider. But what does it mean for employers?
To layoff or not to layoff
Choosing to temporarily layoff employees can be a costly decision for any employer. Even when it is temporary, if there is no provision in the employment contract to provide for this measure or collective agreement in case of unionized environments, an employee can treat it as permanent layoff and seek termination and severance pay. During times of economic uncertainty like the one we are in now, there are added risks to employee layoffs such as reputational setbacks and weakened long-term success planning without trusted employees to support your strategies.
The federal government has introduced the Canada Emergency Wage Subsidy (CEWS) program to help employers find an effective alternative to layoffs. This would provide a 75 per-cent wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020. This wage subsidy aims to “prevent further job losses, encourage employers to re-hire workers previously laid off as a result of COVID-19, and help better position Canadian companies and other employers to more easily resume normal operations following the crisis.” The government expects employers receiving this subsidy will do their part to support the health and well-being of their employees.
What employers should know about the wage subsidy
The government recently relaxed the eligibility requirements for employers to apply for the CEWS to include high-growth businesses and industries that may have experienced difficulties at the beginning of 2019. Employers “that see a drop of at least 15% of their revenue in March 2020 and 30% for the following months” can apply for the 75% wage subsidy. The program will pay out a maximum benefit of $847 per week.
Although employers need to make their best effort to top-up employees’ salaries to bring them to pre-crisis levels, there is no indication that it is compulsory. Therefore, if employers cannot pay the full 25% balance of their employees’ wages, they would still be eligible to apply for the wage subsidy.
Employers can apply for the CEWS at any point during the eligibility period as long as employees have not been without compensation for 14 or more consecutive days within the same period. Eligibility periods are as follows:
- March 15 to April 11
- April 12 to May 9
- May 10 to June 6.
Once you qualify for the CEWS, you automatically qualify for the next period of eligibility without having to reapply.
It is in the best interest for employers to take advantage of this program to limit financial risk at this time and avoid termination of employees. It is also a way to offset financial losses associated with ongoing operating expenses employers may have to pay despite temporary forced closure of business or shortage of work.
How the wage subsidy benefits employers
Mental health is a topic that is discussed regularly during this time of uncertainty. Employees facing temporary layoffs – and termination in some cases – are at great risk as are employers facing additional economic stress. The CEWS helps relieve some of the pressure facing employers and decreases the personal financial burden on employees, creating good will and a more resilient relationship between employee and employer.
By taking advantage of this wage subsidy, employers can also avoid employee terminations due to business slow down or temporary shut down. This prevents employers from having to pay out costly termination pay to employees and the risks associated with failing to pay termination pay. If businesses shut down, everyone loses – from employers to employees, and even customers. The CEWS is a viable way to ensure business longevity beyond the current crisis at no extra cost to employers.
Government programs like the Canada Employment Wage Subsidy are in place to ensure that we will be able to rebuild again together when the COVID-19 crisis passes.
At Hum Law, we work with you to proactively design policies to mitigate risks associated with your worker or employee contracts. To ensure your contracts are not an organizational liability and your employment strategies during a temporary economic downturn are sound, contact us today.
If you have questions about how the crisis will affect your employment status or you aren’t sure if this is a viable option for your business, contact us today.