Employee Identity – Best Practices

What would you do in this situation? You’re hiring an employee, where a valid driver’s licence is required. The company pays by direct deposit, so the applicant has provided a void cheque. You have asked, but the employee says his SIN card has been lost. The driver’s licence shows the person’s name as ‘Richard John Harris’ but the pre-printed bank cheque shows the account holder as ‘Jack Harris’.

How to do you figure out what name to report on the T4?

Actually, the employee name for T4 purposes is only one aspect of this situation. The larger context is employee identity. How do you know the driver’s licence and bank account belong to the same person? What if the driver’s licence belongs to his twin brother or the applicant doesn’t want T4 earnings reported in his legal name, because he is trying to shield income from family support garnishment.

Previously, you could have insisted the employee supply a SIN card, even if that meant applying to Service Canada for replacement of the lost one. Before the Harper government stopped issuing SIN cards in early 2014, employers were required to supply, on T4s and ROES, the employee name as it was shown on the actual SIN card. While this requirement has since been removed, the latest T4 guide still requires that the name reported must be ‘correct’, without defining exactly what this means.

There are two reasons employers should be sure of employee identity.

First, employers are subject to prosecution under the federal Immigration and Refugee Protection Act for employing persons without the right to work in Canada. Without permanent residency status, non- citizens aren’t legally entitled to work in this country, unless they have a valid work permit. Employing a person who is not authorized to work in Canada might expose employers to penalties of up to $50,000 or 2 years in jail, for each such person. These penalties apply unless the employer can demonstrate due diligence in order to ensure the person’s citizenship or immigration status. Under the Act, not making attempts to determine this status is the same as actively knowing a foreign national wasn’t authorized to work in this country.

If a SIN card is available, that’s the best indicator of the legal right to work. SINs for Canadian citizens or permanent residents start with any digit other than a 9. If the SIN starts with a ‘9’, that marks those who can only be employed under a valid work permit. Further, in recent years, cards for SIN starting with a ‘9’ came with an expiry date, after which the SIN, and, by implication the person’s right to work in Canada, no longer held.

If no SIN card is available, the requirement to determine a person’s citizenship and immigration status still applies. On an initial application form, asking people to certify they have to the legal right to work in Canada is fine, but it’s not clear that’s enough once an employment offer is on the table. Employers should, as a best practice, require potential applicants to supply one of the following, prior to the start of any actual employment:

  • A birth certificate;
  • A citizenship or permanent resident card or certificate;
  • A work or study permit;
  • A SIN confirmation letter issued by Service Canada;
  • A valid Canadian driver’s licence; or
  • A valid provincial medical care card.

This should be paired with one of the following:

  • A previously issued year-end slip;
  • A CRA issued Notice of Assessment;
  • A bank statement or pre-printed cheque; or
  • A form issued by a financial institution showing the account holder’s name and the bank account to use for direct deposit purposes.

In the absence of a SIN card, what’s needed is the ability to document that both the employee name and the SIN provided belong to the same person. For example, if a person can provide a birth certificate and a prior-year T4, it’s fairly simple to ensure that the name on the birth certificate matches that used on the T4. If they do, you can be reasonably confident in your T4 reporting of these. Even a pre-printed cheque or equivalent financial institution form can be helpful, because such institutions are also required to ensure the proper identification of account holders, as part of measures to prevent money laundering and the use of the financial system to finance terrorism.

The other reason for being sure of employee identify is to help in the prevention of payroll fraud. Copies of the documents above should be retained in employee files, for review by business owners, senior managers or external auditors. Without such documents on file, it’s not possible to ensure that every new hire is indeed a real person. In a company of any size, it’s not reasonable that those responsible, including payroll, would necessarily have personal knowledge of every employee. This is particularly true where the company operates in multiple locations but payroll is centralized.

Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the payroll industry. He can be reached at armcewen@shaw.ca, (250) 228-5280 or visit www.alanrmcewen.com for more information.









About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
This entry was posted in Best Practices, Payroll fraud, Source Deductions and Reporting and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.