The following types of questions are typically fielded by Carswell’s Payroll Hotline service (a telephone support service, included with several Carswell products). Answers are provided courtesy of The Canadian Payroll Manual and The Canadian Payroll Manager newsletter, published by Carswell, a Thomson Reuters business.
Deducting vacation pay
Question: We allowed an employee to take paid vacation time before it was earned. The employee has now resigned. Can we deduct the amount owing in vacation pay from his final pay?
Answer: The answer depends on the jurisdiction of employment since employer payment obligations are covered under provincial or territorial employment or labour standards and the Canada Labour Code for federally regulated employees.
In most jurisdictions, the only deductions employers can take from an employee’s pay are statutory deductions (Canada Pension Plan, employment insurance, income tax), court-ordered deductions (such as garnishments) and deductions to which an employee has given written consent (such as benefit plan premiums, pension contributions and Canada Savings Bonds purchases). In order to deduct amounts for other reasons, an employer must have an employee’s written consent.
In Nova Scotia and Prince Edward Island, employers are allowed to make the deduction. For Manitoba, employers are advised to check with the employment standards board.
Training as taxable benefit
Question: We are paying for some of our employees to take language courses. These employees work in Canada in either English or French, but we do have overseas offices and the language courses could help the employees if they ever chose to work in one of our overseas offices. Are the courses a taxable benefit to the employees?
Answer: The Canada Revenue Agency (CRA) states business-related courses, including language skills, that are not directly related to an employer’s business are generally considered non-taxable benefits. If you are unsure, you can request the CRA provide an advance income tax ruling on the issue.
The CRA regards advance income tax rulings as binding, subject to qualifications set out in the ruling. For more information on advance income tax rulings, refer to the CRA’s website at www.cra-arc.gc.ca/tx/txprfssnls/srvcs/rlngs/menu-eng.html.
Issuing records of employment
Question: How do I report pay adjustments and pay corrections on a record of employment (ROE)?
Answer: A pay adjustment is a type of retroactive earning that is required when an employer has not immediately recognized, implemented or processed a change to an employee’s pay, such as a wage increase, after it has been awarded.
Pay adjustments are insurable for earnings, but not for hours. Include the amount of a pay adjustment in blocks 15B (total insurable earnings) and 15C (insurable earnings by pay period).
If the pay adjustment was paid while the employee was still working for the employer, it is allocated to the pay period in which it is paid.
If paid on separation, allocate the pay adjustment to the last pay period in which regular salary or wages was paid.
Do not include any hours associated with the pay adjustment in block 15A (total insurable hours).
A pay correction is a type of retroactive earning that is required when an employer has made an error regarding an employee’s pay, such as hours missed when a payroll was processed in a previous pay period.
Pay corrections are insurable for both earnings and hours. On the ROE, include the hours associated with a pay correction in block 15A. Include the earnings related to a pay correction in blocks 15B and 15C.
Allocate the pay correction earnings to the pay period in which the employee earned them.
Employers that use the paper version of the ROE only complete block 15C if an employee did not earn any insurable earnings in one or more pay periods. Employers that use electronic ROEs must complete block 15C and report the equivalent of 53 weeks of payroll data (or less, if the employment period is shorter than 53 weeks).
ROEs and pay period changes
Question: We are changing our pay period from semi-monthly to biweekly. I have heard we have to issue ROEs to employees because of the change. Is this accurate, even though there is no interruption of earnings?
Answer: Yes, ROEs should only cover one pay period type such as weekly, biweekly, semi-monthly, monthly or 13 pay periods. As a result, if an employer changes its pay period type, it must issue ROEs for all employees even though there is no interruption of earnings.
The ROE should reflect the period of employment up to the change to the pay period type.
In block six (pay period type), do not forget to enter the new pay period type. If, at a later date, an employee has an interruption of earnings, the employer must issue another ROE for the period of employment from the change in pay period type to the interruption of earnings.
On the latter ROE, report in block 10 (first day worked) the date of the first day after the pay period change. In block 11 (last day for which paid), report the last day for which the employee was paid.
Deferred salary leaves
Question: When an employee takes a leave of absence under a salary deferral plan, does the employer have to issue an ROE for the period of leave?
Answer: Generally, an employer would not have to issue an ROE for such a leave (often called a self-funded leave) because there is no interruption of earnings.
An employee on a leave under a salary deferral plan has already worked and earned the pay, but has deferred a portion of it to fund the leave of absence.
An employer would have to issue an ROE if either the employee or the employer ends the agreement that allowed for the self-funded leave of absence. In such a case, the employer would enter in block 11 the date of the last day the employee worked before starting the leave.
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She can be reached at firstname.lastname@example.org or (416) 298-5085.