Federal budget offers mix of proposals

The 2018 federal budget did not contain any payroll-related source deduction rate changes, but it did propose measures that could affect employers and payroll departments in the coming months and years.

The budget, which Finance Minister Bill Morneau tabled on Feb. 27, proposed a variety of changes affecting employment insurance (EI). Chief among them was a new “use-it-or-lose-it” EI benefit for two-parent families, including adoptive and same-sex couples, if the parents agree to share parental leave.

The benefit — to become available in June 2019 — would provide up to five extra weeks of benefits to parents who agree to share the 35 weeks of standard EI parental benefits that the government provides. The 35 weeks of benefits are paid over 12 months at a rate of 55 per cent of insurable earnings, to a maximum amount.

The proposed Parental Sharing Benefit would give those parents a total of 40 weeks, which they could share in any combination, as long as one parent took no more than 35 weeks and the second parent took at least five weeks of the 40. The new benefit would also be available for couples who opt for extended EI parental benefits.

Since Dec. 3, parents have been able to choose between the standard EI benefits and an extended option that provides parental benefits for up to 61 weeks over 18 months, at a rate of 33 per cent of insurable earnings, to a maximum amount.

The new benefit would provide up to eight extra weeks of benefits for parents choosing the extended option if they agree to share parental leave. This would give the parents a maximum of 69 weeks, which they could share in any way, provided that one parent took no more than 61 weeks and the second parent took at least eight weeks of the 69.

The purpose of the new benefit is to encourage more fathers to take parental leave. The budget said a similar benefit in Quebec has led to fathers there taking more time off than elsewhere in Canada. It cites 2016 data from Statistics Canada showing that 80 per cent of new fathers in Quebec claimed or planned to claim parental benefits, compared to only 12 per cent in the rest of the country. Quebec provides five weeks of paternity benefits under its parental insurance plan, as well as paternity leave under labour standards.

The federal government calls its proposed leave “use it or lose it” because if parents do not share the leave, the parent who takes it would only be entitled to 35 or 61 weeks of benefits, depending on the benefit option selected.

The new benefit could have implications for employers who top-up EI parental benefits. It could also affect leaves allowed under labour standards. The budget proposes to amend the Canada Labour Code (CLC) to include job protections for employees taking additional parental leave.

While the CLC only applies to federally regulated workplaces, the new EI benefit may prompt other jurisdictions to make similar changes to their labour standards laws.

Another budget proposal may also affect employers with top-up plans or supplementary unemployment benefit plans.

The government is planning to make its EI Working While on Claim Pilot Project permanent.

The project, which was set to expire in August, allows eligible EI claimants receiving regular, fishing, parental, compassionate care, or caregiving benefits to keep 50 cents of the benefits for every dollar they earn, up to a maximum of 90 per cent of average weekly insurable earnings.

The changes would also include a grandfathering provision for EI claimants who have chosen to receive benefits under an older pilot project that allows them to earn $75 a week or 40 per cent of their weekly EI benefits, whichever is higher, without reducing the benefits. They would be able to continue under the older pilot for up to three years, until August 2021.

The government also plans to expand the Working While on Claim project to include EI maternity and sickness benefits.

The budget also included funding of $90 million over three years to improve the way the government delivers EI services, including claims processing. In addition, the government committed $127.7 million over three years to upgrade its EI call centres.

While there were no specific announcements about changes to the way employers report insurable earnings on a Record of Employment (ROE), budget documents did reiterate that Employment and Social Development Canada is working with stakeholders to come up with ways to streamline employer reporting requirements.

Budget documents stated that the federal government plans to make legislative amendments affecting the delivery of EI services, including e-services, although they did not specify whether this would include eliminating the ROE.

The budget included many income tax proposals, but the focus was on personal and business taxation rather than payroll-related issues such as taxable benefits.

It did state, though, that the government is considering legislative changes affecting employee repayments of employer overpayments.

The budget noted that the federal government plans to review income tax legislation and consult with stakeholders on the feasibility of changing the rules for employees who repay amounts in a later year when their employer overpays them due to a clerical or an administrative error.

Under the current tax rules, employees who are inadvertently overpaid may repay the employer the net amount (i.e., gross amount minus source deductions) if they make the payment in the same year they received the overpayment. Employees who repay an overpayment from a previous year must pay back the gross amount to their employer and recover excess source deduction withholdings from the Canada Revenue Agency (CRA).

The government is considering changing the rules so that employees who repay an overpayment in a different year than the one in which they received it only have to repay the net amount. Budget documents stated that legislative changes would apply for 2018 and later tax years, although they did not say when the government would table legislation.

The impetus for the change stems from problems the government has had with its Phoenix pay system. Since it began implementing Phoenix in 2016, thousands of federal civil servants have been overpaid, underpaid, or not paid at all.

In the budget, the government announced that it plans to begin working on finding a replacement for Phoenix “that is better aligned with the complexity of the federal government pay structure.”

Beginning in the 2018-19 fiscal year, the government proposes to spend $16 million over two years to work with experts, technology providers, and federal public-sector unions to start developing a new payroll system.

In the meantime, it proposes to invest $431.4 million over six years to make Phoenix work better. The money would go towards initiatives such as hiring more payroll staff at the centralized pay centre in Miramichi, N.B., and at satellite pay offices, as well as within government departments to help employees deal with issues as they arise.

The government also plans to give the CRA $5.5 million over two years to help it process tax reassessments for federal workers and handle related phone calls stemming from Phoenix problems.

The budget also included other proposals that may be of interest to payroll, including:

•amending the CLC to provide five days of paid leave for federally regulated workers who are victims of domestic violence or whose children are victims

•reviewing the way the CRA provides services to ensure that it is treating Canadians as “valued clients, not just taxpayers,” as well as making investments to improve the CRA’s telephone and digital services, and to enhance security measures to protect taxpayer information

•tabling “proactive” pay equity legislation for federally regulated workplaces with at least 10 employees

•increasing the maximum payment under the Wage Earner Protection Program from four weeks of EI insurable earnings to seven weeks and making eligibility for the program more equitable to help more workers owed wages, vacation pay, severance pay, or termination pay when their employer files for bankruptcy or goes into receivership

•amending the federal Income Tax Act to provide a deduction for employee contributions to a new, enhanced portion of the Quebec Pension Plan, as of 2019. The amendment would be similar to one already made for the CPP in advance of CPP enhancements being phased-in between 2019 and 2025.