Digest of Benefit Entitlement Principles Chapter 5 - Section 7
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5.7.0 Remuneration under a contract of employment
Persons who engage in work under an employer-employee relationship are employed under some type of a contract of service. A contract of employment is another term used for a contract of service. A contract of service may be express or implied. An express contract is the prevalent form of a contract of service. Under an express contract, an employer and employee enter into an actual agreement regarding the terms of employment. The terms of an express contract of service may be either written or verbal. On the other hand, an implied contract is one that can only be inferred by the law from the act or conduct of the parties. An implied contract may arise where one party, without being requested to do so, renders services under circumstances indicating that he or she expects to be paid for those services, and the other party, knowing the circumstances, avails himself or herself of the benefit of those servicesFootnote 1.
The form of an express contract of service may be a formal written contract complete with personnel policy manuals, a simple written agreement, a verbal agreement between an employee and an employer, or it may contain both written and verbal elements. However, whatever form the contract takes, the terms and conditions of the employment arrangement are set out and known by the parties involved. In addition, the labour laws of the particular jurisdiction where the claimant is employed may also dictate terms and conditions regarding the employment and the payments to which an employee is entitled during employment and upon loss of that employment.
Although, it is the entire income arising out of a contract of employment that is determined to be earnings for benefit purposesFootnote 2, there are some types of income which arise out of a contract of employment which have been specifically excluded from consideration as earningsFootnote 3. In addition, for the purposes of allocation of moneys determined to be earnings, it was recognized that certain types of earnings arising out of a contract of employment require specific allocation methods. Therefore, it is important when dealing with remuneration under a contract of employment to identify for what the claimant is being compensated. The terms and conditions of the contract of employment or the collective agreement are essential to this determination.
Under a contract of employment, claimants may be compensated for the performance of servicesFootnote 4 or may receive compensation without being required to directly perform services for that specific compensation paymentFootnote 5. Where the specific compensation is not directly for the performance of services, the right to the compensation may arise from some services that the claimant has performed in the past or through agreeing to be available for work with that employer.
The period to which earnings payable under a contract of employment are allocated depends on the type of earnings.
5.7.1 Remuneration under a contract of employment for the performance of services
Earnings payable under a contract of employment for the performance of services are allocated to the period in which the services were performed.
Remuneration under a contract of employment for the performance of services is part of the entire income arising out of any employmentFootnote 6. It includes those moneys that are paid for the services that an employee provides to an employer.
Remuneration for the performance of services includes such payments as wagesFootnote 7 or salaryFootnote 8; fringe benefitsFootnote 9; shift bonuses and shift premiumsFootnote 10; overtimeFootnote 11; stand-by hours; commissions; isolation pay or northern allowances; call-back pay; production bonusesFootnote 12; end-of-season bonusesFootnote 13; tips or gratuities based on a service charge or flat rateFootnote 14; and profit-sharing plansFootnote 15. However, retroactive increases in wages or salary are specifically excluded from consideration as earningsFootnote 16.
Earnings, payable under a contract of employment for the performance of services, are allocated to the period in which the services were performedFootnote 17. It is not necessary that these earnings actually be paid before allocation can be made, just that they be payableFootnote 18. However, due to the peculiarities of commission payments, commissions are allocated to the week in which the services that gave rise to those earnings are performed or to the week in which the transaction that gave rise to the earnings occurredFootnote 19.
If the employer's pay period does not coincide with the calendar week, then the earnings are allocated based on the number of days for which the claimant is remunerated in the week as a fraction of the pay periodFootnote 20. If paid by the hour, earnings are allocated according to the number of hours worked in each calendar week.
Shifts that start on Saturday and end on Sunday overlap two weeks. As wages are allocated to the period for which the services are performed, they are allocated to two different weeks based on the hours worked in each weekFootnote 21.
It is the terms of the contract of employment that determines whether remuneration is payable specifically for the performance of services, or is payable for periods in which no services are performed, or for both.
Workers may be under an annual contract of employment that covers periods in which services are required by the employer and must be performed, as well as periods in which services are neither required nor performed. If the annual contract provides that the workers are only paid for the period in which they perform services, then allocation of earnings payable under these contracts of employment is only to the period in which services are performedFootnote 22 and not to any period off work that is not compensated by the employer. This is true even if the claimant receives their remuneration in installments and those installments are paid during the non-working period.
It is not the frequency, method or the timing of the payments that is critical to the determination of whether the payments are for the performance of services; rather it is the reason the claimant is paid.
Wages are generally paid for the number of hours or days an employee works or for the number of units an employee produces; that is, for the services which are actually performed. Wages are allocated to the period in which the work was performed.
Employees who receive a salary generally have entered into an agreement to be paid for a period regardless of the number of hours that those employees are required to work in that period. Salary payable under the terms of a contract of employment for the period of the contract is earnings for the whole period covered by the contract, even if this period includes weeks during which no services are performed. These earnings are generally spread equally over each week of the contractual period despite the fact that the volume of work performed may vary from week to week.
Payments made to employees who are required to be available on standby during off-duty hours may be equated to wages or salary paid for services rendered and these earnings allocated to the period that the standby services occur. In the same way, call back payFootnote 23 is the wage or salary payable for being called back to work and usually represents payment for a minimum set number of hours regardless of the number of hours worked. Call back pay is really payable for the hours worked and therefore, is allocated to those hours.
[ May 2004 ]
5.7.2 Remuneration under a contract of employment without the performance of services
Earnings payable under a contract of employment without the performance of services or payable in consideration of a claimant returning to or commencing work with an employer are allocated to the period for which they are payable. Earnings payable under a contract of employment without the performance of services or payable in consideration of a claimant returning to or commencing work with an employer are allocated to the period for which they are payable.
It is the entire income arising out of any employment that is earnings for benefit purposes. This includes remuneration payable under a contract of employment. In order to be considered to arise out of employment, the payment must display the character of a compensation given in return for the work done by the recipient; that is, it must arise out of the employment itself, and not merely as a consequence of the employment status of the recipientFootnote 24.
Remuneration payable under a contract of employmentFootnote 25 without requiring that an employee directly perform services in exchange for that particular payment meets the character of a compensation for work if the entitlement to the payment arises because of the terms and conditions of the employment contract. The entitlement to the payment must be based on services which were performed in the past; such as, pay for leave, separation payments or the claimant's holding himself or herself available for work with that employer.
Earnings payable under a contract of employment without the performance of services are allocated to the period for which they are payable.Footnote 26 In addition, earnings which are payable in consideration of a claimant's returning to or commencing work with an employer are allocated to the period for which they are payable, that is, when the claimant fulfills all the required conditions and returns or commences work. If the employee must return to work for a specific period of time before being entitled to the payment for returning to work, then the period for which it is payable is that periodFootnote 27.
All earnings payable under a contract of employment which are not directly for the performance of services could be said to be payable without the performance of services and be allocated as such. Although earnings, such as: moneys arising from a pension fundFootnote 28; moneys paid or payable by reason of a lay-off or separation;Footnote 29 vacation leave and pay;Footnote 30 and sick leave;Footnote 31 are payable under a contract of employment without the performance of services, these types of payments have specific allocation rules and are discussed in other sections of this Chapter.
Included in the allocation of earnings payable under a contract of employment without the performance of services are: Supplement Unemployment Benefits (SUB) Plan payments which do not meet the criteriaFootnote 32; damages for the breach of a hiring contract or recall rights, and periods of leave compensated by an employer, such as compensatory leave for overtime worked,Footnote 33 leave funded through regularly working more hours than the normal work weekFootnote 34 or funded through the setting aside of a portion of the employee's salary when working to receive remuneration during periods of leaveFootnote 35, pre-retirement leaveFootnote 36. These earnings are allocated to the period for which they are payable.
Also covered in this section are some other earnings which are payable under a contract of employment without the performance of services which have specific methods of allocation: designated holidaysFootnote 37; maternity leave, adoption leave, or leave for the care of a childFootnote 38; and payments in consideration of a claimant's returning to or commencing work with an employerFootnote 39.
126.96.36.199 Designated holidays
Payments received in respect of a holiday or non-working day, which is observed as such by law, custom or agreement or a holiday or non-working day immediately preceding or following a holiday or non-working day that occurs at the establishment of the employer or former employer from whom the claimant receives the payment, shall be allocated to the week in which that day occurs.
Payment received for designated holidays are part of the entire income that arises out of any employment.Footnote 40 Payments for designated holidays include those holidays or non-working days that are observed by law, custom or agreement. Designated holidays also include any holiday or non-working day that immediately precedes or follows a holiday or non-working day. Payments received for designated holidays are allocated to the week in which the designated day occursFootnote 41.
Holidays or non-working days observed by law include those statutory and civic holidays designated by provincial or federal authority. Holidays or non-working days may also be designated by custom or agreement by a particular employer or industry. These designated days may be instead of or in addition to the required statutory and civic holidays.
The designated holiday may fall prior to, or after, a lay-off or separation, or during a vacation period, or the payment may be conditional upon the claimant's return to work. Nevertheless, the allocation is still to the week in which the designated holiday falls, even if the employer has agreed to delay the payment for the holiday to a time agreeable to the employer and the employee or the employee's unionFootnote 42.
If the employer and the union agree to substitute a different day to observe a designated holiday, then any earnings paid for that holiday are allocated to the week in which the substituted holiday occurs because that is when by custom or agreement the holiday is takenFootnote 43. However, if there is evidence that the change was solely made to circumvent the intent of the Employment Insurance legislation, such as when the day chosen is a day when no work is normally done, the earnings would be allocated to the week in which the original designated holiday occursFootnote 44.
In some industries rather than give a specific amount for each designated holiday, the designated holiday pay may be a percentage of wages paid which is to apply to any designated holiday for which entitlement is shownFootnote 45. In order to be entitled to payment for a specified holiday the employee is usually required to have worked the day before and the day after the holiday. The practical effect of this requirement ensures that the designated holidays being compensated occurred while being employed. Designated holiday pay paid as a percentage is allocated to the weeks in which the holidays occurred during the period of employment.
A retroactive allocation may have to be made if the claimant was in receipt of benefits during any of the statutory or designated holidays. If there are a number of holidays an approximate percentage will be calculated according to the number of designated holidays.
If a claimant works on a designated holiday, the earnings received for the designated holiday are allocated to that day in addition to the wagesFootnote 46, unless the claimant banks the extra time earned by working on a holiday or there is an agreement between the union and the employer to substitute a different day. In that case, the earnings would be allocated to the week in which the leave or the alternate day was takenFootnote 47.
188.8.131.52 Maternity, adoption or care of a child leave
Payments that a claimant has received or, on application, is entitled to receive are earnings if made under:
- a paid maternity or adoption leave plan, or
- a leave plan for the care of a child referred to in subsection 23(1) of the Act.
Payments in respect of maternity or adoption or leave to care for a child referred to in subsection 23(1) of the EI Act are allocated to the weeks in respect of which the payments are paid or payable.
The portion of any payments made by reason of pregnancy or for the care of a child or any combination is not earnings for the purposes referred to in subsection(35)(2) of the Regulations if:
- when combined with the claimant's weekly rate of employment insurance benefits from that employment, the payment does not exceed the claimant's normal weekly earnings from that employment; and
- the payment does not reduce the claimant's accumulated sick leave, vacation leave, severance pay or any other accumulated credits from his or her employment.
When a claimant receives, or is entitled to receive, wages or salary under a plan for maternity, adoption or care-of-a-child leave, these moneys are earnings arising out of employment. It is not necessary that such moneys actually are paid; it suffices that they could be paid upon the claimant's request. The leave payments are allocated to the weeks for which they are paid or payableFootnote 48.
However, payments for maternity, adoption or care-of-a-child leave are specifically excluded from consideration as earnings if they meet specific criteria. It is not earnings if the payment, when combined with the claimant's weekly rate of benefit, does not exceed the claimant's normal weekly earnings from employment and does not reduce the claimant's accumulated sick leave, vacation leave, severance pay or any other accumulated credits from employmentFootnote 49. When there is dual employment, only that portion of the benefit rate and the normal weekly earnings from the employer that pays the top up are to be considered.Footnote 50
Maternity, adoption or childcare payments that do not meet the criteria to be specifically excluded as earnings are not considered earnings during the waiting periodFootnote 51.
Payments received as an encouragement to return to work following maternity or care-of-a-child leave are also earnings. When the payment is in consideration of the claimant's return to work for a specific period, the earnings are allocated to the required specific period which follows the claimant's return to work and not to the period of leaveFootnote 52. A person may return to work following a period of leave for maternity, adoption or the care of a child and receive compensation intended to cover the two-week waiting period. In this case, the leave pay is allocated to the two-week waiting periodFootnote 53 where these moneys are not to be taken into account as earningsFootnote 54.
[ September 2003 ]
184.108.40.206 Compensatory leave for overtime worked
Contracts of employment set out the number of hours and days that are normally expected to be worked by employees. These contracts also set out the remuneration to which an employee is entitled should he or she be required to work hours in excess of, or outside of, their stated regular hours.
Employees who work overtime may have the right under their contract of employment to choose how they are compensated for overtime worked. Remuneration for the overtime worked is the compensation for the extra hours worked. It is not an earned benefit in addition to wages for work, as in the case of accumulated sick leave or vacation pay—it is the actual wages for the work. The worker may have the choice to be compensated in pay for the overtime hours worked or to receive the equivalent of the overtime worked as a period of leave with pay (compensatory leave). This compensatory leave is accumulated until the employee is in the position to take the leave and the employer is in position to allow it.
By choosing to accumulate the overtime hours worked until some later date, the claimant and the employer have come to an agreement that the claimant will be allowed to take leave and receive remuneration for the period of the leave rather than payment for the overtime. For any hour so accumulated, it also means that earnings are no longer strictly payable under that contract of employment for the services performed by the claimant during period of overtime worked. Earnings under that contract of employment are now payable for a period of leave where services are not required to be performed and, as such, are allocated to the period for which they are payableFootnote 55, that is, to the period of leave granted. For the week in which the "overtime" hours were worked, there can be no allocation of earnings for the performance of services for any hours of overtime which are accumulated.
Claimants may be unable to take their accumulated compensatory leave due to the expiry of a set time limit or lay-off or separation. In these situations, the employer is still under the contractual obligation to pay for overtime worked or to grant time off with pay. If the employer can no longer grant time off with pay, the employer has the contractual obligation to pay the claimant for the overtime worked. When this payment is made, no matter whether the payment was prompted by lay-off, separation or the reaching of an anniversary date, it is earnings payable under a contract of employment for the performance of services and is allocated to the period in which the services were performedFootnote 56, that is, when the overtime was worked.
220.127.116.11 Supplemental unemployment benefits plan—criteria not met
Employers may supplement their employees' EI benefits during periods of unemployment due to a temporary stoppage of work, training, illness, injury, quarantine, maternity, care-of-a-child leave or the care or support of a family member. These supplemental payments make up the difference between the claimant's EI benefit and the employee's normal wages while employed.
As these payments are moneys arising out of employment, they would be earningsFootnote 57 to be deducted from EI benefits. However, payments made by an employer to supplement EI benefits are excluded from consideration as earnings if they are made under a Supplementary Unemployment Benefit (SUB) plan which meets specific conditionsFootnote 58.
SUB plans are reviewed at the national level to determine if all required conditions are met and a list of the SUB plans that meet the conditions is maintained. Any payment made under a SUB plan that does not meet all of the conditions is treated as earnings and is allocated to the period for which it is payable; that is, the period of unemploymentFootnote 59.
Certain supplements to EI benefits have the same effect on entitlement to benefits even if they are paid for other reasons and with a plan other than a formal approved SUB plan. Supplemental payments made by the employer or another person to supplement EI benefits during maternity, adoption, care-of-a-child leave or for the care or support of a family member are specifically excluded from consideration as earnings if they meet specific criteria. These payments are not earnings if the payment when combined with the claimants' weekly rate of benefit does not exceed their normal weekly earnings from employment and does not reduce their accumulated sick leave, vacation leave, severance pay or any other accumulated credits from employmentFootnote 60.
[ June 2005 ]
18.104.22.168 Lay day or periods of leave
Contracts of employment (verbal or written) between an employer and its employees, establish the number of hours and days that the employees are normally expected to work. The work week in the contracts of employment for some employers or industries may exceed the hours or days worked by full-time employees employed elsewhere. When the regular work week of employees is in excess of the hours, days or shifts normally worked by individuals in full-time employment, these employment contracts may offer additional benefits to employees, to compensate for the increased regular work weeks.
There is no formal definition of "full-time employment" in the EI Act or Regulations. What is full-time employment is a factual determination that should be based on evidence. A determination of what constitutes the normal number of hours worked by persons in full-time employment must be made, based on local labour market information and terms of the Employment Standards Act in the claimant's province or territory of employment.
Under the above mentioned contracts of employment (verbal or written), employees receive their usual remuneration for the actual higher number of hours or days worked and, to compensate for working this increased regular work week, are entitled to a period of leave. This period of leave may be with or without pay. These days of leave are commonly referred to as lay days or periods of leave, and are an earned benefit in addition to wages paid for the work actually performed. This is similar to the accumulation of vacation pay.
Entitlement to lay days or periods of leave may also occur when employees work a number of hours, days or shifts in a compressed fashion making these hours, days or shifts in excess of those worked by full-time employees in a week. As a result of this compressed work, these employees obtain leave or time off for periods they would otherwise be required to work. These employees may receive the same wage or salary each week regardless of the actual hours worked in each week.
Due to special provisions, there is no interruption of earnings for any week or part week in which leave for a lay day or period of leave is takenFootnote 61, unless there was an interruption from other employment in a claimant's qualifying period. The claimant is also considered to have worked a full working week for any week or part week of lay days or period of leave takenFootnote 62. This is true whether the claimant is paid for the lay days or period of leave, or not.
If lay days or period of leave is taken with pay, earnings payable for this leave are allocated in the same way as any earnings payable under a contract of employment without the performance of services; that is, to the period for which the leave is payable. If the lay days or period of leave taken is without pay, there cannot be any allocation of earnings to the leave period. In this situation, one must examine the issue of whether or not the weeks covered by the lay days or period of leave are considered to be weeks of unemployment.
Sometimes lay days or a period of leave cannot be taken due to the reaching of a specific date, lay-off, or separation. The claimant may lose entitlement to the accumulated lay days or period of leave. If this occurs, an interruption of earnings will occur as of the later of the date the individual stopped working or the date they are no longer entitled to the lay days/period of leave. In addition, a disentitlement for working a full working week during lay days or a period of leave does not apply if there are no lay days or period of leave taken. However, if any lay days or period of leave were taken in the last week worked, those provisions may be applicable to that week, as they apply for any week or part week where lay days or a period of leave occurred.
If the right to paid leave for lay days or period of leave is lost upon reaching a specific date, lay-off or separation, the claimant may be entitled to moneys in lieu of that paid leave. The paid lay days or period of leave is a benefit accumulated under the contract which is paid out if it cannot be taken, similar to vacation leave entitlement. These moneys are earnings arising out of employment. If these earnings are paid or payable by reason of a lay-off or separation, these earnings are allocated like all earnings payable by reason of a lay-off or separationFootnote 63. However, the normal weekly earnings in that case would be based on the claimant's actual work week. If the earnings are payable because the paid leave must be used by a specific date, the allocation would be to the week in which the money in lieu of the leave became payable under the contractFootnote 64.
If the right to lay days or period of leave without pay is lost on reaching a specific date, lay-off or separation, and the claimant is not entitled to moneys in lieu of that leave, there is no earnings allocation to be made, in the same way there is none if the unpaid leave was taken.
22.214.171.124 Deferred salary leave
Deferred salary leave or self-funded leave plans are also becoming a popular option in the workplace. In these cases, employees choose to spread out their salary, which is earned when employed, over the period of work and unpaid leave in order to be considered an employee and receive remuneration during the period of leave. For example, an employee could receive the pay from working four years spread out over a five-year period. The employee is considered an employee on paid leave for the fifth year.
By special provisions, employees on deferred leave do not have an interruption of earnings during their leave periodFootnote 65 unless it can be established on the basis of other employment, and employees on the leave are considered to have worked a full working week for each week of their deferred leaveFootnote 66. This is not applicable if the employment terminates for some reason and the self-funded leave agreement is broken.
Nevertheless, it is considered that by choosing the deferred salary leave plan, employees consent to be paid a lesser amount as salary during their period of work so that they can be paid that same salary level during the period of the leave. If the issue becomes one of allocation of earnings, the earnings are allocated to the period of work and to the period of paid leave at the agreed upon salary level for that periodFootnote 67.
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