Digest of Benefit Entitlement Principles - Chap 5-Section 2
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5.2.0 The determination of earnings under regulation 35
The Commission, with the approval of the Governor in Council, has the authority to make regulations that specify and clarify what constitutes earnings Footnote 1 . Regulation 35 has been made under that authority. Its purpose is to determine what moneys are or are not earnings for benefit purposes. The moneys determined as earnings are taken into account to determine the amount to be deducted from benefits, to determine an interruption of earnings and to determine the amount of benefits to be repaid to the Commission Footnote 2 under certain circumstances by the claimant or the employer or a trustee in bankruptcy Footnote 3 .
This authority is limited to include only those moneys or advantages that are earned by labour or that resemble them Footnote 4 . It can be said that moneys or advantages are earned by labour or resemble them when they relate to, are attached to, or arise out of employment. The moneys must clearly display the character of a consideration given in return for work done by the recipient Footnote 5 . This is opposed to moneys that are earned by investment or capital, through chance, through charity, or through a personal relationship Footnote 6 .
Generally, earnings are any moneys paid for wages, salary, pecuniary benefits and all other advantages, pecuniary or non-pecuniary, which are related to, attached to or arising out of employment Footnote 7 . Any compensation for the loss of any of these types of income is also earnings for benefit purposes.
Conversely, payments made for advantages unrelated to employment, such as alimony, lottery winnings and inheritances, are not earnings for benefit purposes. Similarly, any compensation for losses totally unrelated to advantages arising out of employment is not earnings Footnote 8 . For example, settlements paid to address injury to one's health or reputation Footnote 9 or to compensate for pain or suffering resulting from an accident Footnote 10 are not earnings.
The true nature of the payments must be established to determine whether they are advantages related to, attached to or arising out of employment. Relying solely on the terms used by the parties is sometimes insufficient because the name given to a payment does not necessarily determine its true nature Footnote 11 . When doubt exists about the true nature of a payment, the best way to clarify the issue is to examine the intentions of the parties by reviewing all relevant documents and contacting all the parties involved. Although the onus of proof is on the claimant, the Commission will assist him or her in providing or clarifying the evidence by contacting the employer or any other party.
When terms are not defined in the EI legislation, the meaning given individual words must be examined in the context in which the words are used in the legislation. Dictionaries and jurisprudence often provide further clarification.
The earnings to be taken into account are the gross amount Footnote 12 before any deductions such as income tax, CPP, QPP or EI premiums Footnote 13 . Earnings paid in foreign funds are converted to Canadian dollars at the rate of exchange existing at the time the earnings were paid or payable.
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Paragraph 54(s) of the Act gives the Commission the authority, with the approval of the Governor in Council, to make regulations to specify and clarify what constitutes earnings under the Act and on how to allocate earnings.
Regulations 35, 37 and 38 determine which moneys are considered earnings for benefit purposes.
Regulation 36 directs their allocation.
5.2.1 Structure of regulation 35
Knowledge of the structure of Regulation 35 and the purpose of each subsection will assist in the process of determining what constitutes earnings.
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Regulation 35 (1) provides the meaning of the words income, employment and pension for the purpose of Regulation 35.
(2) specifies which moneys are earnings. It also specifies for what purposes these earnings must be taken into account.
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(2) specifies that the entire income arising from any employment including the types of earnings in paragraphs (a) through (f) will be taken into account for the following purposes:
- determining an interruption of earnings
- determining the amount of earnings to deduct from benefits
- determining the amount of benefit to be repaid to the Commission by the claimant or the employer under sections 45 and 46 of the Act.
(2)(a) to (f) includes specific moneys as earnings.
(4), (5), and (6) exclude the following moneys from earnings for the purpose of determining an interruption of earnings: group sickness or disability wage-loss indemnity payments; worker's compensation payments, pensions, and moneys paid or payable by reason of a lay-off or separation.
(7)(a) to (f) specifically exclude moneys that may otherwise have been determined to be earnings.
(8) and (9) clarify what is not a group sickness or disability wage-loss indemnity plan.
(10) provides what is or is not included in the entire income arising out of any employment depending whether the claimant is self-employed, self-employed in farming, and not self-employed.
(11) to (16) describe how to affix a value to board, living quarters and other benefits claimants receive in respect of their employment, and describe what is included in the terms "living quarters" and "income."
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Regulation 37 sets the conditions that must be met by a supplementary unemployment benefit plan in order for the payments under that plan not to be considered earnings.
Regulation 38 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 23(1) of the Act if
- when combined with the claimant's weekly rate of employment insurance benefits, the payment does not exceed the claimant's normal weekly earnings from his or her 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.
5.2.2 The determination process
In trying to determine whether a specific payment, whether pecuniary or non-pecuniary, is earnings for benefit purposes, it is necessary to obtain all relevant information regarding the nature of the payment, its origin and its purpose.
The gathered information is used to determine if this payment is an advantage related to, attached to, or arising out of employment Footnote 14 . If so, then it must be determined whether it is specifically excluded from consideration as earnings Footnote 15 .
To do this determination, these steps are followed:
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The determination process
- Gather information.
- Does the payment arise out of employment as per Regulation 35(2)?
- Is the payment specifically included as earnings under Regulation 35(2)(a) to (f)?
- If so, does the payment meet the definition of an income?
- If payment falls under Regulation 35(2), is the payment specifically excluded from earnings under Regulation 35(3) or Regulation 35(7)?
- If the payment is earnings under Regulation 35(2) and is not excluded under Regulation 35(7), is there any amount that should be not be included in income under Regulation 35(10)?
5.2.3 Questions in the determination process
There are some common questions that help in the process of identifying whether the moneys or advantages are earnings for benefit purposes. Depending on the circumstances, other questions could be appropriate.
Once the answers to these questions, and others that may also be applicable, are known, Regulation 35 can be applied to determine if the payment is earnings. In order for a payment to be earnings, there must be some link between the payment and the fact that the claimant was employed.
5.2.3.1 What is the payment
What name is given to the payment? Normally, the name given by the claimant or the employer establishes the nature of the payment. However, sometimes it is necessary to clarify if the term used is unfamiliar, or does not seem to reflect what it is purported to be under the circumstances.
What is the amount or dollar value of the payment? The dollar amount is important should the payment be earnings that would require an allocation.
5.2.3.2 Who is making the payment
It must be established whether the employer is making the payment or someone else. If it is someone other than the employer making the payment, it must be established whether there is a link with the employment.
5.2.3.3 Why is the payment made
Generally the name given to the payment will give a clear indication as to what the payment is and why it is being made. When the name given makes it difficult to determine what is the nature of the payment, or the name given to the payment does not seem to reflect what the payment is actually for, the true nature of the payment must be established.
To accomplish this, it is sometimes necessary to ask why the money is being paid. Once the reason for the payment is established, it becomes clearer what the true nature of the payment is. It is important to obtain as much information as possible from the parties involved and to scrutinize any written agreement that gave rise to the payment in order to determine the intention of the parties. In these cases, it is the reason for which the moneys were paid that will govern the Commission's determination rather than the name given to the payment.
5.2.3.4 From where and to where is the payment going
From where is the money coming? There are some instances when it is important to know where the money comes from, such as whether money is being paid from a trust fund, general company revenues or a pension fund.
To where is the money going? In other cases, it may also be important to know where the money is going, such as whether it is going into another employer's pension plan, into a locked-in non-commutable RRSP, or into the claimant's bank account.
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