HR and Payroll Related Measures in the 2018 Federal Budget

On February 27, 2018, the federal government tabled its 2018-19 budget, the third budget for the sitting liberal government. The 2018-19 budget focuses on gender equality, economic growth, job creation and a strong middle class.

In his budget speech, federal Finance Minister Bill Morneau stated, “The Canadian economy is doing well-remarkably well. Over the last two years, hard-working Canadians have created nearly 600,000 new jobs, most of them full-time. Unemployment rates are near the lowest levels we’ve seen in over 40 years.”

The updated fiscal 2018-19 forecasted deficit is $18.1 billion, improved from the fall economic statement estimate of $18.6 billion.

There are no individual income tax rate or tax bracket changes in this budget. However, the following significant budget measures will impact payroll professionals and employers when and if they are enacted:

1. Proposed pay equity measures

The government has announced their intention to move forward with a proactive pay equity legislation in federally regulated sectors to ensure federally regulated employees “receive equal pay for work of equal value.”

According to the Budget documents, the proposed legislation will:

• Apply to federal employers with 10 or more employees, with pay equity requirements built as much as possible into existing federal compliance regimes.
• Establish a streamlined pay equity process for employers with fewer than 100 employees.
• Set out specific timelines for implementation, and compulsory maintenance reviews.
• Include job types such as seasonal, temporary, part-time and full-time positions.
• Ensure that both wages and other benefits are evaluated in a gender-neutral way.
• Provide independent oversight.
• And apply to the Federal Contractors Program for contracts over $1 million

The legislation will include provision to hold employers accountable for wage gaps that affect women, Indigenous Peoples, persons with disabilities and visible minorities. It will also borrow from the pay equity regimes in Ontario and Quebec. The government also pledged a $3 million investment over five years to implement a pay transparency program.

The government promised to repeal the previous Conservative government’s Public Service Equitable Compensation Act, which overhauled pay equity and, according to critics, effectively killed workers’ rights for equal pay for work of equal value.

The government says it will continue to consult with employers, unions and other stakeholders over the coming months as it works to develop the pay-equity legislation. The legislation is expected to be tabled by the end of the year.

The impact of the pay equity measure on employers

The new law if enacted will force employers to review their compensation systems for gender-based wage disparities and fix them.

Moreover, the proposed legislation will put the onus on employers in the federally regulated sector to ensure men and women are paid equally for work of equal value.

The legislation will cover 1.2 million employees, including public servants and employees of Crown corporations and federally regulated companies such as banks, airlines, telephone and cable companies, and radio and television broadcasters.

The budget estimates that wage gap for women in the federal public service could shrink by 2.7 cents, narrowing the gap to 94.1 cents on the dollar. For women in the broader federal sector, the gap could shrink by 2.6 cents, giving them 90.7 cents on the dollar. It’s unclear how those estimates were calculated.

2. Proposed Employment Insurance (EI) changes

I. New proposed parental leave (EI) benefit
As anticipated, the budget introduced a new “Use it or Lose it” Employment Insurance (EI) Parental Sharing Benefit for new dads (or the second parent) to take parental leave and share the responsibilities of raising their young child. The goal is to give parents more incentive to share child-rearing responsibilities so that new moms can more easily enter the workforce.

According to the budget plan, the proposed benefit would:

• Be available to eligible two-parent families where both parents decide to take some time off work to help care for a newborn child, including adoptive and same-sex couples, to take at any point following the arrival of their child;
• Increase the duration of the EI parental leave benefit by:

• up to five weeks where the family opts for the standard parental leave of 12 months (at 55 percent of earnings for parental leave benefits) and the second parent agrees to take a minimum of five weeks of the maximum combined 40 weeks available; and
• up to eight weeks where the family opts for the extended parental leave of 18 months (at 33 percent of earnings for parental leave benefits) and the second parent agrees to take the extended period of parental leave.

The budget sets aside $1.2 billion over five years for the EI parental leave program and nearly $345 million a year thereafter. It will be formally known as EI Parental Sharing Benefit. The new EI benefit is expected to become available in June 2019.

According to Global news, “the new federal paternity leave is modeled after Quebec, where dads can take up to five weeks of paternity leave. The province has seen the number of new fathers claiming or hoping to claim the benefit increase to over 85 percent since implementing the measure. That compares to less than 15 per cent in the rest of Canada. But Quebec’s paternity leave covers up to 70 percent of income, which is a major reason for the program’s large uptake.”

Because of this disparity in income replacement (55% v. 70%) and that Quebec has a lower eligibility threshold for parental EI benefits, the new federal EI benefit option for fathers or second parents may not be as successful.

II. Changing the current pilot project “EI Working While on Claim”

The budget also proposes to introduce changes to the Employment Insurance Act to change the current pilot project “EI Working While on Claim” from temporary to permanent. $351.9 million over five years will be invested to introduce the new program.

After the initial five year investment, an on-going $80.1 million will be invested annually. This will take the form of extending the Working While on Claim provisions to maternity and sickness benefits so that mothers and those dealing with an illness or injury have greater flexibility to stage their return to work and keep more of their EI benefits.

The government will also work with key provinces to help workers in seasonal industries most affected by fluctuations in eligibility for EI from year to year and who are unable to find alternative employment in between seasons. This will take the form of both short-term support starting in 2017-18, as well as pilot projects that will be developed and implemented in partnership with provinces over the next two years.

III. Access to EI benefits

The budget also proposes $90 million over three years to ensure that claimants continue to receive timely and accurate benefit payments, plus another $127.7 million over the same period to improve EI call-centre accessibility.

3. Canada Labour Code changes

Changes to the Canada Labour Code will be introduced to ensure the EI benefit legislation matches the job protection offered by employment standards in federally regulated workplaces. Moreover, the Canada Labour Code will be amended to include paternity leave for fathers who work in federally regulated workplaces to match the EI Parental Sharing Benefit discussed earlier.

However, fathers who work in provincially regulated workplaces will have to wait to take advantage of the EI Parental Sharing Benefit until employment and labour standards legislation is amended by their respective province or territory to include paternity leave.

The Canada Labour Code will also be amended to introduce domestic violence leave to allow employees who are victims of family violence, or whose children are victims of family violence, to take up to five paid days to seek help.

4. Canada Workers Benefit

The budget introduces the Canada Workers Benefit, which will replace the current “Working Income Tax Benefit.” The new refundable tax credit should be available starting in 2019 and is meant to offer a more generous and easily accessible tax credit to low-income workers. For 2019, the maximum benefit will be $1,355 for a single individual without dependants (an increase of $170 in 2019) and $2,335 for families. Also, the disability supplement will be increased to $700 in 2019. The benefit will be reduced for single individuals with income over $12,820 and families with income over $17,025. The credit will be fully eliminated for individuals with income over $24,111 and families with income over $36,483. Also, Budget 2018 proposes to allow the CRA to determine an individual’s eligibility for the Canada Workers Benefit even when not explicitly claimed, effective for 2019 and later years.

5. The Wage Earner Protection Program

The budget announced upcoming legislative changes that will increase the maximum payment under the Wage Earner Protection Program from four weeks to seven weeks. The amendment will also ensure equitable access to the program and improved support for workers who are owed wages from employers who are filing for bankruptcy or enter receivership.

6. Improvement of retirement benefits

Legislation will be introduced in the coming year to improve the retirement benefits, like the Old-Age-Security and Canada Pension Plan, available to Canadians. The changes should not increase the contribution rates and include:

1) Increasing retirement benefits under the CPP Enhancement both for parents who take time off work to care for young children and for persons with severe and prolonged disabilities. For the purposes of calculating the retirement pension, parents and persons with disabilities will be credited with an amount linked to their previous earnings for periods spent out of the workforce or periods with low earnings;

2) Raising survivor’s pensions for individuals under age 45 who lose their spouse by providing a full survivor’s pension instead of the current reduced pension that is linked to the age of the widow or widower;

3) Providing a top-up disability benefit to retirement pension recipients under the age of 65 who are disabled and meet eligibility requirements; and

4) Implementing a CPP death benefit of $2,500 for all eligible contributors (whereas before it was pro-rated), which should help alleviate some of the stress during a difficult time.

7. Contributions to enhanced portion of Quebec Pension Plan (QPP)

Budget 2018 proposes to amend the Income Tax Act to explicitly permit the deduction for employee contributions, and the “employee” share of contributions made by self-employed persons, to the enhanced portion of the QPP. This measure is effective for 2019 and subsequent taxation years (when contributions to the enhanced portion of the QPP will begin to be phased in). A personal tax credit will continue to apply to the employee share of the contributions to the base (i.e., existing) QPP. For self-employed individuals, this measure will ensure the individuals can deduct both the employee and employer share of contributions to the enhanced portion of the QPP.

8. Pre-apprenticeship and Union Training and Innovation Programs

Budget 2018 introduces a new Pre-Apprenticeship Program and Union Training and Innovation Programs to encourage underrepresented groups to explore careers in the skilled trade. A $46 million investment has been allocated over five years, followed by a per year investment of $10 million. Grants will be provided to women, with up to $6,000 while training in male-dominated skilled trades, such as welding or pipe-fitting.

The launch of the programs aim to increase the participation and success of women in the trades.

The Union Training and Innovation Program (UTIP) supports the Government of Canada’s commitment to strengthen union-based apprenticeship training, innovation and enhanced partnerships. The UTIP’s objective is to improve the quality of training in the trades to better support a skilled, inclusive, certified and productive trades workforce. It also aims to address barriers that prevent key groups, such as women and Indigenous people, from succeeding in the trades.

9. Phoenix pay system

The 2018-19 budget calls for an additional $431 million to address problems created by Phoenix, a system that has underpaid, “overpaid or not paid at all” thousands of federal public servants. That’s in addition to the $460 million already committed to both implement the pay system and resolve subsequent problems. The budget also earmarks $16 million to begin the process of replacing the troubled system. Most of the new funding is to be spent over six years.

10. Employer record-keeping requirements

Budget 2018 proposes amendments to the Income Tax Act, termed “stop-the-clock,” that could enable the CRA to extend the reassessment period on employees. Currently, employers must retain six years of records, plus the current year. Budget 2018 did not provide details on what changes, if any, this could entail for employer record-keeping.

11. The 2018 budget includes other measures that may be of interest

Here is an overview of other measures in the federal 2018 Budget that might be of interest:

• Investing in women entrepreneurs: Budget 2018 announces $1.65 billion over three years in new financing for women entrepreneurs through the Business Development Bank of Canada and Export Development Canada. The government announced it will provide $115 million over five years as part of a Women’s Entrepreneurship Strategy that will comprehensively address barriers facing women entrepreneurs to starting and growing businesses, particularly in high-growth areas of the economy. This includes establishing a target that 15 percent of small to medium-sized enterprises (SMEs) supplying the Government of Canada are firms owned by women.
   
• Expanding the Medical Expense Tax Credit: Budget 2018 proposes to extend the Medical Expense Tax Credit to include expenses that are incurred in respect of an animal specially trained to perform tasks for a patient with severe mental impairment to assist the patient in coping with the disability. This measure will apply to eligible expenses incurred after 2017.
   
• Canada Child Benefit: Introduced in 2016, the Canada Child Benefit provides tax-free income assistance to low and middle-class parents. The Benefit has been indexed, starting in July 2018. The 2018 budget included a $17.1 million investment over three years to improve benefit accessibility to all Canadians. Also, Budget 2018 proposes to retroactively amend the eligibility requirements for the predecessors to the current Canada Child Benefit (i.e., the Canada Child Tax Benefit, National Child Benefit Supplement and the Universal Child Care Benefit) from the 2005 taxation year to June 30, 2016. In the prior legislation, foreign-born status Indians residing legally in Canada who are neither Canadian citizens nor permanent residents were not eligible for the benefit. Budget 2018 also proposes to allow the federal government to share information with the provinces and the territories related to the Canada Child Benefit as of July 1, 2018.
   
• Cannabis taxation: The budget 2018 proposes a new federal excise duty framework for cannabis taxation, to be effective when non-medical cannabis sales become legal in Canada. The duty will be imposed under the Excise Act, 2001 (Canada) and will apply to all cannabis products available for legal purchase (e.g., fresh/dried, oils, seeds and seedlings). Cultivators and manufacturers will be required to obtain a licence from the Canada Revenue Agency and remit the duty as applicable. The Canada Revenue Agency will begin accepting applications for cannabis licences and will issue excise stamps in advance of the legalization date. GST/HST will apply to cannabis products and seeds/seedlings. Budget 2018 indicates that the Excise Tax Act (Canada) will be amended to ensure cannabis products are not exempted or zero-rated under relieving sections related to basic groceries or agricultural products.
   
• Small business tax rate: Measures to lower the small business tax rate from 10% to 9% as of January 1, 2019. The availability of the reduced rate must be shared by companies that are part of an associated group.
   
• Passive investment income: To curtail business owners’ ability to save large sums in their corporations and take advantage of the small business tax rate, the government has introduced new rules around passive income. The budget clarified the taxation method that will be used for 2019 and future years on passive investment income. Companies with more than $150,000 in passive income will no longer be eligible for the small business tax rate. Companies with $50,000 or less in passive income will not be affected. The basic rule is that you are allowed to earn $50,000 per year of passive income and still qualify for the small business tax rate. If you earn more than this, then you will gradually shift over to the general tax rate of 15%. Once you have passive income of $150,000 or more, you will no longer qualify for the small business tax rate.
   
• Rental Construction Financing Initiative: The budget proposes to increase the loan provided to the Rental Construction Financing Initiative from $2.5 billion to $3.75 billion over the next three years. The investment is intended help build more rental housing properties.
   
• National Pharmacare program: An Advisory Council on the Implementation of National Pharmacare will be created. Its mandate will be to study, evaluate and make recommendations on the best way to introduce a national Pharmacare program.
   
• $50 million investment over five years to support local journalism.
   
• Kids-admission to national parks will remain permanently free.
   
• $750 million investment over five years to improve cybersecurity.
   
• $172.6 million over three years to provide clean, drinkable water on reserves.
  
   
• $1.3 billion investment to conserve more land and waters, as well as preserving biodiversity and at-risk species.
   
• Extending the eligibility to the mineral exploration tax credit for an additional year.

Budget 2018 also promises a new, modern approach to intellectual property to help Canadian companies lead in the knowledge-based economy and allow Canadian innovators to better compete and access global markets. Details of the strategy will be announced by the Minister of Innovation, Science and Economic Development in the coming months.