Many business owners are familiar with the Canada Emergency Wage Subsidy (CEWS) program that has been in place since March 15, 2020. This program has been updated and amended several times since then, most recently to extend it through the period of September 26 to October 23, 20211. Several recent updates came through the 2021 federal budget, which also introduced a new wage subsidy program that takes effect in June 2021: the Canada Recovery Hiring Program.
Both of these programs are designed to help employers with their labour costs as we emerge from the pandemic, but each program is designed for different situations, and employers may only claim the higher of the two subsidies. This article compares and contrasts these two programs at a high level.
Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy was introduced at the beginning of the pandemic to support qualifying employers by subsidizing wages for their employees. CEWS was originally available until June 6, 2020, but has been extended several times. The subsidy is available until at least the period of September 26 to October 23, 2021, and may be further extended until November 20, 2021.
This program considers up to $1,129 of wages paid per qualifying employee, per week, and provides a subsidy for a percentage of those wages. The amount of the subsidy will decrease over time, as CEWS is phased out.
The subsidy rate depends on the amount by which the employer’s revenue has declined. CEWS is especially valuable for employers who have experienced larger declines in revenue. The Government of Canada’s application portal can assist with calculating your revenue decline.
As a general rule, the maximum subsidy is only available if the employer’s revenue has declined by 70 per cent or more. For revenue declines of less than that amount, the subsidy rate is reduced on a sliding scale. For the payroll period of June 6 to July 3, 2021, CEWS remains available if your revenue has declined by any amount. For payroll periods after that date, CEWS is unavailable unless revenue has declined by more than 10 per cent.
The subsidy rates for the extended periods are as follows:
Canada Recovery Hiring Program
The Canada Recovery Hiring Program (CRHP) is a new subsidy announced in the federal budget on April 19, 2021. This program is intended to support private businesses as they emerge from the pandemic by subsidizing employers on any increase in total salaries and wages paid to employees who work in Canada. This increase in total salaries can be a result of hiring new employees or increasing hours or wages for existing employees, among other things.
The amount of the CRHP subsidy depends on the increase in total wages paid by the qualifying employer to qualifying employees (up to a cap of $1,129 of wages per employee, per week). The subsidy applies to the amount by which the total wages paid to employees in the current period exceeds the total wages paid to qualifying employees for the four-week period of March 14 to April 10, 2021. The subsidy rate depends on the period to which the employer’s application applies:
CRHP subsidy rates
In the period of June 6 to July 3, the subsidy is available if the employer’s revenue has declined by any amount. For all other periods, there is no subsidy available unless the employer’s revenue decline is greater than 10 per cent.
The CRHP subsidy is higher for employers who have a large increase in their total salary and wages expenditures compared to their total salary and wages paid during the period of March 14 to April 10, 2021. However, since the measurement of total salary and wages is capped at $1,129 of wages per employee, per week, employers who pay more than that amount will typically only increase their subsidy entitlement by hiring more employees.
More information about the CRHP and some commonly-asked questions are available on the Government of Canada website. The application portal for the CRHP subsidy opened on July 7, 2021 and can be accessed here.
Comparing the two subsidies
CEWS and CRHP are designed to address slightly different problems.
CEWS is most valuable for employers who have suffered a significant decline in revenue compared to pre-pandemic times. It applies to the total remuneration paid to employees in the relevant period, with a cap of $1,129 of wages that can be subsidized per employee, per week. The subsidy rate is highest for employers with a large decline in revenue. As the employer’s revenue recovers, the value of CEWS will reduce significantly. After October 23, CEWS may no longer be available, unless it is extended again.
CRHP, on the other hand, is most valuable for employers that are looking to hire new employees or increase the compensation of existing employees (up to $1,129 per employee per week). While a decline in revenue is still necessary to obtain this subsidy, it can be comparatively more valuable than CEWS for employers with smaller declines in revenue.
Until August 1, CRHP will often be relatively less valuable than CEWS for most employers, unless their revenue decline is quite small or their percentage increase in total payroll is quite significant. After August 1, CRHP may become comparatively more valuable than CEWS in a broader range of situations, even for employers with larger revenue declines.
Employers cannot claim both subsidies for any particular period. Only the higher of the CRHP and CEWS subsidies is available.
Example: Smiths Trucking Ltd.
The calculations for these two subsidies can be complicated. The following example is intentionally simplified to illustrate how the subsidies can be compared, but your situation will likely be more complex.
Smiths Trucking Ltd. is a private company in Canada, owned by John Smith, a Canadian resident. Smiths Trucking had to lay off half of its staff at the start of the pandemic, and currently has five employees, who are each paid $1,000 per week. All five employees were working and paid this amount during the period of March 14 to April 10, 2021. Due to the pandemic, Smiths Trucking has seen a revenue decline of 70 per cent.
For the period of June 6 to July 3, 2021, Smiths Trucking began to recover from the pandemic. Their revenue decline was still 70 per cent compared to their baseline period, but they decided to hire a new employee at $1,000 per week to support the incoming increased demand.
In this case, the two subsidies would work as follows:
In this case, Smiths Trucking Ltd. is clearly better off claiming the CEWS over the CRHP. This should not be a surprising result, since the period is early (before CEWS begins to be phased-out), Smiths Trucking suffered a large revenue decline, and its payroll only increased by a small percentage.
Now imagine Smiths Trucking has reached the period of September 26 to October 23, 2021. By this time, the company still had a noticeable revenue decline of 50 per cent compared to their baseline period, but the company has re-hired their old staff to prepare for pent-up demand and now have 10 total employees who are each paid $1,000 per week.
In this case, the subsidies would look as follows:
Here, Smiths Trucking Ltd. is better off claiming CRHP. Again, this should be unsurprising, since CEWS is almost fully phased-out by September 26 and Smiths Trucking Ltd. had heavily invested in new employees by doubling its payroll.
These calculations can be difficult to follow and depend on several variables. We recommend discussing with your tax advisor which subsidy is more appropriate in your circumstances. The subsidy that is best for your business may vary each period.
This document has been prepared by ATB Wealth. ATB Investment Management Inc., ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund) and ATB Insurance Advisors Inc. are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Wealth. The information provided in this article is a simplified general summary and is not intended to replace or serve as a substitute for professional advice. Professional tax advice should always be obtained when dealing with taxation issues as each individual’s situation is different. This information has been obtained from sources believed to be reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. This information is subject to change and ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund), ATB Investment Management Inc. and ATB Insurance Advisors Inc. reserves the right to change the information without prior notice, and does not undertake to provide updated information should a change occur. ATB Financial, ATB Investment Management Inc., ATB Securities Inc. and ATB Insurance Advisors Inc. do not accept any liability whatsoever for any losses arising from the use of this document or its contents.