This is a guest post by Hugh Neilson FCPA FCA TEP, member of the advisory board at Video Tax News.
The Other “Wage Subsidy”
With apologies for a title which is, perhaps, a bit misleading.
All of us in the tax, accounting and business community have been ultra-focused on identifying and understanding the new programs created to address the economic impact of the COVID-19 pandemic. It seems like one development has largely been overlooked, probably because it’s not shiny and new, and the changes don’t really sound all that dramatic.
However, at least in part, that is because the EI work-sharing program was already a pretty powerful tool for dealing with staff in an economic downturn. The COVID-19 modifications make it less onerous to participate in.
So what is this program? You can find details on the existing program here. It requires agreement between employees and the employer, and approval by Service Canada. Private business, public companies and not-for-profit organizations are all eligible.
It requires a reduction of work which is expected to be temporary, arises from issues outside the business’ control and is not a cyclical aspect of the business or industry. Sounds like COVID-19 to me. A recent 10% decrease in business activity is required to qualify. I think most of our clients would be thrilled if they were at 90%!
Everyone in the “work unit” (so we could have one unit of line staff, and a second of admin personnel) agrees to reduce hours equally. So, for a 60% reduction (as high as it goes – the agreement can be anywhere from 10% to 60%), all staff would go from five days a week to two days a week. The workers would get EI coverage for the other three days a week. The agreement has to cover at least 6 weeks, another minimum that seems pretty irrelevant in today’s world.
That’s a very brief summary of the existing rules.
What is changing?
Like many government departments, Employment and Social Development Canada has a COVID-19 specific page. There is an extensive drop-down on the work sharing program, which includes a good summary of the program, and the current application process details. It also includes (way at the end) summary sheets for employees and employers, so some layman-language program descriptions.
It also summarizes the temporary measures adopted for COVID-19, which are:
- maximum duration for all industries across the economy has been doubled, from 38 weeks to 76 weeks – that’s just short of eighteen months;
- the “cooling-off period” is suspended – eligible employers and employees who previously used the program can enter a new agreement immediately;
- businesses need only have been in existence for one year to qualify (the old rule was two years); and
- the requirement to provide sales/production figures has been removed – that added administrative burden is viewed as excessive in the current economy.
- EDIT: Thanks to Adam Morke CPA CA TEP of Stern Cohen for pointing out that the requirement to apply 30 days in advance does not appear in the COVID-19 discussion of this program. See his comment below for some insider information he was kind enough to share – 10 days is a lot better than 30!
- EDIT: Thanks to Cory G. Litzenberger CPA CMA CFP CMgr for pointing out the old application forms are dead links. The current ones (a two page application and a list for employees in the work unit) are linked from Canada Social Development website.
In the past, we have had clients use this program to get through a downturn while maintaining their full workforce, which allowed them to hit the ground running when things turned around. One of our clients even beat the drum in his local business community a few years back to send in pre-budget submissions recommending an extended program period. The budget delivered. This can be a powerful tool for businesses that have to scale back to remain viable in the short term – and, with the extensions, medium term.
Of course, it’s not a choice of one program or another. The wages paid to staff under a work sharing arrangement are still valid for the Temporary Wage Subsidy which received Royal Assent on March 25. How this will interact with the enhancements announced on March 27 is not yet known.