Legislation has been priority across Canada
Legislated leaves of absence seem to be a priority for governments across Canada recently. Since late 2017, most jurisdictions have amended their employment standards laws to implement new leaves and enhance existing ones.
In recent months, many governments have increased the length of parental leave, broadened leave for critically ill children to include family members beyond parents, and created a new unpaid leave for employees providing care or support to adult family members. Some have added, or are proposing, a leave for victims of domestic violence.
For payroll professionals, especially those with staff in multiple jurisdictions, it can be challenging to keep up. Yet, it is essential to do so.
“It is really important for compliance issues that employers know the changes and the minimums of employment standards,” said Theodora Lindsey, consultant with Thomson Reuters’ Payroll Consulting Group in Toronto.
To ensure that employers comply with employment standards rules for legislated leaves, one of the most important issues for payroll to consider is whether employers are paying employees for the time off, she said.
Employers are not required to pay employees for most types of leaves, but there are exceptions.
Ontario and Manitoba both require employers to pay for five out of 10 days of leave for domestic violence. The federal government is proposing a similar requirement for federally regulated workplaces.
Since the beginning of the year, Ontario has required employers to pay employees with at least one week of service for the first two of the 10 days of personal emergency leave that they are allowed to take each year.
Quebec’s government has tabled legislation that would require employers to pay staff for two days of the leave they may take each year for things such as sickness, domestic violence (proposed in the tabled legislation) and family obligations.
Even if employers are not required to pay employees for a leave, some may choose to do so, said Lindsey. Whether paid by choice or obligation, payroll must process the paid leave as it would other earnings.
“If you do have to pay it, generally you are treating it the same as any other income. It is subject to all statutory deductions and reported in the same box on the T4 — box 14.
For leaves in which an employee is receiving employment insurance (EI) benefits, some employers choose to top-up the benefits through a registered supplemental unemployment benefit (SUB) plan or through non-registered top-ups.
Lindsey said it is important for payroll to properly apply source deductions to top-up payments, which are subject to income tax deductions. SUB plan payments are generally subject to C/QPP contributions, but are exempt from EI and Quebec Parental Insurance Plan (QPIP) premiums if certain conditions are met.
If employers are paying top-ups, they have to ensure that they properly report the payments on the employee’s Record of Employment (ROE), said Lindsey.
“You must report it in 17C on the ROE. You do not have to put in any amounts or dates, but you do have to report that you are paying SUB plan or supplemental benefits in 17C, so Service Canada will know about that.”
ROE reporting is an important issue that some employers overlook when employees take an unpaid leave, she said.
“There are a lot of employers who think just because you are on a legislated unpaid leave (and) getting EI benefits, they do not need to produce a ROE and that’s not so. You have to issue it when an interruption of earnings occurs,” said Lindsey.
Benefits coverage is another issue to consider, especially for longer leaves, she said.
Some jurisdictions — including British Columbia, Ontario, Quebec, Saskatchewan and under the Canada Labour Code — require employers to continue to cover employees on leave under company benefit plans, provided that the employees continue to pay their required contributions, if there are any.
If employee contributions are required, employees should provide post-dated cheques before beginning the leave, said Lindsey.
If employees do not want to maintain benefits while on leave, employers should have them put that in writing.
One of the most challenging issues payroll staff face with leaves are vacation pay entitlements.
“With the new leaves, we’re getting tons of questions, but the most common is (about) vacation,” said Lindsey. “The first question is: ‘Do I have to pay vacation when they come back?’ That’s very common.”
The answer will depend on whether the leave was paid or unpaid and whether the employer has a vacation policy or employment contracts that provide for a greater right or benefit than required by law, she said.
Employment standards laws generally divide vacation into two components.
“One is time, which you never lose,” said Lindsey. “Two is pay, which is calculated as a percentage of vacationable earnings in a 12-month period.”
For example, consider general minimum requirements for an employee with two weeks of vacation entitlement who returns from a 12-month unpaid maternity leave, she said.
“You would owe two weeks of time that (the employee) would never lose and you would have to pay four per cent of (the employee’s) vacationable earnings within that 12-month period. Four per cent of nothing is nothing. (The employee) would have no vacation pay,” said Lindsey.
“However, the key thing you have to be mindful of is whether your policy or contract provides a greater right or benefit.”
For example, if an employer’s vacation policy states that employees with a certain number of years of service receive 15 days of paid vacation per year, the employer will have to pay employees for those vacation days even if they did not earn any vacationable earnings while off work on a 12-month leave.
To avoid problems, employers should specify in employment contracts or vacation policies that vacation pay is tied to vacationable earnings, she said.
“If you are offering three weeks’ vacation, you need to put it clearly in (the) contract or policy stating: ‘You get three weeks of vacation every 12 months, paid at six per cent of your vacationable earnings in a 12-month period.’”
Determining statutory holiday pay entitlement can also be challenging, said Lindsey.
For illustration, consider the potential difficulties of an Ontario employee who takes a 12-month leave right after Good Friday, she said.
In Ontario, like many other jurisdictions, to be eligible for statutory holiday pay, employees must work their last scheduled shift before a holiday and their first scheduled shift afterwards, unless they have their employer’s permission to be absent.
“I work my scheduled shift Thursday before the Good Friday stat holiday. I go on maternity leave. My next scheduled shift is 12 months later when I come back. That meets the requirements for entitlement.”
“What do you owe me for that stat? You will go back to the Good Friday, look at the pay period prior in Ontario, look at my wages, and divide it by days worked,” said Lindsey.
While some employers wait until an employee returns from leave and works their first scheduled shift after the statutory holiday before paying them for the holiday, others pay it in advance so that they do not have to go back to confirm that the employee is entitled to statutory holiday pay, she said.
Keeping records is a key component of legislated leaves.
Payroll must keep comprehensive records related to the leave, including dates, notices of leave, pay, benefits, and ROEs, according to Lindsey.
“There is a lot to consider to make sure that you are compliant,” she said. “There is a lot of collaboration that has to be done with all departments — finance, HR, payroll — to make sure everybody is on the same page for these legislated leaves.”
