Canadian Payroll Laws - ch 2.pptx PDF

Specific Learning Outcomes Upon successful completion of this chapter, you will be able to: 1) Outline the different ways in which the law impacts payroll; 2) Differentiate between employees and independent contractors; 3) Identify legislation that requires employers to make source deducti...

Specific Learning Outcomes Upon successful completion of this chapter, you will be able to: 1) Outline the different ways in which the law impacts payroll; 2) Differentiate between employees and independent contractors; 3) Identify legislation that requires employers to make source deductions and/or make contributions to various government programs; Specific Learning Outcomes Continued Upon successful completion of this chapter, you will be able to: 4) Determine if an organization is impacted by federal or provincial employment standards legislation; and 5) Consider specific employment standards such as minimum wage, overtime, holiday pay, job-protected leaves, vacation pay, and termination notice, as well as how these standards impact payroll The Canadian Legal System ◦ Payroll is impacted by legislation and common law rules. ▫ Legislation is written law made by either the federal or provincial governments. ▫ Common law refers to rules made by judges in past decisions; judges can interpret legislation or a particular word, and that interpretation must then be followed by judges at courts of an equal or lower level. o The Canadian constitution authorizes the federal and provincial governments to make these laws and divides up the powers to make legislation by jurisdiction. o When the federal minimum wage increases, provincial employment standards do not automatically increase. Each jurisdiction sets its own rates and minimum Canadian Laws Impacting Payroll ◦ Payroll is impacted by legislation that requires employers to make deductions and employer contributions. This ranges from federal to provincial legislation. ◦ Each jurisdiction in Canada has their own employment standards that requires payroll professionals to understand which legislation applies to the organization to ensure compliance. ◦ Common law rules – specifically distinguishing between independent contractor and employee. Legislation Requiring Employers to Make Deductions and Contributions ◦ There are several federal laws that impacts payroll in all Canadian jurisdictions. Each of the following require employers to make “source deductions” from employees’ gross pay: 1. The Income Tax 2. Employment Insurance Act 3. Canada Pension Plan o The Employment Insurance Act and the Canada Pension Plan also require employers to make contributions. Provincial legislation may also require employers to make payments on behalf of employees. For example, employers may pay premiums to fund a no-fault workplace accident compensation scheme. Employment Standards ◦ Each jurisdiction in Canada has its own employment standards legislation. As a payroll professional, you need to understand which legislation applies to your organization and ensure that the organization is following that legislation. ◦ Most employers will be subject to the employment standards legislation in the jurisdiction that the employer operates in. For example, most employers in Alberta will have to comply with the Alberta Employment Standards Code and Employment Standards Regulation. ◦ If the industry is federally regulated, the business will be subject to federal employment standards instead of provincial or territorial employment standards. Common Law Rules That Impact Payroll ◦ There is a large body of case law that impacts payroll. One of the most significant common law “rules” – distinguishing between an employee and an independent contractor” is known as Employer vs Independent Contractor. Common Law Rule: Employer vs Independent Contractor ◦ Most legislation impacting payroll only applies to employees and not to independent contractors.  For example, the requirement to make source deductions and the application of employment standards. ◦ It is important for employers to know whether a worker is an employee or an independent contractor to follow legislation and to avoid penalties. Wiebe Door Factors ◦ Employers cannot simply decide whether a worker is an independent contractor or an employee. The employer and worker should have a shared understanding of their relationship and should act accordingly; their shared understanding should also align with the law. 10 Determination from the CRA ◦ When it is unclear whether an employee is an independent contractor or not, the employer can seek a determination from the CRA, to avoid future penalties.  Two-Part Test ◦ A two-part test is a tool used in the courts analysis when there is confusion between whether a worker is an employee or an independent contractor. The court will look at whether the employer and worker have a shared intention in their relationship. If so, does their intention align with the Weibe Door factors? This mutual intention will have an impact but not overrule the outcome by considered factors. Mandatory Payroll Obligations ◦ An employer can be an individual or an organization. For an employer to add a payroll account to their business, they need to register for a business number. ◦ It is mandatory for employers to register for a payroll account with Canada Revenue Agency if an employee is paid, whether salary or wages, vacation pay or other kinds of remuneration. ◦ The penalties for not fulfilling the payroll obligations range from the employer paying interest on contributions due to the employer paying fines from $1,000-$25,000 or imprisonment for up to 12 months.  What Are The Laws Mandating Source Deductions? ◦ The Income Tax Act, Employment Insurance Act, and Canada Pension Plan are federal laws that all require payroll deductions. These deductions are taken from each employee's gross pay and remitted to CRA. ◦ Employers are required by law to pay premiums and make contribution towards the Canada Pension Plan and Employment Insurance. Legislation Mandating Source Deductions ◦ The Income Tax Act requires employers to withhold federal and provincial income tax from their employees' pay. ◦ Excluding Quebec provincial taxes, both federal and provincial taxes are administered through the CRA. The amount of tax withheld will depend on the employee's income, the federal and provincial tax rates applicable to that income, and tax exemptions that may be available to the employee. ◦ The Employment Insurance Act obliges employers to: 1) deduct and withhold employee EI premiums from employees’ gross pay 2) contribute employer EI premiums  Employees’ premiums are set annually, and employer’s premiums are set to 1.4 times the employee premium. What are Employment Standards? ◦ Employment standards legislation protects employees and ensures certain workplace rights. Employment standards set minimums which employers must follow in areas such as: 1. minimum wage 2. breaks and days of rest 3. holiday 4. overtime pay 5. termination notice 6. frequency of pay 7. record-keeping obligations. Employers cannot provide less than what employees are entitled to under employment standards legislation. Determining If An Organization Is Impacted by Federal or Provincial Employment Legislation ◦ Even when employers operate in more than one province or territory, the payroll obligations are likely to be determined by the laws in those provinces and territories. ◦ If employers operate in more than one province, payroll will likely have to keep track of multiple pieces of employment standards legislation.  Determining If An Organization Is Impacted by Federal or Provincial Employment Legislation continued ◦ Most employers are provincially regulated and if they’re not listed as federally regulated, they are provincially. ◦ Federally regulated industries include banking, air transportation, broadcasting (radio and television), road and rail transportation, postal and courier services and federal government employees. Employment Standards – Minimum wage ◦ Minimum wage is the lowest wage that employers can legally pay to employees or workers. ◦ Payroll needs to check for updates to employment legislation and make changes to their system accordingly. ◦ Increases to minimum wage are often announced by governments in advance, giving employers a chance to update their systems and adjust. Employment Standards - Other Minimums Other minimums include: 1. Vacation pay 2. Holiday pay 3. Frequency of pay 4. Termination notice 5. Overtime 6. Averaging agreements 7. Temporary layoffs (time period) 8. Deductions from Earnings 9. Job-protected leaves Vacation Pay In Alberta, vacation pay is 4% or 6% of wages or 2 weeks or 3 weeks paid vacation depending on the length of employment. For federally regulated businesses, vacation pay is 4-8% of wages or 2-4 weeks paid vacation depending on the length of employment. Holiday Pay Depending on the jurisdiction, employees are entitled to receive pay whether they worked on statutory holidays or not. Holiday pay for a day worked is paid at a different rate than holiday pay for a day off.  In Alberta, If the employee worked on the holiday, they receive 1.5 times regular earnings for hours worked. If they did not work, they are entitled to their average daily wage. Frequency of Pay In Alberta, employees must be paid at least once per month.  In Ontario and federally regulated businesses, employers must pay employees on regular pay days established by the employer. Termination Notice Termination notice is the minimum statutory notice that is required when an employee’s job is terminated by the employer on a without-cause basis.  In Alberta, this ranges from 1 to 8 weeks depending on the length of employment or pay in lieu of notice. Overtime Overtime rates are typically paid after a certain number of hours worked in a day or a week. Rates differ by jurisdiction.  In Alberta, overtime rate is 1.5 times the employees’s regular rate of pay after they have worked more than 8 hours in one day or 44 hours in one week. There are some occupations that are excluded: 1. Professionals 2. Managers 3. Some salespersons Overtime continued Some occupations have exceptions to the overtime rules such as: 1. ambulance attendants 2. truckers 3. caregivers Averaging Agreements Employers and employees can agree in writing to “average” hours when there is variability week to week. Employers can average 1-52 weeks pay, and either pay overtime for days exceeding 8 hours, or calculate overtime at the end of the averaging period. Temporary Layoffs A temporary layoff is a “pause” in the employment relationship. Employers will have to file a record of employment (ROE). After a certain period, if the employee is not called back to work, the layoff becomes a termination, and the employee is entitled to termination pay.  In Alberta, the duration of the temporary layoff depends on the reason for layoff and when the layoff occurred. In a 120-day period, 90 days in total is the maximum length before it becomes termination.  What can be Deducted from Employee’s Earnings? Each jurisdiction has rules about what amounts may be deducted from employees’ pay aside from mandatory and statutory deductions. May be deducted: 1. Set amounts for food or lodging. 2. Recovery of overpayment errors, with written notice to the employee. 3. Recovery of vacation pay paid before it was earned with written notice to the employee. 4. Other amounts authorized in writing by the employee.  What cannot be Deducted from Employee’s Earnings? Each jurisdiction has rules about what amounts may be deducted from employees’ pay aside from mandatory and statutory deductions. May not be deducted: 1. Deductions for uniforms, faulty work or cash losses. Job-protected Leaves Each jurisdiction has different leaves that employees may take for specified lengths of time, without losing their jobs. They are generally unpaid leaves, and the employer should file an ROE if there is an interruption of earnings. ◦ 12 protected leaves include: maternity leave, parental leave, personal and family responsibility leave, critical illness leave, domestic violence leave, bereavement leave.  Where to Find Employment Standards Information? Legislation can be found on CanLII.org Government websites often present the information in the legislation in a manner that is easier to understand than legislation. Workers’ Compensation Acts Each province and territory in Canada has workers’ compensation legislation, which allows worker’s compensation boards and agencies to fund a no-fault workplace injury compensation plan. Employers must register with their provincial or territorial workers’ compensation board, pay premiums, and provide information annually which impacts their premium rate. Employers are required to participate. Employer Health Tax  British Columbia and Ontario have included employer health taxes via legislation.  Manitoba has a health and post-secondary education tax paid by employers. These taxes are based on the size of payroll – and there are exemptions for employers with total remuneration to employees under a certain threshold. Digital Platform Workers’ Rights Act ◦ In 2022, Ontario passed the Digital Platform Workers’ Rights Act (DPWRA), which will come into force at an unspecified date to be named by the Lieutenant Governor of Ontario. ◦ The DPWRA creates certain rights that apply to digital platform workers, regardless if they are employees or not. ◦ Digital platform workers work for companies like Uber, Skip the Dishes, Door Dash and Lyft – rideshare, delivery, courier and other services that can be accepted through a digital platform. Digital Platform Workers’ Rights Act continued Rights under the DPWRA include: 1. The right to a minimum wage under Ontario employment standards 2. The right to a recurring pay period and pay day. 3. The right to receive tips or gratuities without any amounts being withheld or deducted by the digital platform operator. How Covid has Changed The Payroll Landscape The pandemic highlighted the need for payroll to keep up with rapid changes, and the capacity for payroll to handle volume increases. Changes to legislation and policies happened more quickly and on short notice, with changes to both federal and provincial legislation in response to Covid-19. ◦ Employment standards were updated. ◦ COVID-related leaves were created ◦ Changes to temporary layoff rules. ◦ Legislation was added to the Income Tax Act to provide employers with an emergency wage subsidy, to assist employers in paying employees. How Covid has Changed The Payroll Landscape continued Initially payroll administered subsidy in the form of reductions to remittance. Ultimately, the CRA administered the wage subsidy with record-keeping obligation on payroll departments to establish pre- COVID wages and proof of ongoing payment to employees. It was also difficult for payroll to keep up with the fast pace of business closures, employee leaves, layoffs and with issuing a significant amount of employees’ records of employment. Various laws affect payroll Case law establishes factors for determining whether a worker is an employee or independent contractor and legislation that creates obligations between employers and employees. Mandatory Deductions Employers must make contributions under federal Income Tax Act, Employment Insurance Act, and Canada Pension Plan. Employers must make contributions under provincial legislation to workers’ compensation agencies. Employment Regulations Employers must follow the employment regulations in the province or territory that the organization operates in, except specific industries that are federally regulated. 39 Employment Standards Employment standards are the rights and obligations of employers and employees in a specific jurisdiction. These standards can be found in the Alberta Employment Standards Code and the Ontario Employment Standards Act. Wiebe Door Factors A flow chart that can help determine whether a worker is an independent contractor or an employee. Payroll Obligations It is important that an employer is following their payroll obligations – registering for a payroll account, deducting proper premiums and contribution and determining if their workers are employees' or independent contractors. 40