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Parliamentary Budget Officer Yves Giroux waits to appear before the Commons Finance committee on Parliament Hill in Ottawa, March 10, 2020.

Adrian Wyld/The Canadian Press

Ottawa launches its hiring subsidy program in just under two weeks, with the aim of speeding the rebound in employment as vaccinations allow the economy to lurch to a reopening this summer and fall.

But there’s one small wrinkle in that plan: The Canada Recovery Hiring Program doesn’t require that qualifying businesses actually hire any new employees. Businesses that spend more on payroll because they gave more hours to existing staff, or even just doled out raises or bonuses, can also receive payments to defray those additional costs.

That appears to be a feature of, not a loophole in, the hiring benefit, said Parliamentary Budget Officer Yves Giroux, noting that the federal government has previously introduced programs that limited reimbursement to new hires. There is a discrepancy between the branding of the program and how it functions, he noted. “Yes, it is odd, probably a misnomer,” he said.

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Despite its name, the Canada Recovery Hiring Program is a payroll subsidy, using many of the same rules as the Canada Emergency Wage Subsidy program. In fact, the two are meant to be interchangeable, with businesses able to apply for only one of them in a given claim period.

The hiring subsidy will initially reimburse companies for 50 per cent of their added payroll expenses, compared with a baseline period of March 14 to April 10, with that subsidy percentage declining over time, in line with the tailing off of CEWS benefits.

But there is one substantial difference between the two programs. The hiring benefit only provides rebates for added payroll expenses, unlike CEWS, which pays subsidies for the entire payroll of a qualifying company, with both programs imposing a cap on the subsidy per employee.

Katherine Cuplinskas, a spokeswoman for Finance Minister Chrystia Freeland, wrote in an e-mailed statement that the hiring program is designed to help small and medium-sized businesses, including by allowing companies to hire new staff, and increase the wages and hours of existing employees. (The hiring benefit is limited to companies that are private and Canadian-controlled, but it does not exclude applicants based on the size of the business.)

For University of Toronto economist Michael Smart, that makes the hiring benefit more tightly targeted than CEWS, and a better use of public funds. The exclusion of publicly traded corporations, in contrast with CEWS, also represents an improvement, he said. And Prof. Smart said that allowing businesses to claim subsidies for increasing the hours of part-time workers also makes sense.

But he said there are some obvious issues with the design of the program. One is the timing of the baseline period for payroll. It’s linked to early spring, when the payroll expenses of many companies with summer seasonal business would be at a low ebb. That could mean such companies get subsidy payments for employees that they would have needed to hire in any case.

Another flaw, he said, is the exclusion of newly formed businesses. Under the rules of both the hiring program and CEWS, a business must have had a payroll account with the Canada Revenue Agency as of March 15, 2020. So, new companies – even if growing quickly – aren’t eligible for payments. “A job is a job,” said Prof. Smart, arguing that Ottawa shouldn’t be drawing such distinctions.

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However, Mikal Skuterud, a University of Waterloo economics professor, says he agrees with the notion of excluding newly formed businesses from the subsidy program, since the decision to launch such enterprises should be factoring in the effect of the pandemic and health restrictions. Those companies must rise or sink on their own, he said. “It’s a different world we live in now.”

The Canadian Federation of Independent Business, which largely supports the hiring subsidy program, said it also is concerned that newly formed businesses don’t qualify. In addition, the organization says it is worried about the planned tapering of subsidy levels for both the hiring benefit and CEWS. Corinne Pohlmann, the CFIB’s senior vice-president of national affairs and partnerships, said it’s far from certain that the easing of public health restrictions will keep step with the withdrawal of government assistance.

Another looming issue: There are scant details about the program, even though the first four-week claim period starts on June 6. That lack of information makes it unclear what rules, if any, Ottawa will place around how businesses time and tally their payroll expenses. “It’s definitely not ideal that we don’t have clear guidance yet,” said Shannon James, a senior associate at Borden Ladner Gervais LLP.

Ms. Pohlmann said the CRA has promised to introduce an online tool some time next month that will allow companies to calculate their hiring subsidy, and how that compares with what they might receive under CEWS. But she acknowledged that there is a lack of clarity around how the new program will function. “We don’t know what we don’t know at this time.”

The CRA had no immediate response to questions about when additional details about the program will be available.

An analysis released Thursday by the PBO indicates that the program will be significantly less popular among businesses than the government is projecting. In its April budget, the government said the hiring benefit would cost $595-million in the current fiscal year. But the PBO is projecting that the program will cost less than half that amount, just $260-million.

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In part, that discrepancy stems from the PBO’s belief that few companies that qualify for CEWS payments will opt instead for the hiring benefit. CEWS costs will be reduced by only $1-million, the PBO estimates. Mr. Giroux says that results from the simple arithmetic that, while the payments from the two programs may be similar, businesses don’t need to take on additional payroll expenses to qualify for subsidies under CEWS.

However, the Finance Department noted that its budget estimates used information collected by the CRA on wage subsidies, patterns of corporate revenue losses and other payroll data that were not available to the PBO.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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