Workers’ comp bodies rely on honest, accurate payrolls
Right now, many payroll departments are focused on processing regular payrolls while gearing up for new year changes and T4 filing. At this time of year, workers’ comp boards don’t want payroll to forget about them.
Most boards require employers to file an annual payroll report showing assessable earnings by the end of February (March for Ontario and Quebec).
"For a lot of payroll folks, they have got to deal with everything on a weekly, biweekly or monthly basis. We’re just a once-a-year deal for them, so it’s not top-of-mind sometimes," says James Wilson, manager of audit and underwriting at the Alberta Workers’ Compensation Board.
Despite this, it is important for employers file annual payroll reports accurately and on time because the boards need the information to determine if employers are paying the required amount for workers’ compensation coverage and to set industry and individual employer assessment rates, he says.
"The system relies on self-reporting. That applies to every jurisdiction in Canada. We don’t put somebody into each organization to ensure that for every dollar of payroll, is it being reported? It’s just like the tax system. We rely on people to file honestly and credibly."
Peter Wiebe, supervisor of assessment program services at the Workers Compensation Board of Manitoba, says filing by the deadline is especially important for boards that ask employers to provide actual payroll for the previous year and an estimate for the coming year.
"For example, in Manitoba, our rate model is based on estimated payrolls. If you are not getting those to us on time and we have to put those numbers in, your rates are potentially being artificially set," he says.
"It’s important to us to ensure that the stakeholders maintain the integrity of the compensation system. In order to maintain that integrity, we have to have faith that the employers understand the historic compromise and are holding up their end of the bargain."
The "historic compromise" is the foundation of the workers’ compensation system in Canada. It is based on five tenets called the Meredith Principles. They are named after Justice William Meredith who, in 1910, was appointed by the Ontario government to find a way to deal with the issue of workplace injuries.
At that time, workers injured on the job had no financial protection. They could sue their employers, if they could afford it, but if they were found to have played a role in the accident, the employer owed them nothing. If a worker won, it could result in bankruptcy for the employer.
In 1913, Meredith produced his final report, which proposed a trade-off in which workers would lose the right to sue but be guaranteed income regardless of who was responsible for the accident. The five principles stemming from his report are:
- No-fault compensation, with both the employer and worker waiving their right to sue.
- Security of payment, with a fund set up to ensure there is money for workers who need it.
- Collective liability, under which all registered employers share in paying the total cost of the workers’ compensation system through assessments (called premiums in some jurisdictions).
- Independent administration, meaning the workers’ compensation bodies operate separately from provincial governments.
- Exclusive jurisdiction, meaning workers’ compensation issues are dealt with only by workers’ compensation bodies.
Ontario passed legislation implementing Meredith’s recommendations in 1914. Over the years, all other provinces and territories in Canada did so as well.
"The employers get that immunity from lawsuit because of that compromise. If employers aren’t reporting their payrolls properly and paying their fair share, then they’re not really contributing to that historic compromise," Wiebe says.
Wiebe and Wilson are quick to say most employers do a good job of accurately reporting payroll on time; however, one of the most common errors is incorrect reporting for contractors, sub-contractors or casual labour.
"Typically, the most common example is in the construction industry where they hire what they consider to be sub-contractors. They are paying them piecework or whatever. They don’t believe they are workers. For our purposes, they are their workers and they have to report those earnings," Wiebe says.
Some people take it for granted that when they hire a contractor or sub-contractor that they have their own coverage, says Wilson.
Executive earnings
Another common problem involves reporting the earnings of company executives. Boards may treat those earnings differently so employers with multi-jurisdictional payrolls need to be aware of specific requirements.
In Alberta, directors of corporations are not considered workers unless they have applied and been approved for optional coverage. As a result, directors’ earnings are not included in assessable payroll. Shareholders, however, are treated differently.
"If you’ve got a shareholder who is on your payroll, they should be included unless they are a director... If they are getting a T4, they need to be reported," Wilson says.
In Manitoba, employers include a director’s earnings only if they have applied for optional coverage for the director and the board has approved it. Wiebe says misunderstanding can lead some employers to report the earnings twice.
"They list the directors they want covered (for optional coverage). In some cases, they are T4ed workers. They say, ‘We want the coverage for $80,000 because that is what they make,’ but that... is also in their T4s they report, so they end up reporting that in the assessable payroll."
In Ontario, directors’ fees are included in assessable payroll if the Workplace Safety and Insurance Board considers the director to be an employee. If an employer is unsure, the board says it should contact them for advice.
Another issue boards mentioned was employers failing to report certain types of earnings. In Alberta, Wilson says some employers fail to include honoraria and recorded tips and gratuities in their reported payroll. Ontario and P.E.I. workers’ compensation bodies list taxable benefits as a common reporting problem.
"Taxable benefits that form part of a worker’s annual remuneration are often overlooked or excluded from payroll reporting. Employers should be mindful to include these amounts or seek clarification from WCB on the types of benefits to be reported," says Barbara Groome Wynne, senior communications co-ordinator at P.E.I.’s Workers Compensation Board.
Sometimes problems arise because payroll departments think they only have to report earnings that are included in box 14 on a T4, she says.
Another common error centres on the amount of earnings reported. Each year, every workers’ compensation body in Canada sets a maximum assessable earnings amount. A number of boards say employers sometimes report payroll in excess of the maximum amount.
In other cases, Wilson says, payroll departments mistakenly deduct a portion of a worker’s earnings on a pro rata basis because he has not been with the company for the entire year.
Another issue with proration concerns employers boards have assigned to more than one industry group for workers’ compensation coverage. If an employer operates in more than one industry, the workers’ comp body may assign the employer multiple accounts, each with its own assessment rate.
For non-administrative staff, it is easy for employers to determine which workers belong in which group, says Wilson.
Problems tend to arise with administrative staff. Depending on the work they do, sometimes administrative staff belong in just one group. Other times, employers need to prorate their earnings across all classifications.
"Other variations on this can be when they operate a head office in Alberta and they provide services in Alberta and Saskatchewan. Sometimes that payroll needs to be prorated. Sometimes it needs to stay exclusively within Alberta because the workers are in Alberta and that’s the only place that they are working," Wilson says.
Most employers are not making mistakes on purpose or for criminal reasons, he says.
"What more so happens is that we have unique rules compared to other organizations like the Canada Revenue Agency or Employment Insurance or other groups and so it’s just understanding all those rules that produce the errors."
Some of the mistakes, at least in Alberta, may stem from high turnover of staff who are completing the annual workers’ compensation report, says Wilson.
"As a result, we are working with companies sometimes where the person has never filed a report before or is taking over for someone who left and didn’t leave that strong of a paper trail," he says.
"For payroll folks, one of the messages we would love to give them is they can create that paper trail not only for themselves for the next year, but should they get a better opportunity, the person who follows them can do a fantastic job reporting right after that."
Wynne says her board is taking steps to help employers better understand workers’ compensation requirements.
"The WCB recognizes that our business can be complex at times. For that reason, we are currently revising many of our publications and letters for employers so that they are easier to understand."
Both Wiebe and Wilson say one of the best ways to prevent errors is to file online.
The Alberta board has offered online filing for close to 10 years. Wilson says over 90 per cent of insurable earnings reported this way.
If employers file online, the system can help them complete the return step by step with pop-up boxes, help scenarios and automatic math calculations, he says. While online reporting is not mandatory, the board strongly encourages it, says Wilson.
Manitoba is getting into online filing. It introduced the option last year to a select group. Beginning with 2014 reporting, all employers can file online if they choose.
"We wanted to make sure it was working properly, so we only advertised it to a small percentage of our employers. I think we are around 12 per cent that are online for this past year. Our hope is that we will be 80 per cent within the next couple of years," Wiebe says.
