Province temporarily reverts to previous public holiday pay formula
As of July 1, it is déjà vu for Ontario payroll professionals when it comes to calculating public holiday pay.
From July 1 until the end of 2019, the Ontario Ministry of Labour is temporarily reverting to the public holiday pay formula in place before Jan. 1, while it reviews the province’s public holiday pay system.
Beginning with Canada Day, employers now calculate public holiday pay as the total amount of regular wages earned and vacation pay payable to employees in the four workweeks before the workweek in which a statutory holiday falls, divided by 20.
The change and review come after what the Retail Council of Canada (RCC) called “extensive advocacy” by organizations such as itself and the Canadian Payroll Association to convince the ministry to address issues with the holiday pay calculation that the government implemented on Jan. 1.
That formula required employers to calculate holiday pay as the total amount of regular wages that an employee earned in the pay period immediately before a public holiday, divided by the number of days the employee worked in that period.
While the Jan. 1 formula change was part of a number of amendments to the Employment Standards Act, 2000 to improve minimum working conditions, it led to a number of problems, said Karl Littler, vice-president of public affairs at the RCC.
“One is cost implications for employers and that was primarily based on the notion that you were essentially matching even a single shift with a full day’s pay for part-timers,” he said.
“The second problem was that, in a sense, it over-rewarded part-timers relative to full-timers because if you work(ed) one eight-hour shift, you (would) get the same holiday pay as somebody who has worked eight hours (per day) over 10 days in the previous two-week period. They may have put in 80 hours, and the part-timer may have put in eight hours. Nevertheless, it would be the same holiday pay,” said Littler.
Another problem he cited was that the formula made it difficult for some employers to get employees to work shorter shifts in the pay period before a holiday.
“It created a weird disincentive for part-timers to accept shorter shifts in the period immediately prior to a public holiday. If you are a part-timer and do one Saturday shift of eight hours’ duration, you end up getting eight hours of holiday pay. If you then accept an evening shift of four hours’ duration, you’ve got 12 hours in total, divided by two days worked. Now you are only getting six hours of holiday pay, in effect negating two of the hours that you worked,” he said.
Problems also arose when it came to calculating public holiday pay for some commission-based employees, said Littler.
“If you are selling big-ticket items like kitchens or cars or major appliances, you will tend to only get your commission once final payment is received,” he said. “You can have a situation where you get a huge amount of commission and, if it falls in a period immediately before a holiday, that completely skews the amount of holiday pay, or if it is immediately after a public holiday, you would be getting underpaid (for the holiday).”
“There were so many complexities in it. The notion of simply dividing the number of hours by the number of days worked obviously had some pretty negative consequences.”
The Jan. 1 formula change seemed to leave payroll professionals confused, too, said Annie Chong, manager of Thomson Reuters’ Payroll Consulting Group.
“We were bombarded with calls on the new calculations of stat holiday pay,” said Chong.
Questions to the group’s telephone and email hotline centred on issues such as the types of earnings to include and exclude in the calculation, how to handle commissions paid in a pay period before a holiday, but earned over previous pay periods, and calculating public holiday pay for employees on vacation or on a personal emergency leave (PEL).
“I found the most confusing part of the change (for those contacting the hotline) had to do with an employee on vacation for part of the week or on PEL for part of the week,” said Chong.
“This caused a lot of confusion because the legislation required that you go back to the pay period before the vacation or PEL only if the employee was off on vacation/PEL for the entire pay period. I found that employers did not quite understand this requirement,” she said.
The pre-Jan. 1 formula to which the ministry has reverted is not without its own issues. The Changing Workplaces Review, which examined the province’s labour relations and employment standards laws in 2016 and 2017, said public holiday rules — including the pay calculation — were the source of most employment standards complaints.
Despite this, a spokesperson for the ministry said temporarily returning to the old formula was the least disruptive approach.
“The previous calculation system was used by businesses for 18 years. Returning to a system that Ontarians are familiar with on an interim basis while a review is conducted will ensure stability through the process,” said Janet Deline.
While the Changing Workplaces Review’s final report did not recommend specific options for revising the holiday pay formula, it advised the government to review the public holiday rules and replace them with “statutory provisions that are simpler and easier to understand and apply.”
“A simplified calculation could benefit both employers and employees as they would find it more straightforward and ESOs (employment standards officers) would be able to enforce it more easily,” said the final report.
“Changes to the calculation may require employers to update their own payroll systems. These changes may be minor or may be substantial depending on the approach,” it said.
Deline said the ministry’s review will focus on the public holiday pay calculation, as well as employee entitlement to holiday pay. She added that the ministry welcomed input from the public and from stakeholders.
No end date has been set yet for the review or for when the government may make legislative or regulatory amendments, although the July 1 regulation implementing the formula change specifies that it will be revoked on Dec. 31, 2019.
Littler said the RCC is optimistic that the review will lead to an improved holiday pay calculation and not a return to the Jan. 1 formula.
“They are doing a full review of Part X (of the act), so I am sure they will look at other provincial models. They’ll look at proposals that come from us and, obviously, also proposals that come from employee advocacy groups and so on. I think they are certainly prepared to look at all reasonable options,” he said.
Ideally, the RCC would like to see a standardized method for calculating holiday pay across the country, said Littler.
“We’d love to see that, but achieving that is not easy. Retail is under provincial labour jurisdiction and there are 10 provinces with 10 different systems in place,” he said.
In the meantime, Ontario payroll professionals should expect questions from employees about the July 1 change to the public holiday pay formula, especially in cases where it may result in lower holiday pay, said Patricia Joncas, a payroll consultant with Thomson Reuters’ Payroll Consulting Group.
“There will be questions from employees for sure. Payroll needs to get ready for the onslaught of questions. ‘Why have things changed? ‘Why are you doing this?’ ‘Why am I getting less now?’”
She advised that payroll departments have a communication strategy in place to deal with employee questions.
“They should send something out, letting them know that the Employment Standards Act is making changes to the calculation of stat,” said Joncas.
While it would have been ideal to notify employees well in advance of the July 1 change, she said a reminder going out with the pay that includes the Canada Day public holiday would also be a good idea.
