Employers getting burned for failing to report the CEWS subsidy
While white-knuckling their passage through COVID, employers flocked to wage subsidy programs like the Canada Emergency Wage Subsidy (CEWS) to stay afloat. And while this program did provide crucial support to cash-strapped companies, tens of thousands of employers who received the subsidy were actually ineligible for the government benefit according to a scathing report from the Auditor General of Canada.
The December 2022 report states that 51,049 employers received $9.87 billion in CEWS payments even though their monthly GST/HST filings “did not demonstrate a sufficient revenue drop to be eligible for this subsidy.” Overall, $15.5 billion was paid to recipients that should be investigated further by the CRA, says the report. And it gets worse, because the WCB implications of drawing on CEWS were similarly misunderstood by the masses. And as WCB revs up its auditing efforts, many employers across the country are realizing the hard truth: their misuse of the CEWS program could prove extremely costly.
CEWS was assessable? Who knew?
Unknown to many, CEWS is considered assessable earnings by workers compensation boards. This means that if you were using CEWS to pay your employees, it should be reported as part of your assessable earnings. Failing to do so is resulting in costly penalties and interest charges. And word to the wise: should your company be selected for audit, and should the particular rate-year under scrutiny show a variance in excess of $1,500, then an automatic audit of the 4 preceding years is likewise triggered. What this diminutive margin for error ($1,500) ensures is that a single-year audit will invariably lead to a deeper investigation over a much longer timeframe.
CEWS as assessable earnings
CEWS is treated as any other wage subsidy program by WCB and the rules are actually straightforward. If you used CEWS to pay employees that were actively working, then the workers’ full earnings, including the CEWS subsidy, should be reported in your assessable earnings. Premiums will be based on those assessable earnings.
On the other hand, where CEWS was paid to employees who weren’t actively working (such as those in furlough), then the subsidy is not considered assessable earnings and should not be included in your company’s assessable earnings. To illustrate, consider the many struggling airlines who, in effort to avoid laying off all their pilots during peak COVID, offered paid leave instead. And in order to pay the leave, some airlines did indeed resort to CEWS. In these cases where the subsidy was confined to supporting inactive pilots, the CEWS isn’t considered assessable by WCB. However, if said airline was also using CEWS to support active pilots, that portion of the subsidy becomes assessable.
Penalties for non-compliance
If you failed to report CEWS as part of assessable earnings on your annual returns, expect to pay penalties and interest charges if your name is pulled for audit. A premium auditor from the Customer Service and Risk Management department will examine your records, and if substantial variances are found in the reporting of assessable earnings, you can expect a detailed explanation of the issues followed by a bill.
If you’re selected for audit
Strongly consider hiring a WCB consultant with experience in premium audits. In addition to serving as a necessary buffer between you and the premium auditor, an astute consultant also uncovers deductions to mitigate any variances. Moreover, where variances are found, the consultant can ensure that corresponding adjustments are made to your experience ratio, thus helping to reduce your premiums in the process.