What the new 75% wage subsidy means for B.C. businesses

Written byTyler Orton for Business in Vancouver

Ken Peacock couldn’t help but raise an eyebrow when the federal government unveiled a wage subsidy for small businesses earlier this month.

“My main thought when they announced 10% only a week ago was that, that was going to do very little,” said the chief economist at the Business Council of B.C.

“That allows them to keep one or two people out of 10.”

But Ottawa had a come-to-Jesus moment of sorts Friday (March 27), revealing that it would increase that subsidy to 75% so small businesses can keep more workers on their payrolls as the pandemic dramatically slows the economy.

In a new forecast the BCBC now estimates fallout from the COVID-19 pandemic will contract the province’s economy 7-12% this year.

The subsidy change will be backdated to March 15 and Peacock said the big boost will have the intended impact of retaining far more workers than what was previously on the table.

“I still think we’re going to see a nasty recession but the wage subsidies announced by the government do help mitigate a more dire economic outlook,” he said.

“B.C. will leverage federal government packages to a greater extent in proportional terms than many other provinces just because of our orientation towards more small and medium-sized businesses.”

The federal government also unveiled Friday the Canada Emergency Business Account, a program allowing banks to offer $40,000 loans guaranteed by government to eligible businesses that will come interest-free for the first year.

Under certain conditions, $10,000 of the loan will be forgivable.

“Cash flow is going to be the big issue for so many businesses because they’ve been shut down and so they don’t the revenue coming in,” Peacock said.

He said the wage subsidy will help businesses, but the loans will definitely be needed to cover other additional costs such as inventory.

Leon Ng, CEO of LNG Productions Inc. (LNG Studios), said his real estate services firm would “definitely” be tapping into the new measures.

“This was probably the best news I’ve heard,” said Ng, whose company is known for developing virtual reality experiences for real estate developers looking to showcase what a home would look and feel like before any construction begins.

Prime Minister Justin Trudeau said more details on the measures would “hopefully” be available by Monday (March 30).

Ng said he’ll be paying attention to further announcements on both the loans and wage subsidies as he still has questions about the caps, and how the measures would apply to his 50-person team in downtown Vancouver.

“It seems to me that this incentive may work,” Mark Thompson, professor emeritus in organizational behaviour and human resources at the University of B.C.’s Sauder School of Business, said in an email.

“We presume that the employees in question are producing something while they are at work. The 75% should give them quite a bit of relief, probably better than EI would yield.”

He expects the federal government to implement a test to ensure businesses getting these credits will first pass them to employees and that employees are working at least part of the time.

“I also presume that the subsidy will only apply to employees on the payroll before the pandemic. I could see some less scrupulous employers putting their relatives on the payroll to take advantage of the subsidy, clearly not the intention of this policy,” Thompson said.

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