Questions from the world of payroll

EI queries, employees who work in more than one province and what’s a taxable benefit

The following questions were fielded by Carswell’s payroll hotline service. Answers are provided courtesy of The Canadian Payroll Manual and The Canadian Payroll Manager newsletter, published by Carswell.

Question: Our company has a group insurance plan that covers employees’ life insurance, dependant life insurance, accidental death and dismemberment (AD&D), private health insurance (including prescription drugs, health, dental and vision), short-term disability (STD) and long-term disability (LTD). If the employer pays for the premiums on behalf of the employees to cover the cost of the group insurance plan, does a taxable benefit result and if so, where is it reported at year end?

Answer: When an employer pays the premiums on behalf of employees for certain types of group insurance benefits, a taxable benefit may result, depending on the type of coverage offered.

Federal legislation requires all premiums paid by the employer on behalf of the employee for group term life insurance coverage to be treated as a taxable benefit to the employee. This includes personal coverage as well as dependant coverage. Any employer-paid premiums for AD&D, private health insurance, STD or LTD offered under a group plan are not taxable benefits to the employee.

Quebec provincial legislation also requires all premiums paid by the employer on behalf of the employee for group term life insurance coverage to be treated as a taxable benefit to the employee. In addition, employer-paid premiums for AD&D and private health insurance are also considered taxable benefits. STD and LTD offered under a group plan are not taxable for Quebec employees.

For federal year-end reporting the taxable benefit resulting from group term life insurance coverage is reported on the T4 in box 14 and code 40.

For Quebec provincial reporting the taxable benefit resulting from group term life insurance and AD&D coverage is reported in boxes A and L and the taxable benefit for private health insurance coverage is reported in boxes A and J of the RL-1.

Question: Our company has decided to reimburse an employee for child-care expenses that are incurred when she travels on employment-related business. Is it a taxable benefit to the employee?

Answer: In most cases when an employer reimburses an employee for personal expenses, the employee would be considered to have received a taxable benefit. According to paragraph 6(1)(a) of the Income Tax Act, the value of any benefit received or enjoyed by an employee in respect of her office or employment must be included in the employee’s income. Therefore, if an employer reimburses an employee for child-care expenses, it is generally considered a taxable benefit.

The Canada Customs and Revenue Agency (CCRA) allows for an exception to the above general rule. If additional child-care expenses are incurred when an employee is required to travel out of town on employment-related business, the additional costs incurred will not be considered a taxable benefit. For this exception to apply, employees must be required by their employer to travel on employment-related business, away from the municipality or metropolitan area where their regular place of work is located.

Question: Are all employees required to file a revised TD1 federal and provincial/territorial form each year?

Answer: Employees are not required to complete a revised federal TD1 and provincial/territorial form each year unless there is a change in their personal tax credits. If such a change has occurred, they are required to complete a new form no later than seven days after the change.

Employees who do not complete a new form may be subject to a penalty of $25 for each day the form is late. The minimum penalty is $100 and the maximum is $2,500.

For employees in Quebec, effective in 2003, all individuals are required to submit a Source Deductions Return either when they take up employment or are remunerated by their employer or before they receive remuneration for the first time.

Employees who do not complete the form must have their provincial/territorial income tax deducted as if they are entitled to only the basic amount.

Question: We have employees across Canada and we have a number of employees who worked in more than one province or territory during the year. Do we have to issue a separate T4 for each province/territory in which they performed work?

Answer: Each employee must receive a T4 for each province/territory in which the employee performed work at an establishment of the employer. Report on each T4 the total remuneration received during the year. For services rendered in the province of Quebec, the employee must receive a T4 for Quebec and the provincial RL-1 slip.

Question: We provide our employees with gifts for certain occasions. How do we assess the taxable benefit amount?

Answer: Federally, the CCRA allows up to two non-cash gifts per year for special occasions such as Christmas, birthdays and weddings, provided that the total amount of the gift(s) does not exceed $500. If the amount is more than $500, then the full fair market value of the gift(s) must be included in the employee’s income.

The exceptions to the rules are gift certificates, gold nuggets or any gifts that could be easily converted to cash, which are all fully taxable.

For Quebec provincial purposes, the value of a gift that an employer gives to an employee for a special occasion such as Christmas, a birthday or a wedding may be considered non-taxable to a maximum of $500. Any amounts in excess of the $500 threshold must be included in income for Quebec provincial tax purposes. The exception applies to gift certificates and smart cards, provided they can only be used to purchase goods or services from one or more identified merchants, but does not extend to gifts that are in cash or can easily be converted into cash.

Question: We provide employees with a short-term disability plan, which qualifies our organization for a premium reduction rate approved by Human Resources Development Canada (HRDC). New employees are eligible to receive benefits after their three months’ probationary period, as per our company policy. When can we start to apply the approved reduced Employment Insurance (EI) rate for these employees?

Answer: Program officials from HRDC will notify employers whose plans have been approved. The date on which the reduced rate takes effect depends on the date on which the employer submitted the application. If the employer meets the conditions on or before the 15th of the month, the reduced premium rate will be applicable on the first day of the following month. If the employer meets the conditions on or after the 16th of the month, the reduced premium rate will take effect on the first day of the second month following the month the conditions are met. The effective date to which the employer should apply the approved reduced EI rate for these employees is the date of hire provided that it does not exceed a three-month period.

Question: Our company pays employees standby pay when they are required to be on call on weekends. In the past, for EI purposes, we have never attached hours to the standby pay. We have recently become aware, however, of a court decision that may require hours to be attached even if the employee was not actually required to report to work. Could you explain the status of the amendment and if it has been enforced?

Answer: CCRA has completed its review of the insurability of standby hours. The review was carried out in response to a court decision made by the Federal Court of Appeal that challenged the basic principle governing the determination of insurable hours of employment. It is the intent of the legislation that a person has worked in insurable employment for the number of hours that the person has both worked and been paid for. The court, however, decided that under the EI Regulations as they stood, standby hours were insurable even in situations in which they were paid but not worked.

There is now a proposal to add a new section 10.01 (1) and (2) to the Regulations to clarify when insurable hours would be assigned. Under section 10.01 (1) if the employee is paid standby pay but not called in to work, there are no insurable hours, if the standby pay is equal to or less than the remuneration the employee would have been paid if he had actually worked during that period.

Example 1: An employee works Monday to Friday, eight hours per day, 40 hours per week and earns $15 an hour. The employee is paid overtime at time and one-half of his regular rate after 44 hours. The work week is from Monday to Sunday. The employee is on call for the weekend (48 hours) but does not report for work and receives $200 in standby pay.

To determine if insurable hours would be attached, employers would have to calculate what the employee would have been paid if he had been working for the seven-day period and compare it to the $200 standby pay.

Total hours for the week: 40 hours (regular) plus 48 hours (standby) equals 88 hours.

Hours at regular rate: 44 hours multiplied by $15 an hour equals $660.

Overtime hours: 44 hours multiplied by $15 an hour multiplied by 1.5 (time and one-half) equals $990.

Total remuneration: $1650.

There would be no insurable hours attached because the employee would have received less standby pay than if he had actually worked.

Section 10.01 (2) will require that insurable hours be attached to any standby hours if an employee is required to spend those hours at the employer’s premises and is paid for the time.

Example 2: An employee is required to be at the employer’s premises during the hours between 8 a.m. and 5 p.m. every fourth weekend in the event of an emergency and if his services are needed. He is also paid $100 for each day while on standby.

In this situation an employer would have to attach 18 insurable hours (nine hours from 8 a.m. to 5 p.m. of each day) to the $200 standby pay.

Question: When must we pay outstanding payments owing to terminated employees?

Answer: The rules pertaining to money owed to an employee upon termination are governed by the employment or labour standards legislation in each province and territory (and federally by the Canada Labour Code). As a result, the requirements vary depending on the jurisdictions.

Canada Labour Code: All money owing to an employee upon termination must be paid within 30 days of the entitlement being earned.

Alberta: If an employer terminates an employee’s employment and gives the employee the required notice, or pays the proper amount of pay in lieu, or a combination of both, the employer must pay the employee’s earnings within three consecutive days after the employee’s last day of work. If no termination notice or termination pay is necessary, the employer must pay the employee’s earnings within 10 consecutive days after the last day of employment.

If the employee resigns and provides the proper notice, the employer is required to pay the employee’s earnings within three consecutive days after the last day worked. If the employee is not required to give notice, the employer must pay the employee’s earnings within 10 consecutive days after the last day of employment. If an employee who is required to give notice fails to do so, earnings must be paid no later than 10 consecutive days after the date on which the notice would have ended had the employee given proper notice.

British Columbia: When the employer terminates the employee, all wages owing to the employee must be paid within 48 hours of the termination.

When the employee quits, all wages owing must be paid within six days of the date of termination.

Manitoba: All wages owing to the employee must be paid within 10 working days after the date of termination.

New Brunswick: All wages owing to an employee must be paid within seven calendar days after the end of each pay period and no later than 21 days after the last day of employment.

Newfoundland and Labrador: All wages owing to an employee must be paid within one week of the date of termination.

Northwest Territories: All wages owing to an employee must be paid within 10 days from the date of termination.

Nunavut: All wages owing to an employee must be paid within 10 days from the date of termination.

Nova Scotia: All wages owing to an employee must be paid upon the expiry of the notice. Vacation pay owing on termination must be paid within 10 days after termination.

Ontario: All wages owing to an employee, including wages in lieu of notice and severance pay, must be paid by the later of the next regular pay date and seven days after the date of termination. If the employer and employee agree, the employer may pay the employee’s severance pay in installments over a period not to exceed three years.

Prince Edward Island: All wages owing on termination must be paid no later than the end of the next regular pay period.

Quebec: All wages owing to an employee must be paid at the time the employment terminates.

Saskatchewan: All wages owing to an employee must be paid within 14 days after the date of termination.

Yukon Territory: All wages owing to an employee, other than termination pay (wages in lieu of notice), must be paid within seven days from the date of termination. An employer may pay the termination pay (pay in lieu of notice) in installments equal to the amount the employee would have received in a regular pay day, as long as the employee receives all of the termination pay within the notice period set out under individual termination.

For more information on Carswell’s payroll products and services visit www.carswell.com or call (800) 387-5164.

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