Digest of Benefit Entitlement Principles Chapter 5 - Section 7
5.7.0 Remuneration under a contract of employment
Persons who engage in work under an employer-employee relationship are employed under a contract of service, also referred to as a contract of employment. A contract of service may be express or implied. Under an express contract, an employer and employee enter into an actual written or verbal agreement regarding the terms of employment. On the other hand, an implied contract is one that is presumed, based on 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 they expect to be paid for those services, and the other party, knowing the circumstances, accepts the benefit of those services.
An express contract of service may be in the form of:
- 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 jurisdiction where the claimant is employed may also dictate terms and conditions regarding the employment and 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 purposes, there are some types of income which arise out of a contract of employment which have been specifically excluded as earnings (EIR 35(2); EIR 35(7), Digest 5.5.0). Certain types of earnings arising out of a contract of employment require specific allocation methods. Therefore, it is important to identify for what the claimant is being compensated. The terms and conditions of the contract of employment, or the collective agreement, are essential in making this determination.
Under a contract of employment, claimants may be compensated for the performance of services or may receive compensation without being required to directly perform services (Digest 5.7.1; Digest 5.7.2). Where the specific compensation is not directly for the performance of services, the right to the compensation may arise from 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 (EIR 36(4)). Remuneration under a contract of employment for the performance of services is part of the entire income arising out of any employment (EIR 35(2); Digest 5.3.0). It includes those moneys that are paid for the services that an employee provides to an employer, such as:
- wages (usually on an hourly, daily or piecework basis), or salary (fixed payment at regular intervals)
- fringe benefits (Digest 18.104.22.168)
- shift bonuses and shift premiums (Digest 5.14.2)
- overtime (Digest 22.214.171.124)
- stand-by hours
- isolation pay or northern allowances
- call-back pay
- production bonuses (Digest 5.14.1), or end-of-season bonuses (Digest 5.14.4)
- tips or gratuities based on a service charge or flat rate (Digest 5.14.7), or
- profit-sharing plans (Digest 5.15.0)
However, retroactive increases in wages or salary are specifically excluded from consideration as earnings (Digest 5.5.3).
It is not necessary that earnings are actually paid before an allocation can be made; it is sufficient that they are payable (Digest 126.96.36.199). However, due to the unique nature of commission payments, commissions are allocated to the week in which the services giving rise to those earnings are performed, or to the week in which the transaction giving rise to the earnings occurred (EIR 36(6); Digest 5.8.0).
If the employer's pay period does not coincide with the calendar week (Sunday to Saturday), then the earnings are allocated as a fraction of the pay period, based on the number of days for which the claimant is remunerated in the week (EIR 36(2)). 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 2 EI calendar weeks. As wages are allocated to the period for which services are performed, they are allocated to 2 different weeks based on the hours worked in each week.
It is the terms of the contract of employment that determines whether remuneration is payable specifically for the performance of services, 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 must be performed, as well as periods in which services are not performed. If the annual contract provides that the workers are only paid for the period in which they perform services, then earnings payable under these contracts of employment are allocated only to the period in which services are performed. They are, not allocated to any period not worked and not compensated by the employer. This is true even if the claimant receives their remuneration in installments over the working and non-working periods.
It is not the frequency, method or timing of the payments that is critical in determining 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 (EIR 36(4)).
Employees who receive a salary generally have entered into an agreement to be paid for a specific period, regardless of the number of hours they 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 entire 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. These earnings are allocated to the period that the standby services occur. In the same way, call back pay 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 actually worked. Call back pay is essentially payable for the hours worked and therefore, is allocated to those hours.
5.7.2 Remuneration under a contract of employment without the performance of services
Budget 2021 measures alert – Temporary measures are in place from September 26, 2021 to September 24, 2022 which affects the following information:
- earnings paid due to separation from employment are not deducted from benefits
The entire income arising out of any employment 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 compensation given in return for 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 recipient (FCA A-597-94, CUB 25472).
Remuneration payable under a contract of employment without requiring that an employee directly perform services in exchange for that particular payment is considered 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 linked to services that were performed in the past; such as pay for leave, separation payments, or the claimant remaining 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 (EIR 36(5)). 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 (i.e. when the claimant fulfills all the required conditions and returns to 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 period.
All earnings payable under a contract of employment which are not directly for the performance of services, are considered payable without the performance of services and are allocated as such. Although the following types of earnings 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:
- moneys arising from a pension fund (EIR 36(14) and (15); Digest 5.13.0)
- moneys paid or payable by reason of a lay-off or separation (EIR 36(9); Digest 5.12.0)
- vacation leave and pay (EIR 36(8); Digest 5.10.0), and
- sick leave (EIR 36(12)(a); Digest 5.11.1)
Included in earnings payable under a contract of employment without the performance of services, which are allocated, are:
- Supplement Unemployment Benefits (SUB) Plan payments which do not meet specified criteria (Digest 188.8.131.52)
- 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 (EIR 36(5); Digest 184.108.40.206)
- leave funded through regularly working more hours than the normal work week (Digest 220.127.116.11) or, funded through the setting aside of a portion of the employee's salary when working, to receive remuneration during periods of leave (Digest 18.104.22.168), and
- pre-retirement leave (EIR 36(5); Digest 5.12.7)
These earnings are allocated to the period for which they are payable.
Other earnings that are payable under a contract of employment without the performance of services and that have specific methods of allocation are:
- designated holidays (EIR 36(13); Digest 22.214.171.124)
- maternity leave, adoption leave, or leave for the care of a child or an ill family member (EIR 36(12)(a); Digest 126.96.36.199), and
- payments in consideration of a claimant's returning to or commencing work with an employer (EIR 36(5))
188.8.131.52 Designated holidays
Payment received for designated holidays are part of the entire income that arises out of any employment (EIR 35(2)). Payments for designated holidays include those holidays or non-working days that are observed by law, custom or agreement. Designated holidays may 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 occurs (EIR 36(13)).
Holidays or non-working days observed by law include those statutory and civic holidays designated by a 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.
A designated holiday may fall prior to, or after a lay-off or separation, during a vacation period, or the payment may be conditional upon the claimant's return to work. Nevertheless, the allocation is 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 union (CUB 60006; FCA A-148-88, CUB 14671).
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 taken. However, if there is evidence that the change was made solely to circumvent the intent of the EI 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 occurs (EIR 36(13)).
In some industries, rather than giving 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 shown. 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 be required 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 (CUB 67705).
If a claimant works on a designated holiday, the earnings received for the designated holiday are allocated to that day, in addition to their regular wages (EIR 36(4)). However, if the claimant banks the extra time worked on the holiday, to be taken or paid out at a later date, or if there is an agreement between the union and the employer to substitute a different day, the earnings would be allocated to the week in which the leave or the alternate day was taken (EIR 36(13)).
184.108.40.206 Maternity, adoption or care of a child / ill family member leave
When a claimant receives, or is entitled to receive, wages or salary under a leave plan for maternity, adoption, or care of a child or ill family member, these moneys are earnings arising out of employment. It is not necessary that such moneys actually be paid. It is sufficient that they could be paid at the claimant's request. The leave payments are allocated to the weeks for which they are paid or payable (EIR 35(2)(c); EIR 36(12)).
If they meet specific criteria, leave payments for maternity, adoption, or care of a child or ill family member are specifically excluded from consideration as earnings. They are not earnings if the payment:
- when combined with the claimant's weekly rate of EI benefits, 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 employment (EIR 38; Digest 220.127.116.11)
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. Maternity, adoption or care of a child or ill family member payments that do not meet the criteria to be specifically excluded as earnings, are considered earnings for benefit purposes, but not during the waiting period (EIR 39(3)).
Payments received as encouragement to return to work following maternity leave or leave to care for a child or ill family member, 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 leave (EIR 36(5)). A person may return to work following a period of leave for maternity, adoption or the care of a child or family member, and only then receive compensation intended to cover the waiting period. In this case, the leave pay is allocated to the one-week EI waiting period where these moneys are not taken into account as earnings (EIR 36(12)(a); EIR 39(3)(b)).
18.104.22.168 Compensatory leave for overtime worked
A contract of employment sets out the number of hours and days that employees are normally expected to work. The contract also sets out the remuneration to which an employee is entitled if they are required to work hours in excess of, or outside of, the regular hours set out in the contract.
Employees may have the right, under their contract of employment, to choose how they are compensated for overtime worked. Compensation for overtime worked 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, or to receive the equivalent of the overtime worked as a period of leave with pay (compensatory leave). This compensatory leave may be accumulated until the employee is in a position to take the leave and the employer is in a position to allow it.
By choosing to accumulate the overtime hours worked to be used as paid leave at a later date, the employee and the employer have an agreement that the employee will be allowed to take leave and receive remuneration for the period of the leave, rather than receive payment when the overtime is worked. For any hour accumulated in this manner, under the contract of employment, earnings are no longer strictly payable for services performed during the period worked. Earnings under that contract of employment are now payable when regular hours are worked, and for a period of leave where services are not required. The overtime hours that are paid during an agreed period of leave are allocated to the period for which they are payable (i.e. to the period of leave granted) (EIR 36(5)). In these cases, the hours being accumulated are no longer allocated as earnings for the week in which the overtime hours were worked.
Claimants may be unable to take their accumulated compensatory leave due to the expiry of a set time limit, or due to a lay-off or separation. In these situations, the employer is still under a contractual obligation to pay for the overtime worked, or to grant time off with pay. If the employer can no longer grant time off with pay, the employer must still pay the claimant for the overtime worked. When this payment is made, no matter whether the payment was prompted by lay-off, separation or due to 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 performed (i.e. when the overtime was worked) (EIR 36(4)).
22.214.171.124 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 leave to provide care or support to an ill family member. These supplemental payments make up most of 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 35(2)). 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(2)).
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 unemployment) (EIR 35(2)).
Certain supplements to EI benefits have the same effect on entitlement to those benefits, even if they are paid for other reasons and through a plan other than a formal approved SUB plan. For example, supplemental payments made by an employer or another person to supplement EI benefits during maternity, adoption, leave to care for a child, or leave 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 EI benefits, does not exceed their normal weekly earnings from employment, and does not reduce the employee’s accumulated sick leave, vacation leave, severance pay or any other accumulated credits from employment (EIR 38; Digest 126.96.36.199).
188.8.131.52 Lay days or periods of leave
Budget 2021 measures alert – Temporary measures are in place from September 26, 2021 to September 24, 2022 which affects the following information:
- earnings paid due to separation from employment are not deducted from benefits
Contracts of employment (verbal or written) between an employer and its employees, establish the number of hours and days that employees are normally expected to work. The workweek 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 workweek of employees is in excess of the hours, days or shifts normally worked by individuals in full-time employment, these employment contracts often offer additional benefits to employees, to compensate for the increased regular workweeks (FCA A-427-14).
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 taken, unless there was an interruption from other employment in a claimant's qualifying period (EIR 14(3); Digest 2.3.2). 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 taken (EIA 11(4); Digest 4.3.5). This is true whether, or not the claimant is paid for the lay days or period of leave.
If lay days or a 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; 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, what must be examined is 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 a specific date being reached, a lay-off, or a separation from employment. 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 date the individual stopped working, or the date they are no longer entitled to the lay days/period of leave, whichever is later. 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 a period of leave is lost upon reaching a specific date, a lay-off, or a separation from employment, the claimant may be entitled to moneys in lieu of that paid leave. Similar to vacation leave entitlement, the paid lay days or period of leave is a benefit accumulated under the contract, which is paid out if the leave cannot be taken. 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 in the same manner as any other earnings payable by reason of a lay-off or separation (EIR 36(9); Digest 5.12.4). However, the normal weekly earnings in that case would be based on the claimant's actual workweek. 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 contract (EIR 36(5)).
If the right to lay days or a period of leave without pay is lost on reaching a specific date, a lay-off or a separation from employment, and the claimant is not entitled to moneys in lieu of that leave, there are no earnings to be allocated, the same as if the unpaid leave was already taken.
184.108.40.206 Deferred salary leave
Deferred salary leave or self-funded leave plans are popular options in the workplace. In these cases, employees choose to spread out their salary earned when employed, over a period of work and a period of 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 4 years, spread over a 5-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 period, unless an interruption can be established on the basis of other employment (EIR 14(6); Digest 2.3.4). Employees on this type of leave are considered to be working full working weeks for each week of their deferred leave (EIA 11(3); Digest 4.4.4). This is not applicable if the employment terminates for some reason, and the self-funded leave agreement is broken.
By choosing the deferred salary leave plan, employees consent to be paid a lesser amount as salary during their period of work, so they can be paid that same salary during the period of 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 period (EIR 36(5)).
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