Allan Lanthier: Two needed changes to the wage subsidy program – USA DAILY NEWS

Allan Lanthier: Two needed changes to the wage subsidy program

The federal government has announced a 12-week extension of the wage subsidy program. It was to expire in early June but now will run until the end of August. Finance Minister Bill Morneau will consult with business and labour leaders on possible adjustments to the rules to encourage employers to rehire workers who have been laid off and help get the economic recovery going.

The subsidy was a good first effort at getting money into the hands of businesses and individuals as quickly as possible when the pandemic hit. But during the extension the program will have to do more than provide cash subsidies. If we want it to encourage employers to rehire staff as active employees and support the recovery, two rules need to change: employers should start paying more of the cost of subsidizing furloughed workers and stop receiving wage support for active employees.

First, the employer should share more of the subsidy cost. Right now, if a business pays its furloughed workers 75 per cent of what they were earning before the pandemic, the government reimburses it for the entire amount paid, subject to a limit of $847 a week. For many lower-wage workers that means the employer pays nothing at all. It is hard to persuade an organization to do something — in this case rehire employees — when its cost of doing nothing is zero.

In cases where employers are not responsible for any significant portion of the subsidy, many will continue to pay subsidized wages to their furloughed employees, even to those who are clearly redundant and will not be asked to return to work. Most employees will receive more this way than from EI or the Canada Emergency Response Benefit (CERB) and it costs the employer little if anything to help them out. Many firms are therefore likely to delay termination notices until the government money runs out.

As heart-wrenching as these decisions may be, people who will not be rehired should leave the employer sooner rather than later. They can then apply for EI or the $2,000 monthly CERB and start looking for other positions. The purpose of the wage subsidy was to keep people on the payroll if they were likely to be brought back, not if they were going to be asked to leave.

Second, employers should stop receiving the subsidy for individuals who have worked throughout the emergency. Subsidizing the wages of active employees provided much-needed cash to many businesses when the lockdowns began. But at some stage the taps have to be turned off and employers will have to cover the wage costs of their active employees. Employees that have been kept on presumably are contributing to the employer’s business. And subsidizing firms for the wages of active employees means there is less money for other initiatives: funds the government saves by discontinuing this part of the subsidy can be put to higher-urgency needs.

Several other countries also introduced wage subsidy programs early on. Though no one found the magic bullet for how best to design a program, Denmark and the United Kingdom are good examples to look to. Neither country subsidizes the wages of active employees: furloughed employees who do receive subsidies are not allowed to work. And both countries require the employer to share a significant part of the program’s cost. In Denmark, an employer is prohibited from cutting the salaries of furloughed employees and must pay the portion of wages that is not subsidized. In the U.K., the government has announced that, starting in August, employers will have to start sharing in the cost of the program.

Canada would be well advised to follow these leads. During the second phase of our program employers should bear more of the subsidy cost. Exactly how much could vary depending on the industry sector and size of firm: small businesses are more vulnerable than others and might even be exempted. We should also stop subsidizing the wages of active employees and put the money saved to more productive use.

Allan Lanthier is a retired partner of an international accounting firm and has advised both the Department of Finance and the Canada Revenue Agency.