Service Canada’s Work-Sharing Program can help employers, employees in tough economic times
Bombardier. Husky Energy. Chevron. Bell Media. These are just some of the companies in the news recently for announcing layoffs. In recent months, it seems hardly a week goes by when there is not news of an employer cutting back on staff.
It’s not just big employers. Small and medium-size companies also struggle with layoff decisions. Some cut the workforce while others try to keep all employees working.
One option for avoiding layoffs is the federal government’s Work-Sharing Program. It enables employers to temporarily cut back on the number of hours employees work. Employees share available work while receiving employment insurance (EI) benefits for days they are not working. It helps employers keep skilled workers, saving the cost of having to hire and train new employees when business picks up again.
While payroll professionals may not be the ones who decide whether their employer applies to the program, knowing how it works is important because payroll departments will likely have to help administer a work-sharing agreement if their employer’s application is accepted.
The program, which Service Canada runs, has been in place since the early 1980s. Participation tends to rise and fall with the state of the economy.
In 2014-15, the most recent fiscal year for which statistics are available, Service Canada says 411 work-sharing agreements were started, down from 649 the previous year. While the number of agreements has dropped significantly from a peak of 7,717 in 2009-10, it remains higher than it was before the 2008 recession. It is not yet known if the numbers will rise, fall or remain steady for the just-ended fiscal year.
The provinces that accounted for the most work-sharing agreements in 2014-15 were Quebec (42 per cent), Ontario (33 per cent) and British Columbia (10 per cent). Alberta businesses have tended to use the program much less. In 2013-14, for example, only 21 agreements were launched in Alberta, but that could change with the ongoing slowdown in the energy sector.
Employers interested in the program have to complete a detailed application form describing their business, explaining the reason for their lack of work and setting out how many of their employees would be included in a work-sharing agreement, how long it would last and the number of hours or days affected employees would work each week.
Employers that take part in the program must reduce employees’ regular work hours by between 10 per cent (a half day) and 60 per cent (three days). In any week, the reduction in hours can vary as long as it averages between 10 and 60 per cent.
The agreements must last for at least six weeks. The maximum length for an initial agreement is 26 weeks, but employers may apply for an additional 12 weeks.
Employers have to include a recovery plan that outlines steps they will take to return employees to their normal working hours by the time the agreement ends, and a list of whose work hours would be reduced.
To be eligible, employers must be a publicly held company, a private business or a not-for-profit organization that has been in business year-round in Canada for at least two years.
In addition, the employer must show its business activity has gone down by at least 10 per cent within the last six months. The resulting shortage of work must be temporary and beyond the employer’s control. Businesses with cyclical or recurring slowdowns are not eligible, nor are organizations with reduced activity due to a labour dispute.
The employees that the employer proposes to include in a work-sharing plan must be eligible to receive EI benefits and must agree to reduce their normal work hours so that they can share available work. If employees included in a work-sharing agreement (or their union if there is a collective agreement) do not sign it, the employer cannot implement it.
The employees must also be what Service Canada calls "core employees" — permanent employees who work year round, full-time or part-time, and perform "everyday functions of normal business activity."
However, Service Canada says employees who are needed to help generate work or who are essential to the business’ recovery should not be included in the work-sharing plan. This could include senior management, sales and marketing executives, outside sales representatives or technical employees involved in product development. They should be working full-time to help the employer recover.
If approved, the employer and employees must sign the agreement within 60 days. If turned down, there is no appeal process.
Once an employer sets up a work-sharing agreement, it has to ensure it provides Record of Employment (ROEs) for each employee taking part in the program. Service Canada advises employers consider starting their work-sharing agreements at the end of a pay period to simplify the process. Employers should keep in mind Service Canada requires all agreements to begin on Sundays.
When completing ROEs for work-sharing agreements, Service Canada says payroll departments should pay close attention to boxes 11 (last day for which paid) and 16 (reason for issuing ROE). For box 16, payroll must use code H, Work-Sharing.
For box 11, Service Canada advises payroll departments to report the last day of work before the start date of the work-sharing program. For example, if employees work Monday to Friday and the work-sharing agreement begins on a Sunday, the date payroll enters in box 11 would be the Friday before the week in which the agreement starts.
Payroll departments may be asked to help their employer complete weekly Utilization Reports for Service Canada. Employers must complete and submit a report every week. Without it, Service Canada cannot pay EI benefits to the employees.
In the report, the employer must provide information about each employee taking part in the agreement, including the employee’s normal weekly hours, actual hours worked and total hours of work missed due to work-sharing.
Employers must include in the report any vacation employees take (including vacation pay), days missed due to sickness (including sick pay) or any other amounts paid for stat holidays or termination of employment.
Under the agreement, employers remain responsible for paying employees for the hours they work (EI benefits cover the days they are not working). They are also responsible for employment standards payments such as vacation and stat holiday pay.
In addition, employers are required to maintain all existing employee benefits, including health/dental insurance, vacations, and pension benefits. For any benefits calculated on earnings or hours of work, Service Canada advises payroll or HR departments inform employees the benefits may be reduced because of fewer hours per week.
Communication with employees is an important component of ensuring a work-sharing agreement runs smoothly. Service Canada advises employers also provide information on EI benefits and taxation issues.
Service Canada says there may be a delay in first EI benefits due to initial processing time. It suggests payroll/HR let employees know in advance.
It also suggests employers inform employees of the possible income tax implications of receiving EI benefits. While the EI benefits are taxable, it does not always deduct income tax at source because of the weekly amount of benefits paid.
To avoid having to pay a large amount of tax, Service Canada says employees may want to increase the amount of income tax deducted from their EI benefits. Employers should advise employees who wish to do this to contact Service Canada.
It will also be important for payroll departments to continue to keep detailed records. The records should include hours worked each week, including overtime, and wages and other remuneration. Employers will have to show the records if requested during an audit or inspection.
To learn more, interested payroll professionals should refer to Service Canada’s website at www.servicecanada.gc.ca/eng/work_sharing//index.shtml. While the program does not guarantee it can save jobs in the long run, it does give businesses time to find a way to recover.