Uncertainty over calculation of funding for sick bank and health benefits leads to split decision by arbitraton panel in Saskatchewan
A vague definition of what constitutes “payroll” led to a dispute between the City of Saskatoon and its transit union over how to calculate funding based on the size of the city’s payroll. Although it ended up being somewhat of a split decision, an arbitration panel made it clear that amounts related to compensation for work done should be considered part of an employer’s payroll.
The collective agreement between the City of Saskatoon and its union, Amalgamated Transit Union (ATU), included two benefit provisions for a sick bank and a medical/dental plan.
The sick bank allowed employees who had used up their personal sick leave credits to take more time off if they continued to be sick, while the medical/dental plan allowed for payment of premiums to a third-party medical insurance carrier.
The collective agreement required the city to fund both the sick bank and medical/dental plan based on a certain percentage of its payroll — 1.07 per cent for the sick bank and 3.5 per cent for the medical/dental benefits. The sick bank provision also included a stipulation that if the fund dropped below a certain threshold, employees must contribute to it until it reached the threshold again.
The medical/dental plan provision required employees to pay any premiums above the flat rate of the 3.5 per cent of payroll contributed by the city.
In 2015, the sick bank fund dropped close to the threshold in which employees would have to start contributing to it. The union was concerned and asked the city to provide information on how the funding of both benefits was calculated.
When the city provided lists of pay items that were included as part of the payroll calculation, there were discrepancies between the lists for the sick bank and the medical/dental plan, likely because different people were administering the two plans.
In addition, there were several items that were excluded from the calculations that the union believed should be considered part of the city’s payroll — if these items were included, it would increase the size of the payroll and the amount the city was contributing to the sick bank and medical/dental plan.
The union filed a grievance over the items that weren’t included in the payroll calculations.
The items that the union believed should be included were:
- a “transit coffee fund” that the city paid to employees for foregoing rest breaks when they worked a continuous six-hour shift, added to employee salaries
- a tool allowance paid as a percentage of salary and for which employees weren’t accountable as to how it was spent
- a $175-per-year allowance for dry-cleaning uniforms where no receipts were required
- payouts of unused vacation pay when employees resigned or retired
- credit received each year for not using sick leave, amounting to one-third of the annual sick-leave allotment that wasn’t used — the balance was paid upon resignation or retirement
- regular salary paid to employees while away on union business, for which the city then invoiced the union for reimbursement
- workers’ compensation benefits that the city processed directly through its payroll system and later recovered from the Workers’ Compensation Board, as outlined in the collective agreement.
The city disagreed with some of the items, as it felt “payroll” meant payments directly related to the work of employees. Some of the items the union contended should be included didn’t fall into that category and shouldn’t be included in the payroll calculation, said the city.
In addition, back in 1997, the city’s labour relations manager sent a letter to the union that stated: “The associated payroll is thus to be based upon items having a direct salary-related (replacement) function.”
Collective agreement vague on payroll
The dispute over what should be included in the city’s payroll stemmed from the fact that while the collective agreement stated that the city should “contribute 1.07 per cent of payroll” to the sick bank and “3.5 per cent of payroll” to the medical/dental plan premiums, the term “payroll” itself was not defined in the agreement.
The union noted that “payroll” also wasn’t defined in Saskatchewan employment legislation and should have a broad definition because the word usually doesn’t refer to “the type of payment (such as wages, salary, income, base pay, overtime or bonuses) but instead to the source of payment.”
As an example, it pointed to examples where “payroll” was defined as a job and someone who was laid off and not being paid could still be considered to be “on the payroll.”
The union also argued that “payroll” must include total wages paid by an employer. The Saskatchewan Employment Act (SEA) defines “total wages” as meaning “all remuneration that an employee is entitled to be paid other than bonuses paid at the discretion of the employer or tips or gratuities.”
As a result, the only payments that shouldn’t be included were reimbursements for receipted expenses because that was repayment of a debt incurred by the employee, not wages or a bargained benefit, said the union.
The city countered that even though the collective agreement didn’t specifically define “payroll,” the word “pay” was used extensively throughout and was tied to salary schedules and it was the intent of the parties for “payroll” to mean “the total of all payments based on wages.”
The city also pointed out that the Saskatchewan Workers’ Compensation Act required employers to provide payroll statements annually that include earnings and wages. In addition, the SEA defined “wages” as “salary, commission and any other monetary compensation for work or services or for being at the disposal of an employer.”
Since legislation limited payroll to “actual earnings of the employees,” the same limitation should apply in the collective agreement, said the city, noting that dictionary definitions also limited “payroll” to wages or an “actual money equivalent.”
Value exchange between employer and employee
In City of Saskatoon and Amalgamated Transit Union, Local 615 (Sept. 30, 2019), Daniel Ish – Chair (Sask. Arb.), the arbitration panel agreed that “any reasonable definition of ‘payroll’ must include more than regular wages” and have a broad scope.
However, it didn’t agree that “any payment channeled through the city’s payroll office and paid to employees falls within the meaning of ‘payroll.’” Instead, it should relate to payments made by an employer to employees for value provided by the employees — usually labour, work or time.
The panel found that any amount paid or transferred to employees that wasn’t related to an “exchange of value between an employer and the employee” should not be included in payroll, particularly payments where the city was acting as “a vehicle or agent for another body.”
The panel determined that payments included within the definition of “payroll” in the collective agreement “must have a compensatory element representing a value received by both employer and employee” and any amounts paid by the city that were outside of compensation for work done should be excluded.
As a result, the panel found some of the items the union pushed for should be included in the calculation for the sick bank and medical/dental plan and some shouldn’t:
- The transit coffee fund was “remuneration paid by the employer to employees who have foregone the benefit of a coffee break or a rest break” and was therefore compensatory in nature. The panel found it should be included.
- The tool allowance was paid regardless of what the employee spent on tools and no receipts were required. It was compensatory in nature and a bargained benefit that should be included.
- The dry-cleaning allowance was also paid regardless and had no accountability, so it was part of employee compensation and part of the payroll.
- Vacation payouts were compensatory, but they would only be part of the payroll calculation if vacation pay wasn’t already included as part employees’ salaries, so it wasn’t double-counted, said the panel.
- The credit employees received for not using sick leave was compensatory and should be included in payroll, as long as it wasn’t double-counted annually and it was paid out upon resignation or retirement.
- Salary paid by the city while employees were away on union business should not be counted, as the union reimbursed the city for this and it wasn’t compensa-tion paid to the employee — it was only processed through the city’s payroll system, said the panel.
- For the same reason as union business pay, workers’ compensation benefits were not part of the city’s payroll, said the panel. The city processed such benefits through its payroll system, but it was able to recover them from the Workers’ Compensation Board. As a result, these benefits didn’t qualify as payments from the employer to the employee.
- The panel ordered the city to include three of the items — the transit coffee fund, tools allowance and dry-cleaning allowance — as part of its payroll for the purpose of calculating the city’s contribution to the sick bank and medical/dental plan.
- Two items — salary paid for union business and workers’ compensation benefits — should not be included. The remaining two — vacation payout and the credit for not using sick leave — were subject to determination depending on whether they were already included.