Vague definition of ‘payroll’ leads to dispute between Saskatoon, transit union

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.