Digest of Benefit Entitlement Principles Chapter 5 - Section 3
5.3.0 The entire income arising out of employment
Earnings for benefit purposes include the entire income arising out of employment (EIR 35(2)). In fact, any moneys or non-pecuniary benefits received from employment cannot be excluded from the broad characterization of the entire income of a claimant arising out of any employment, unless expressly excluded by the regulations, jurisprudence or policy (EIR 35(7); Digest 5.5.0). This is especially so when specific provisions concerning the allocation of the moneys exist, such as vacation pay (EIR 36, 36(8)). Some earnings are specifically indicated in EIR 35(2) for clarity and to prevent any misinterpretation (Digest 5.4.0).
The concept of the entire income arising out of employment can be divided into two major components; the entire income, and arising out of employment. Determination of whether moneys are part of the entire income arising out of employment examines whether the payment arises out of employment and if so, whether it is income for the purpose of the act (Digest 5.3.1, Digest 5.3.2, Digest 5.3.3).
5.3.1 Arising out of employment
EIR 35(2) stipulates that earnings include the entire income of a claimant arising out of any employment.
In order to determine if moneys arise out of employment, the meaning of the term employment must be examined.
Pursuant to EIR 35(1) employment means:
- any employment, whether insurable, not insurable or excluded employment, under any express or implied contract of service or other contract of employment
- whether or not services are or will be provided by a claimant to any person, and
- whether or not income received by a claimant is from a person other than the person to whom services are or will be provided, and
- any self-employment whether on the claimant's own account or in partnership or co-adventure, and
- the tenure of an office as defined by the Canada Pension Plan
Sometimes, it is not obvious whether the moneys arise out of employment (Digest 126.96.36.199, Digest 188.8.131.52). What must be determined is whether an employment relationship exists between the person who makes the payment, and the one who receives it. It may be useful in these situations to refer to the general definition of the term employment found in the dictionary, to complement the meaning of employment as stated in the regulation. The dictionary definitions generally refer to an employer-employee relationship and the fact that the employer or the person to whom the service is due, both selects and compensates the employee, or person rendering the service. In other words, the person for whom the work is done has the power to hire and fire the person who is performing the service, and agrees to pay that individual for the services performed. In addition, employment usually includes some degree of control by the person employing, over the product or service produced, as well as the time taken to do so.
Simply being an employee of an employer is not sufficient to establish that any payment made by that employer arises out of employment. In order to arise out of employment, the payment must display the character of compensation given in return for the work done by the recipient. It must arise out of the employment itself, and not merely as a consequence of the employment status of the recipient (FCA A-597-94, CUB 25472).
Employment under any express or implied contract of service requires that there be an employer-employee relationship and that the relationship involves some form of remuneration or material benefit that may be direct or indirect, immediate or eventual.
Employment clearly includes the traditional situation where a claimant works under a contract of service for an employer, whether or not the employment is insurable. It also includes excluded employment as stated in EIA 5(2), employment anywhere in the world, or employment under a contract of service with the Reserve or Regular Armed Forces (EIA 5(1)).
Employment may also include situations where services are not performed. The issue to be addressed is whether there is an express or implied contract of service, or other contract of employment. Claimants, who after lay-off, continue to receive their salary and most of the benefits of the other employees, are under a continuing employment relationship with the employer, even though no work or services are expected or performed (CUB 69694).
Employment under any other contract of employment includes any employment that may not clearly be an express or implied contract of service. It includes situations where a claimant has accepted an offer of employment and the employer withdraws the offer before any actual services are performed. In this situation, a contract of employment was formed, therefore any moneys received as a result of the breach of that contract are considered earnings as they are income arising out of employment (FCA A-1205-88, CUB 15956). It also includes situations where a claimant receives moneys because the employer bypassed that claimant's recall rights and hired someone else with less seniority. However, employment does not include cases where a person receives compensation for not being hired by an employer, where that person has no recall rights or connection with the employer.
Self-employment, whether on one's own account or in a partnership or co-adventure, is included in the meaning of employment (Digest 5.16.0). Employment exists when a claimant is engaged in the operation of a business, or operating as an independent worker or contractor (Digest 4.6.0).
Tenure of an office is included in the meaning of employment as defined in the Canada Pension Plan Act:
“office” means the position of an individual entitling him to a fixed or ascertainable stipend or remuneration and includes a judicial office, the office of a minister of the Crown, the office of a lieutenant governor, the office of a member of the Senate or House of Commons, a member of a legislative assembly or a member of a legislative or executive council, and any other office the incumbent of which is elected by popular vote or is elected or appointed in a representative capacity, and also includes the position of a corporation director, and “officer” means a person holding such an office.
Examples of a person holding tenure of an office are a mayor, council member, chairperson or member of a board of referees, school trustees, or members of the board of directors of a corporation.
Employment can be said to exist even if the claimant receives the income from a person other than the person with whom the contract of service exists or existed, and for whom the services are or will be performed (EIR 35(1)). This other person could be someone who stands in the place of an employer or the employer's successor, if the business is sold. It could also be a customer who tips a server. However, a clear connection must be established between the employment or employer and the other person, in order for the moneys to be considered arising out of employment (FCA A-486-95, CUB 28503). Examples of any other person, as envisioned by the regulation, are a Workers' Compensation Board, an insurance company paying wage-loss insurance benefits, an administrator of a pension fund, or a wage protection fund (Digest 5.12.9).
Alimony, lottery winnings or inheritances do not arise out of employment, as these moneys are clearly not received by reason of an employment relationship.
184.108.40.206 Barter arrangements
A barter arrangement is an agreement to exchange services between individuals, and is considered employment because one person is providing services to another within that agreement. To that extent, there is an expectation of services to be performed, and an expectation of payment in the form of an exchange of services to be received. The benefits received in exchange for that service, which is the value of the service performed by the other individual, could be said to be non-pecuniary income arising out of employment (Digest 220.127.116.11).
18.104.22.168 Games and sports
Employment includes situations where individuals play sports or games for payment, if there is an employer-employee relationship, or if the player has entered into a contract for service. When a person plays games or sports under a contract of employment, employment clearly exists. This includes those who play professional and non-professional sports for a team or organization under contracts of service (CUB 76213).
Employment also includes situations where a person receives a guaranteed prize as payment for participating in an event, no matter whether the person wins or loses. When a prize is guaranteed in this way in order to attract players, the prize constitutes payment by the promoters for the player's participation in the event. A contract for service has formed between the player and the promoter. In the same way, there is employment when a player signs a contract with a company to endorse products or to appear on their behalf.
On the other hand, employment does not include situations where an athlete competes in sports or games without any guarantee or assurance of receiving a prize. In that event, there is no contract of service or contract for service employment between the athlete and the event organizers, as there is no assurance of material benefit (CUB 38453). However, the claimant’s availability for work may need to be considered.
22.214.171.124 Strike benefits
Union members may receive strike benefits from their union during periods of unemployment. During a labour dispute, these moneys are normally paid out of a strike fund that is comprised of union dues paid by the members while employed. Strike benefits may be given to all members, or to members based on a limited criteria established by the union membership. These moneys may be received for picketing or performing other tasks, such as distributing material, or caring for picketers' children.
The essential elements of employment are missing when individuals who are members of a union picket, or perform related activities, and receive strike pay. Therefore, strike pay is not earnings because:
- union members are not performing any services for the union itself, nor are they receiving any form of remuneration or material benefit of any kind for services
- the activities performed are only activities on the union members' own behalf, in their pursuit of a contract with their employer
- these activities are part of the contract negotiation process and are activities for which union members volunteer, or pursue for their own benefit
- the union does not have an employer-employee relationship with its members, and
- the union is not compensating members for any services. It is merely distributing moneys set aside from union dues or other sources, for later use during labour disputes
However, any activities performed for the union itself in conducting the business of the union, (such as being part of the negotiating team for which compensation is received) are considered employment if it can be established that the union is paying for services performed.
126.96.36.199 Benevolent or volunteer work
Generally, benevolent or volunteer work is work performed without any expectation of monetary reward. It lacks the elements of employment in that the individual is not usually selected to perform the service (they volunteer), and there is no expectation to receive any remuneration or material benefit (CUB 74353). A person engaged in such volunteer work is not bound under a contract of service. The absence of such contract is a decisive factor in determining whether the benevolent work is considered employment. Therefore, in the absence of a contract of service, a claimant who provides services as a benevolent gesture is considered not to be in employment. This is true even if, in some very unusual instances, the claimant may receive certain benefits by living on the premises, such as room and board, without any obligation to perform services (CUB 21373; Digest 4.5.6).
Benevolent or volunteer work for a friend, a relative or a spouse is generally not considered employment, as there is no contract of service (Digest 4.1.5, Digest 4.5.4, Digest 4.5.5). The performance of services is more related to the personal relationship with the person, and there is no expectation of receiving any remuneration or material benefit. Benevolent or volunteer work is considered employment only when the volunteer receives, or expects to receive, remuneration or material benefit (CUB 42191). In that situation, it can no longer be said that it is benevolent work, as on one side there is an expectation of services to be rendered, and on the other side, there is an expectation of payment. Any income, whether pecuniary or non-pecuniary, received by the claimant is then considered to be arising out of employment.
Benevolent or volunteer work for a spouse who is under a contract of service, is considered employment only if the contractual relationship applies to both spouses. If the spouse is self-employed, consideration is given to the nature of the duties and responsibilities carried out by each spouse in the operation of the business. If it appears that the claimant is not particularly concerned with the business, but merely helps out on occasion, the assistance given is not regarded as employment (Digest 4.5.5). However, if the efforts go beyond merely helping out, the individual may be found to be in self-employment (Digest 4.6.9). Digest 188.8.131.52 provides additional information on whether moneys paid to one spouse by the spouse holding the contract can be deducted as an expense.
When the benevolent or volunteer work is performed for an employer, the issue again is whether there is a contract of service between both parties. This requires the existence of an employer-employee relationship and involves some form of remuneration or material benefit, direct or indirect, immediate or eventual. The very essence of the employer-employee relationship, when volunteer work is performed for an employer, is the fact that the worker will obtain, or hopes to obtain, a benefit or profit from the work. This is the case when a volunteer fire fighter receives remuneration, whether periodically or in a lump sum, for acting as a member of a fire department. The remuneration and its expectation make this employment. Where no remuneration is promised for the volunteer work, the person may simply hope to obtain regular paid employment from that employer in the future (FCA A-1009-90, CUB 18752). Where it is found that there is an employer-employee relationship, any income received by the claimant, whether pecuniary or non-pecuniary, is considered to be arising out of employment. However, if the claimant receives no income, a value cannot be affixed to the services It then becomes an issue of whether or not the claimant is actually unemployed (Digest chapter 4), or available for work (Digest chapter 10).
Moneys or any other material benefits received as a gift, but not given in consideration of services performed, do not arise out of employment.
When helping out a friend or relative, a gift is considered arising out of employment if the individual performing the services expects these moneys or a material benefit. In this case, the gift is linked to the performance of service with the expectation of payment, as the assistance is not freely given to a friend or a relative (Digest 184.108.40.206).
A gift arises out of employment only if the employee receives the gift because of the employer's custom to give such gifts to all employees, or if the employer gives some indication that the gift is related to employment.
A gift is not arising out of employment when an employee receives it from a personal friend who also happens to be their employer, such as a wedding present. The gift in those cases arises out of the personal relationship with the employer and not the employer-employee relationship.
Gifts from customers, such as tips, arise out of employment when they occur in recognition for the service provided or work performed. If it were not for the services provided by the individual for the customer involved, the gift would not have been given (Digest 5.14.7). However, a gratuity related to a personal relationship, rather than the service or the work performed, cannot be said to arise out of employment and is not earnings for EI benefit purposes.
220.127.116.11 Return on investment or on capital
A return on investment, or a return on capital, are those moneys that are derived from the ownership of an asset, and the result of the performance of the funds or property invested, rather than the work of the investor.
A return on investment is not the result of involvement in the actual operation of a business on the owner's own account, or in a partnership or co-adventure. Only when there is involvement in the operation of a business, can it be said that there is work performed by the person. When there is only an investment of funds or capital and no participation by the owner, the investor is not engaged in the operation of the business and there is no element of employment. Moneys gained from a return on investment or a return on capital do not arise out of employment or self-employment.
Although generally there is no work or labour when there is a return on investment, there may be some small element of participation by the owner, in the operation of a business owned as an investment. As long as the nature of the participation demonstrates only a natural concern for an investment, that participation is not enough to change moneys arising out of an investment to moneys arising out of self-employment (Digest 18.104.22.168). In determining this, the decisive factor is the nature of the activities of the person in the operation of the business, and not necessarily the amount of time spent. If the activities performed are in the nature of a person engaged or involved in the operation of a business, then the moneys earned arise out of employment, and not from a return on investment (CUB 68317; Digest 4.6.3).
If the activities are in the nature of concern with how others operate the business, or concern with protecting the investment itself, then the moneys are a return on investment. Without the element of engagement or involvement in the operation of a business, the individual is neither engaged in self-employment, nor engaged in the operation of a business on their own account, or in a partnership or co-adventure. As such, any moneys derived from the business are not considered earnings for EI benefit purposes.
A return on investment, or a return on capital, may result from:
- the investment of moneys
- the acquisition, holding, or disposal of property or securities (stocks, bonds, notes, convertible debentures, warrants, or other documents that represent a share in a company or debt owed by a company), or
- the contribution of money or property to a business venture so that it may produce revenue
Royalties are paid to the owner of a property for the use of that property. Whether these royalties are considered a return on investment depends on why these moneys were paid. Royalties paid to the creator of a property, such as, computer software, a song, a book, a commercial, or record royalties paid to the composer, author, or singer, are not considered a return on investment. These royalties are the result of labour by the actor, composer, author, or singer, therefore are earnings arising out of employment (CUB 78103). Royalties paid to the owner of a property, based on the mere ownership of that property (gas, oil or mining properties), are not earned by the property owner's labour, and therefore are considered a return on investment.
Interest, which is earned on a saving's account, a certificate of deposit, or a loan, arises solely from the moneys in the account, on deposit or on loan. The interest does not arise from any labour by the person who owns the account, who placed the moneys on deposit, or who made the loan. It arises exclusively from the use of the money itself. As a result, the interest earned is a return on investment. This is true even if the interest is paid by an employer to compensate for an administrative delay in payment of moneys owed to a claimant.
Income earned by investment alone is not earnings, even if the claimant spends a substantial amount of time following the progress of the investment. Regardless of the amount of time spent by the person, the money is still earned by the investment itself and not the labour, participation, or involvement of the investor in the earning process.
22.214.171.124 Grants or subsidies
A grant is the giving or gifting of land or money. This may be given in exchange for something on the part of the recipient. It may also be given conditional on the production of a service or a product.
When a grant is given on the condition that the grant recipient performs some activity or supplies a product to the grant giver, a contract for service is formed. Under a contract for service, the self-employed contract worker or independent contractor is required to produce a given result within a set period. In these situations, the payer is not normally involved in the performance of the work, nor do they have control over the manner in which the work is performed. A contract for service falls under the definition of self-employment.
A grant does not arise out of employment if it is given as a gift, and is in no way related to a service, labour, or a product. A grant arises out of employment only if given on the condition that the recipient provide a service, labour, or a product.
Any money paid to compensate the grant recipients for their time or effort arises out of employment. However, any moneys paid to compensate for items unrelated to the actual labour performed by the claimant, such as, equipment purchased or expenses incurred, do not arise out of employment.
A subsidy is defined as a grant of money made by the government in aid of the promoters of any enterprise, work or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public. A subsidy, like a grant, may be given on the condition that a product or a service is provided. If a contract is formed between the subsidy recipient and the government, whereby there is payment per unit produced, there is an employment relationship formed. The subsidy must have some connection to the labour performed by the subsidy recipient, or there cannot be employment.
For individuals engaged in self-employed activities in farming, income from farming is the gross income, including any subsidies they receive under a federal or provincial program, remaining after deducting the operating expenses, other than capital expenditures (EIR 35(10)(b)). Although all subsidies could be included in the income from self-employment in farming, only income support subsidies are included (Digest 126.96.36.199). This is in keeping with the Commission’s regulatory power to specify as earnings only those moneys earned by labour, or those that resemble moneys earned by labour.
188.8.131.52 Acting as an executor
An executor is someone appointed to carry out the directions and requests in a will, and to dispose of property according to the will's stated provisions. A person carrying out the provisions of a will may charge a fee for their services. If the individual acts as an executor for a fee, a contract for service has been formed. Any moneys arising out of the services performed are arising out of employment (FCA A-061-10, CUB 73843). However, only the moneys that are paid for the services performed in connection with acting as the executor under the will, are considered earnings arising out of employment.
Any property or money received under the provisions of a will is an inheritance, and arises out of the individual's personal relationship to the deceased. It does not arise from an employment relationship, therefore these moneys cannot be considered earnings arising out of employment. This applies to a bequest or inheritance under the will, even if the person is also acting as an executor for a fee.
184.108.40.206 Moneys paid while attending a course of instruction
Students may receive moneys from various sources while attending courses of instruction. The question to be determined is whether an employment relationship exists between the individual who makes the payment, and the student who receives it. Unless it is clear that an employment relationship exists, moneys received while attending a course of instruction do not arise out of employment.
Moneys arise out of employment when a student has a contract of employment with the training institution, regardless of whether services are performed. This is also true if the student receives any moneys with the requirement that the student performs research work or assists a professor in teaching or marking duties. When this occurs, there is an employer-employee relationship formed (CUB 35307, CUB 38538). If such an employee-employer relationship does not exist, any moneys received from an educational institution do not arise out of employment.
Employers may supplement their employees' EI benefits during a period of unemployment while the employee is attending a course to which they were referred by an authority designated by the Commission. These supplemental payments make up the difference between the claimant's EI benefits and the employee's normal wages while employed.
As these payments are moneys arising out of employment, they would normally be earnings to be deducted from EI benefits (EIR 16(1)). 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 conditions (EIR 37).
Where no SUB plan exists, allowances paid as income support while attending the course are considered earnings, and would be allocated to the period for which they are payable (EIR 36(5)). Allowances paid in respect of dependant care, travel, commuting, or a living-away-from-home or disability allowance do not arise out of employment, and as such are not earnings to be deducted from benefits (EIR 16(2)).
Moneys may also arise out of employment when an employer pays a living allowance (other than a living-away-from-home allowance) to an employee or former employee while that individual is attending a course. This is so, whether this occurs during a period of employment or after, as part of a severance package. The portion paid as part of a severance package is paid by reason of a lay-off or separation, and is allocated in the specified manner (EIR 36(9); Digest 220.127.116.11).
18.104.22.168 Foster care
Foster care is acting in the place of a parent to provide a home for a child, even though that child is not related to the foster caregiver, either by blood or by legal ties. Foster care may be compared to benevolent or volunteer work and should not be considered employment, unless there is remuneration or some expectation of remuneration, in return for that care.
Although expenses incurred in the raising of the foster child may be reimbursed on a per diem basis by the organization or another party, this in itself, is not sufficient remuneration or expectation of remuneration to consider foster care as a form of employment. The moneys received from an agency to compensate for expenses incurred in raising a foster child do not arise out of employment.
However, if an individual enters into a contract for service with another party to provide foster care for a fee, in addition to or instead of expenses, then foster care is considered employment. The organization is paying the individual to care for the child, and for that care, the organization is willing to provide compensation, therefore an employment relationship is formed. Only the portion of the income that is the fee for the foster care would be income arising out of employment; any portion that is for expenses incurred is not part of the entire income (Digest 22.214.171.124). If expenses are not reimbursed, the operating expenses actually incurred may be deducted from any fees paid (EIR 35(10)(c); Digest 5.16.0).
5.3.2 The entire income
This section deals only with income that arises out of employment. These earnings have been specifically included under EIR 35(2), as they are either related to, or attached to, employment. Other earnings that may fit the general definition of income, but do not necessarily arise directly out of employment, are discussed in section 5.4.0 of this Digest.
Income is defined in EIR 35(1) as:
any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy.
Pecuniary is defined in the dictionary as, consisting of, or measured in money. Conversely non-pecuniary means consisting of, or measured in something other than money (Digest 126.96.36.199).
In addition to the meaning of income provided in the regulations, the Commission also relies on its common dictionary meaning. The dictionary refers to income as a gain or recurrent benefit, usually measured in money that derives from capital or labour (CUB 80836). Although this definition includes moneys earned by capital, the wording of the legislation limits income to that which is earned by labour, or that resembles it (FCA A-597-94, CUB 25472). In addition, the payment must be made to compensate for work performed, or to be performed by the employee, under the terms and conditions of employment, and not merely as a consequence of the recipient's employment status.
In order for the payment to be considered income, a clear connection must be established between the employment or employer and the person receiving the payment. An example is a customer or client who makes payments to a self-employed person. Other examples of other person as envisioned by the regulation, are a government who makes payments under a wage protection fund (FCA A-486-95, CUB 28503), or an insurance company who pays lost wages to employees who are unable to work because of a motor vehicle accident (EIR 35(2)(d); FCA A-378-96, CUB 33206).
The meaning given to the word income under any other legislation is not relevant and cannot be applied over the meaning clearly stated in the EI legislation (CUB 42860).
Any moneys that arise from employment are income (Digest 5.3.1). Generally, income is any pecuniary or non-pecuniary benefits, such as, wages, salary, and all other advantages or employment-related benefits that are related to, attached to, or arising out of employment (Digest 5.3.2). As well, compensation for the loss of any of these benefits is income for EI benefit purposes.
An employment-related benefit is something given by an employer to compensate the employee for work performed, in addition to the basic hourly wage or monthly salary. It is part of the total compensation package offered by an employer. It may include items required by labour laws, such as vacation pay and statutory holiday pay and items called fringe benefits (Digest 188.8.131.52). Payments that do not arise out of employment are not income for benefit purposes. This includes investment income, alimony, lottery winnings and inheritances.
Any compensation for losses that are totally unrelated to the advantages arising out of employment, is not income (Digest 5.12.11). For example, settlements paid to address injury to one's health or reputation, or for pain or suffering resulting from an accident (Digest 5.11.4, Digest 5.11.8), are not income, as these settlements are not for loss of wages or employment advantages (i.e. employment-related benefits).
Moneys that are paid by an employer to reimburse or to compensate specifically for a job-related expense incurred or to be incurred by the employee, or a job-required consideration, are not income as there is no gain or benefit (Digest 184.108.40.206). These payments for job-related expenses and job-required considerations are not paid to compensate for work performed by that employee. Rather, they are intended to reimburse for the extra costs incurred in performing the job duties.
Where no amount is paid to reimburse a specific job-related expense or to compensate for a job-required consideration supplied by the employee, these expenses may be deducted from the gross income, if they were incurred for the direct purpose of earning that income (Digest 220.127.116.11).
The earnings to be taken into account are the claimant's gross earnings (FCA A-866-87, CUB 14091) which include the usual deductions, such as income tax, union dues, EI premiums, or the employee's own contributions to a pension or wage-loss insurance plan. The employer's share of the contributions to a pension fund is not included in the gross earnings of the claimant. The right to these employer contributions does not occur when they are earned, but rather only later when specific conditions have been fulfilled (Digest 5.13.0).
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.
18.104.22.168 Non-pecuniary income
EIR 35(1) and 35(10)(d) to 35(16) provide for the inclusion of non-pecuniary income in the definition of income. They also specifically provide for the inclusion of board, living quarters and other benefits as income. They describe how to affix a value to board, living quarters and other benefits received from employment.
Not all income that arises out of employment is received in the form of money (i.e. in a pecuniary form). The payment can also be non-pecuniary, meaning that the compensation consists of, or is measured in, something other than money.
Non-pecuniary income received by a claimant from an employer or any other person, is included in the definition of income (Digest 5.3.2). It also includes any non-pecuniary items received by a self-employed claimant from a customer or a client.
Non-pecuniary income includes the value of board; living quarters; heat, light, telephone, or other benefits included with those living quarters; any other benefits received in respect of employment; or any considerations furnished by an employer. The meaning of a consideration furnished by an employer as non-pecuniary income could be an item furnished or provided by an employer to an employee as payment for services rendered. For example, an automobile that the employee may use for personal use as well as for business (CUB 25241A).
Non-pecuniary income received from an employer may be considered an employment-related benefit, in some cases. Examples of employment-related benefits as a consideration furnished by an employer are: appliances such as a refrigerator, washer and dryer (CUB 25101); the amount by which the rent was reduced (CUB 68316; CUB 20684); free meals; and free attendance at a course in exchange for services performed (CUB 23722).
The claimant and the employer should agree on a reasonable value of the board, living quarters and any other non-pecuniary benefits. If the claimant and the employer disagree on the value, or the value appears unreasonable, the value must be determined by the Commission. The Commission's determination of the value of living quarters must be based on the rental rates for similar accommodation in the same vicinity or district (EIR 35(14)). However, the Commission cannot affix a dollar amount for wages or salary, when the claimant is providing services but not receiving money or other non-pecuniary benefits (Digest 22.214.171.124).
Often the question is not whether a payment is non-pecuniary, but whether it arises out of employment (Digest 5.3.1). When a non-pecuniary benefit arises out of employment, it is earnings to be deducted from EI benefits.
A written contract of employment is not required in order for non-pecuniary benefits or considerations to be income arising out of employment. It is sufficient to show that the claimant is receiving non-pecuniary income or considerations from self-employment or under an express, implied or other contract of employment (EIR 35(1)). In a barter situation, although there is no money exchanged for services rendered, the value of the items exchanged is still considered income (Digest 126.96.36.199). Conversely, the value of free accommodation is not income when the services provided by a claimant are of a volunteer or benevolent nature. In this situation, there is no requirement that the claimant perform services. There is no employment and therefore, no income for the purposes of the regulations (Digest 188.8.131.52). In addition, the value of a personal gift from an employer is not income, as it does not arise out of employment (Digest 184.108.40.206).
220.127.116.11 Fringe benefits
Fringe benefits are a type of employment-related benefit or advantage that are paid by an employer in addition to basic wages. Fringe benefits form part of the entire income arising out of employment. Examples of fringe benefits are pensions, personal use of a company car, health care plan coverage, holiday trips, other prizes or incentive awards, reduced interest on loans and mortgages, or staff discounts on product purchases.
Any insurance type of fringe benefit, or any of the following types of fringe benefits are not allocated against EI benefits, where this advantage is not a normal part of the wages (CUB 23722):
- savings obtained by financing or purchasing through the employer (reduced interest on loans and mortgages, staff discounts on product purchases or subsidized meals), or
- free use of an employer's product or service (free transportation for airline, rail, bus employees or car rental employees, free hotel rooms for hotel employees, free or subsidized course attendance for school employees or their dependants)
However, moneys paid in lieu of the above fringe benefits are allocated as any other benefit arising out of employment. This happens when an employer gives an employee the cash value of the fringe benefit during a period of lay-off or on termination.
18.104.22.168 Northern allowance or isolation allowance
A northern or isolation allowance is part of a person's wages or salary. It takes the form of a higher wage or salary, or is given in a lump-sum allowance payment. It is an employment-related benefit to attract employees to work in unusual or less favourable circumstances. Its purpose is to assist employees in coping with the high cost of living in northern or isolated areas. It is not a reimbursement of expenses. A parallel may be drawn between a northern allowance or an isolation allowance and situations where an employer factors the cost of living in the community where the claimant works, into the calculation of wages or salary. Regardless of whether the money is paid in the form of increased wages or salary, or as an allowance, it is income.
The total wages or salary must be allocated, and, if an amount is paid separately in the form of an allowance, it must also be allocated in the same manner as wages or salary (EIR 35(4)). Additional costs of living in the isolated or northern areas cannot be deducted since they are not job-related expenses, because they were not incurred for the direct purpose of earning the income (Digest 22.214.171.124).
126.96.36.199 Moneys paid for service on juries or to appear as a witness
Any payment that a claimant receives for appearance in court to act as a juror or to provide testimony as a witness is not income arising out of employment, if it is offered by the Courts to offset any expenses incurred in fulfilling such duty. The reimbursement of expenses incurred while performing required duties is not income, as it is not a gain or a benefit, nor is there a link to employment.
However, if the claimant’s employer continues to pay their salary for the period involved, or if the witness is being paid for their professional testimony, this is considered income and the earnings are allocated to the period for which they are payable.
5.3.3 Expenses and considerations
While employed, claimants may incur expenses and supply considerations. In general terms, an expense is a cost incurred while performing work, and a consideration is an item provided by one person to another.
This section covers the effect of expenses incurred and other considerations supplied by a claimant who is not engaged in self-employment. Expenses for persons engaged in self-employment or in farming are discussed in section 5.16.5 of this Digest chapter. In addition, more information on expenses that are compensated on termination of employment can be found in section 188.8.131.52.
An employer may specifically compensate expenses and considerations. Job-related expenses and job-required considerations, which are specifically compensated by an employer, are not income for EI benefit purposes, as they are not a gain or a benefit (Digest 184.108.40.206).
An employer may require an employee to incur an expense in the performance of their job, or to supply a consideration, yet not be willing to compensate for it. If they are job-related expenses or job-required considerations, these expenses and considerations may be deducted from the entire income earned from that employment (Digest 220.127.116.11).
18.104.22.168 Expenses or considerations specifically compensated by an employer
An employer may specifically or directly compensate expenses or considerations. The reimbursement may occur before, at the time of, or after the expense was incurred or the consideration was supplied. The compensation may take the form of a payment for actual costs incurred; a fixed amount or flat rate such as a per diem; or a monthly allowance. A per diem is a daily allowance to cover daily expenditures incurred by an employee while performing duties for the employer. For example, a set daily amount to cover meals and incidentals, while out of town performing duties for the employer.
Whether any compensation paid by an employer is income, depends on whether it is considered a gain or a benefit (Digest 5.3.2). If the expense or consideration was required of the employee to perform their job, reimbursement for that expense or consideration cannot be said to be a gain or a benefit, as the employee did not profit. As such, the amount received as compensation for the job-related expense or the job-required consideration is not considered income.
A job-related expense is an expense incurred while engaged in activities on behalf of an employer. Job-related expenses that may be compensated by the employer include:
- per diem allowances covering accommodation and meal costs while away from the work area on business
- a tire purchased by the employee for a company vehicle
- moving costs incurred during a transfer from one work site to another
- a golf club membership required to entertain clients, or
- job-related training courses
None of these expenses represent a gain for the employee, nor are they paid to compensate for any work performed by the employee. They are meant to pay for expenses that the employee would not have incurred if they were not engaged in activities on behalf of the employer.
Not all expenses compensated by an employer are job-related expenses. An employer may reimburse an expense incurred by the employee as an employment-related benefit. An example of this may occur where an employer reimburses the cost of additional medical or dental insurance purchased by the employee, or a golf club membership purchased for recreation. In these situations, the employer is not compensating for business-related expenses that would not have occurred had it not been for the job duties or activities. As such, amounts reimbursed for these types of non-employment-related expenses are included as part of income (Digest 22.214.171.124).
A job-required consideration is an item required by an employer, to be supplied by an employee in order to perform the employee's job duties. Some job-required considerations compensated by the employer may be a vehicle supplied by a pizza delivery driver or a courier; or a horse supplied by a ranch hand as required by some ranchers. Payments for job-required considerations are not to compensate for the work performed by the employee, but rather to reimburse them for the extra costs incurred in having to supply an item required to perform the duties of their employment.
Not all considerations supplied by an employee that are compensated by an employer, are job-required considerations. If an employer pays for a bus pass that the employee purchased, where no business travel is required of the employee, this would not be considered a job-required consideration. It is an employment-related benefit and is income.
The Commission does not require receipts when an employer compensates an employee for job-related expenses or job-required considerations. Generally, when reimbursing employees for expenses incurred, employers require sufficient proof to justify the expenditure. This proof may be that the actual expenditure was incurred, or simply that the activity was performed. When paying a fixed amount or a flat rate, the employer has already taken into consideration the costs on average that the employee would reasonably incur under the circumstances.
126.96.36.199 Expenses and considerations not specifically compensated by an employer
EIR 35(10)(a)(i) & (ii) provide for the deduction of expenses and considerations from income arising out of employment, for someone who is not self-employed.
When the employer does not reimburse an expense or cost, it is still possible for the claimant to deduct these expenses from their gross income, if the expenses were incurred for the direct purpose of earning that income (EIR 35(10)(a)). However, the expense must somehow relate to the terms and conditions of employment or to the employees' performance of duties (that is, it must be a job-related expense).
The purpose of EIR 35(10) is to allow for deductions from income when claimants have incurred job-related expenses to earn their income, or supplied job-required considerations, and their employer did not compensate them for that expense or consideration. A job-related expense is an expense that is incurred while engaged in activities on behalf of the employer. A job-required consideration is an item that an employer requires the employee to supply in order to perform their job duties.
Employees may have to cover business expenses out of their wages, salary or commissions that are not reimbursed by the employer. Payments may be made by employees for items such as: hotels, meals and transportation costs when performing duties for the employer away from home; gasoline purchases; entertaining current or prospective customers; or the purchase of equipment that enables them to perform their duties. In all cases where a claimant requests a deduction of a job-related expense from income, receipts must be provided. Job-related expenses supported by proof are deducted from the claimant’s gross income before earnings are allocated.
Employees may incur expenses for personal well-being or personal circumstances in the normal course of their employment duties. These expenses or costs are generally incurred only indirectly for the purpose of earning income. They are not related to the terms and conditions of the employment, or to the employees' performance of duties. As a result, they cannot be deducted from the gross income. Examples of this type of expense are childcare or transportation to and from work (CUB 16269). However, if employees incur an expense such as childcare, for example, while performing activities that are outside the normal requirements of the employment, and are not compensated by the employer, it may be deducted from their income. Having to work overtime or to go out of town once or twice a year are examples of situations where these activities may be part of the normal requirements of the employment.
Should the claimant expend more than the amount for which the employer compensates, this amount may be deducted from the wages or salary, provided the expense incurred is reasonable, supported by evidence, and was actually expended. In cases where the employer pays a flat rate or a fixed amount, this payment already takes into account the fluctuation in the expenses that an employee will incur. Unless special circumstances are demonstrated, a deduction for the additional amount expended is not allowed.
When no amount is paid specifically to compensate for a consideration supplied, or the amount is inadequate compared to what employers normally pay, the value of a job-required consideration not compensated can be deducted from the gross income. This is true as long as employers customarily compensate this consideration in that occupation or industry. For instance, no deduction can be made for the tools that are customarily supplied by tradespersons, or for chain saws normally provided by persons employed in cutting lumber. However, it may be possible to deduct expenses incurred to operate them. The claimant's declaration as to the value of the consideration supplied is normally sufficient, if it is reasonable.
A claimant working under a contract of employment may incur costs by engaging someone to assist in performing their job duties or to replace them when they do not work. However, as the contract of employment is with the claimant, any payment for wages or salary under that contract is part of the claimant's entire income arising out of employment. The person actually performing the duties is not the one employed by the claimant's employer, as no contract of employment exists between the employer and that person. As such, if the employer does not reimburse the wages of the person who actually performed the work, it may be possible for the claimant to deduct those wages. If the claimant can establish that moneys were actually paid to someone else to perform the claimant's duties, these moneys are expenses directly incurred in order to earn the income, and may be deducted from their income.
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