The term “wages” appears widely throughout Canadian employment standards. For example, all federal and provincial employment standards require employers to calculate vacation pay based on the “wages” earned by employees.
But how are payroll professionals to know for certain the earnings that “wages” include?
There are a wide variety of resources available to help in such research. The federal department of Human Resources and Skills Development is kind enough to provide links to the related provincial and territorial government web sites. The Canadian Payroll Association also provides a variety of related information to members. Finally, there are a number of publishers, such as Carswell and CCH, who make this sort of information available to subscribers.
However, I would also encourage anyone with responsibility for employment standards compliance to become familiar with researching the actual legislation that applies to them. If you are going to do this, a good place to start is with the definition of “wages”.
Let’s look at two typical examples of how this term is defined, in the Alberta Employment Standards Code and in the Ontario Employment Standards Act, 2000.
In virtually all payroll related legislation, definitions such as that of “wages” appear very close to the beginning, most often in the first section. Such definitions are given in alphabetic order, so just scroll the browser down until you come to the definition you want.
If you compare the Alberta definition with that of Ontario, you will notice one immediate difference. In Alberta, the definition of wages starts with the word “includes ”, while in Ontario this starts with “means”. These mean very different things. In Alberta, what are “wages” starts with the ordinary meaning of this word, as commonly used in payroll or as defined in a collective agreement. What follows in the legislative definition may add or subtract from this ordinary meaning, but anything in this ordinary meaning not specifically changed, still applies. By contrast, in Ontario, the ordinary meaning of the word “wages” no longer matters. The only thing that counts are the words that follow after “means”. The result is that anywhere you see the word “wages” in the Ontario employment standards, it only has the meaning defined in section 1.
Once you get past “includes” or “means”, both the Alberta and Ontario definitions of wages have two parts: things that are included in this definition and things that are excluded.
In Alberta, the inclusions in “wages are:
- money paid for time off instead of overtime pay,
- commission and
- remuneration for work, however calculated.
In Ontario, the earnings included are similar, but broader:
- “monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied,
- any payment required to be made by an employer to an employee under this Act, and
- any allowances for room or board under an employment contract or prescribed allowances”.
For example, the last item in Alberta is “remuneration for work”, while in Ontario, the similar inclusion is any amount owing under the contract of employment. In other words, unless it is a salary, pay or commission, to be considered “wages” in Alberta, an earning must be “remuneration for work”. This condition doesn’t apply in Ontario. In Ontario, an earning is “wages” if it’s part of the terms and conditions of employment. In other words, if it’s owing under the contract of employment, an earning is “wages”. An example would be a signing bonus, which would be “wages” in Ontario, but not in Alberta, since signing bonuses aren’t related to work done; typically, signing bonuses are payments for agreeing to the terms of a new collective agreement.
In both the Alberta and Ontario definitions, after the inclusions there is a list of exclusions. With one exception these are virtually identical. In both employment standards, the following are not “wages”:
- “a payment made as a gift or bonus that is dependent on the discretion of an employer and that is not related to hours of work, production or efficiency”,
- “expenses or an allowance provided instead of expenses”, and
- “tips or other gratuities” (from the Alberta Code).
The first of these is often a source of confusion. For a bonus to be excluded, two conditions must both be true:
- The bonus – including the timing and amount of payment – is not a contractual obligation; and
- The amount paid is not a measure of work or performance.
If only one of these is true, the bonus is “wages”. For example, in both Alberta and Ontario, if an employer, acting entirely voluntarily, decides to grant a bonus to employees, and then calculates this bonus based on regular hours worked, the bonus is “wages” and is subject to vacation pay.
The exception, the sole difference in the exclusions between these two jurisdictions, is that in Alberta, the following are not “wages”:
- overtime pay,
- vacation pay,
- statutory holiday pay (general holiday pay) and
- wages in lieu of notice (termination pay).
However, beware that this list of exclusions does not apply for all purposes in Alberta. We have already said that pay for time in lieu of overtime work is “wages” in Alberta, even if direct pay for overtime worked is not. Similarly, vacation pay is “wages” in Alberta, after each completed vacation year.
Example: Howard’s vacation years are based on the anniversary of his hire, March 15, 1985. For the vacation year ending March 15, 2012, Howard was paid vacation pay on September 1, 2012. Howard then retired, effective November 30, 2012. On his last pay cheque, the vacation pay paid in September is not vacationble, since his employment from March 15 to November 30 is not a completed vacation year.
Alan McEwen is a payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at firstname.lastname@example.org, (905) 401-4052 or visit www.alanrmcewen.com for more information.