Terminations, Leaves and Records of Employment

Terminations, Leaves and Records of Employment Learning Objectives

• Identify legislated payments required on termination of employment.
• Determine if a leave is paid or unpaid.
• Use the appropriate method to make a payment on termination of employment.
• Complete the Record of Employment Input Data page.
• Make adjustments to an employee’s insurable earnings history.

Introduction

• This addresses terminations of employment, leaves, employee status changes, and related payments/documentation processed through payroll.
• Termination: Severing of the employee-employer relationship (employee or employer-initiated).
• Leaves: Period of time off work, usually with the intent to return.
• Employment/labour standards legislation: Conditions and criteria for terminations, legislated leaves, and required payments.
• Record of Employment (ROE): Must be issued when there is an interruption of earnings.
• Interruption of earnings occurs when an employee:
  • Quits their job.
  • Is laid off or terminated.
  • Has, or is anticipated to have, seven consecutive calendar days without both work and insurable earnings.

Payments on Termination of Employment

• Employment/labour standards legislation dictates if an employee is entitled to notice (working or paid) and any payments to be made upon termination.
• Payroll professionals must be aware of legislation in their organization's jurisdictions to ensure compliance.
• Legislated payments include wages in lieu of notice, vacation pay, severance pay, and retiring allowances.

Wages in Lieu of Notice

• An employer can provide written notice of termination or pay wages in lieu of the notice period.
• The amount of notice depends on the employee’s length of service and the jurisdiction.
• Considered income from employment in all federal and provincial jurisdictions except Québec.

Statutory Deductions (excluding Québec):

• Canada Pension Plan (CPP) contributions.
• Employment Insurance (EI) and Québec Parental Insurance Plan (QPIP) premiums.
• Income taxes (regular or bonus tax method).
• Northwest Territories/Nunavut payroll taxes.
• No insurable hours, only earnings are insurable.

Statutory Deductions (Québec):

• No Québec Pension Plan contributions.
• Employment Insurance (EI) and Québec Parental Insurance Plan (QPIP) premiums.
• Federal income taxes (regular or bonus tax method).
• Québec provincial income tax (lump sum tax method).

Processing in Powerpay:

• Processed on the regular pay if there are no current earnings, or on a second payment if there are.
• Input on the Employee Timesheet if the bonus tax method is applied.

Regular Pay (no other earnings):

• Payroll menu > Regular Pay > Employee Timesheet
• Applicable Period of Time: ‘No time taken – Bonus Tax Method’
• Earnings: Wages in Lieu (non-Québec) or Pay in Lieu QC (Québec)
• Enter the amount of the payment.
• Salaried employees: Choose Salary Override and enter ‘0.00’ to avoid paying regular salary.

Second Pay (current earnings):

• Payroll menu > Second Payment > Employee Timesheet – Second Payment
• Applicable Period of Time: ‘No time taken – Bonus Tax Method’
• Earnings: Wages in Lieu (non-Québec) or Pay in Lieu QC (Québec)
• Enter the amount of the payment.
• Employee Deductions & Employer Contributions: Make required entries based on Company>Defaults> Second Payment Options.

Vacation Pay

• Employees are entitled to accrued vacation pay, less any vacation already paid.
• Considered income from employment and subject to statutory deductions:
  • Canada and Québec Pension Plan (C/QPP) contributions.
  • Employment Insurance (EI) and Québec Parental Insurance Plan (QPIP) premiums.
  • Income taxes.
  • Northwest Territories/Nunavut payroll taxes.
• No insurable hours, only earnings are insurable.
• Income taxes are calculated using the bonus tax method.
• Must be input on the Employee Timesheet page.

Procedure:

1. Select an applicable period of time for the CPP/QPP exemption.
2. Enter any current pay, such as regular hours, for the pay period.
3. Request the complete payout of the vacation accumulator as no time taken.

Paying out the vacation accumulator:

• In the Vacation Pay Accumulator section, click on the drop-down list under ‘Pay out entire accumulator?’ and choose ‘Yes – No Time Taken’
• Select the pay period for the employee's last day worked in the ‘For which pay period?' list box

Severance Pay

• Legislated under the federal Canada Labour Code, Part III and Ontario’s Employment Standards Act, 2000.
• In these jurisdictions, severance pay, in addition to employer notice of termination, is a requirement based on length of service and in Ontario, on the amount of the employer’s payroll.
• Not considered income from employment; falls under the definition of a retiring allowance.

Statutory Deductions:

• Not pensionable or insurable (no C/QPP or EI/QPIP).
• Subject to federal and provincial income taxes, taxed using the lump-sum tax method.

Retiring Allowances

• Not legislated under employment standards, except for legislated severance pay.
• Defined in the federal Income Tax Act as an amount paid to officers or employees once the employment relationship has been severed.
• Paid at the discretion of the employer and are not considered income from employment.

Statutory Deductions:

• Not pensionable (no C/QPP contributions).
• Not insurable (no EI/QPIP premiums), except for wages in lieu of notice paid to a Québec employee.
• Subject to federal and provincial income tax withholdings, calculated using the lump-sum tax method, except for wages in lieu of notice paid to a Québec employee.

Québec Wages in Lieu of Notice:

• Subject to federal income tax calculated using either the regular Québec federal tax payroll deduction methods or the bonus method of tax.
• Québec provincial income tax is calculated using the Québec lump-sum tax method.

Eligible and Non-Eligible Retiring Allowances

• Employees can transfer the eligible portion to a Registered Retirement Savings Plan (RRSP) or a Registered Pension Plan (RPP) without income tax withholding at source.
• Employers must calculate the eligible and non-eligible portions.

Eligible amount is limited to:

• 2,000.00 for each calendar year, or part year, prior to 1996 in which the individual was employed with the company, plus
• 1,500.00 for each year or part year of service, prior to 1989, that the employee:
  • did not belong to a company pension plan, pension fund or deferred profit sharing plan (DPSP)
  • did belong to a company pension plan, fund or DPSP, but was not fully vested when receiving the retiring allowance

Example:

Kim Chen started with Hospital Food Services on September 6, 1988. Her employment was terminated on January 12 and she was paid a 20,000.00 retiring allowance. Her company does not have a pension plan, a pension fund or a DPSP.

1. Calculate the number of applicable years for each of the two categories as per the provisions.
   • 2,000.00 for each calendar year, or part year, prior to 1996 in which the individual was employed with the company: 1988 to 1995 = 8 years
   • 1,500.00 for each year or part year of service, prior to 1989, that the employee:
   • did not belong to a company pension plan, pension fund or deferred profit sharing plan (DPSP)
   • did belong to a company pension plan, fund or DPSP, but was not fully vested when receiving the retiring allowance
     1988 = 1 year
2. Calculate the amount eligible for transfer to an RPP or RRSP using the number of years from step 1.
   2,000.00 x 8 years 16,000.00
   1,500.00 x 1 year + 1,500.00
   Eligible amount 17,500.00
3. Subtract the total of step 2 from the total amount of the retiring allowance to determine the non-eligible amount.
   Retiring Allowance 20,000.00
   Eligible amount - 17,500.00
   Non-eligible amount 2,500.00

Kim can request that her employer transfer all or part of the 17,500.00 eligible portion directly to her RRSP, with no income tax withholding at source. She may also transfer the non-eligible portion, provided she does not exceed her personal RRSP contribution room.
Any amount paid directly to Kim is taxed using the lump-sum tax rates.
Kim has decided she would like to transfer 15,000.00 of the eligible portion of her retiring allowance to her RRSP, and be paid the remaining 5,000.00. Her employer will calculate the income tax withholdings on the payment made to her using the lump-sum tax rate of 10%.
Income tax withholding 5,000.00 x 0.10 500.00
Net payment 5,000.00 - 500.00
4,500.00

Processing in Powerpay:

• Paid out on the regular pay if there are no current earnings, or on a second payment if there are.

Regular Pay (no other earnings):

• Payroll menu > Regular Pay > Employee Timesheet
• Applicable Period of Time: ‘No time taken – Extra Payment’
• Earnings: Retiring Allowance – Eligible, Retiring Allowance – Non-eligible, or both
• Enter the amount of the payment.
• Salaried employees: Choose Salary Override and enter ‘0.00’ to avoid paying regular salary.

Ensuring Correct Tax Calculation:

• Specific entries are required to ensure correct income tax calculation.
• Example: Employee receives 17,500.00 eligible and 2,500.00 non-eligible retiring allowance, but only 5,000.00 is subject to tax due to RRSP transfer.
• To override the system calculated tax, entries are made on the Statutory Deductions page:
  • Payroll menu > Regular Pay > Statutory Deductions
  • In the ‘This Pay Only … Federal’ section, enter the tax amount to be withheld in the field ‘Specific dollar amount to be taken’

Second Payment (current earnings):

• Payroll menu > Second Payment > Employee Timesheet – Second Payment
• Applicable Period of Time: ‘No time taken – Extra Payment’
• Earnings: Retiring Allowance – Eligible, Retiring Allowance – Non-eligible, or both
• Enter the amount of the payment(s).
• In the ‘Government Deductions’ section, enter the amount of tax to be withheld on the Retiring Allowance in the ‘Federal Tax’ field.
• Employee Deductions and Employer Contributions: Make required entries based on Company > Defaults > Second Payment Options.
• The entry in the Government Deductions section will override the system calculated tax on the retiring allowance.

Termination Payments - Statutory Deductions Summary

Payments on Leave

• Employment and labour standards legislate required leaves if the employee meets entitlement conditions and if the leave is paid or unpaid.
• Legislated leaves include bereavement, jury duty, family situations, compassionate care, maternity, parental, paternal, adoption, child care, reservist, sick, voting, and wedding.
• Employers may provide additional leaves under company policy or collective agreements, but must provide the legislated minimum.
• The requirement to provide paid leave depends on the employee’s length of employment, reason for leave, and jurisdiction.

Examples:

• Federal Bereavement Leave (Canada Labour Code, Part III): 3 days upon death of immediate family member, with pay for employees with 3+ months' service.
• Newfoundland and Labrador Jury Duty: Employee receives the same pay as if reporting to work.
• Québec Marriage: Employees are entitled to one paid day off for marriage if it occurs on a regular working day.

Processing:

• Employers must set up earnings elements in their payroll systems to record payments made during leave.
• Leave payments are considered income from employment, subject to all statutory deductions.
• Made using the appropriate pay element on either the Rapid Entry or Employee Timesheet page.
• Earnings and hours are insurable, allocated to the pay period for which they were paid.
• If an interruption of earnings occurs, the employer must issue a Record of Employment.
  • Example: 52 unpaid weeks maternity leave = ROE required. 3 unpaid sick days = no ROE.

Employee Status Changes

• Status change: Event that changes an employee’s working status (activating, terminating, re-hiring, leave).
• An employee’s status directly affects their pay; active employees are paid, others are not.
• If a Record of Employment (ROE) is to be generated, the ROE Form option chosen must state ‘Produce’.

Accessing the Status Change page:

• Payroll menu > ROE/Employee Status Change > Status Change/ROE

Procedure

1. Select the employee from the Employee List
2. Status Change Options section:
   • Resulting Status: Active, On Leave, Terminated
   • ROE Form: Produce, Amend, Do not produce
   • Current Pay: Process, Do not process
3. Click Next.
4. Complete additional fields, if required.
5. Click Save.

Record of Employment

• The Record of Employment (ROE) is required when an employee has an interruption of earnings.
• An interruption of earnings occurs when an employee:
  • quits their job
  • is laid off or terminated
  • has had, or is anticipated to have, seven consecutive calendar days without both work and insurable earnings from the employer

Filing Deadlines:

• Electronically (weekly, bi-weekly, or semi-monthly pay cycle): 5 calendar days after the end of the pay period.
• Electronically (monthly or every four weeks): Earlier of:
  • 5 calendar days after the end of the pay period when the interruption of earnings begins.
  • 15 calendar days after the first day of the interruption of earnings.
• Paper: Within five calendar days of an interruption of earnings or the date they become aware of the interruption.

Creating an ROE by a payroll system

• Select ‘Produce’ on the Status Changes page; clicking ‘Next’ opens an ROE Input Grid with pre-printed information.
• Verify the pre-printed info, make corrections if neccessary.

Pre-printed Blocks:

• 3 – Employer’s payroll reference no.
• 4 – Employer’s name and address
• 5 – CRA Business No. (BN)
• 6 – Pay period type
• 7 – Postal code
• 8 – Social Insurance No.
• 9/9A – Employee’s name and address, postal code
• 10 – First day worked
• 16 – Contact Information
• 21 – Telephone No.
• 22 – Name of Issuer

Client Completed Blocks (displayed in red):

• 11 – Last day for which paid
• 12 – Final pay period ending date
• 13 – Occupation (optional)
• 14 – Expected date of recall
• 16 – Reason for issuing the Record of Employment
• 17 – Payments or benefits (other than regular pay) paid in or in anticipation of the final pay period or payable at a later date
  • 17A – Vacation Pay
  • 17B – Statutory Holiday Pay
  • 17C – Other Monies (specify) – wages in lieu of notice, severance payments, and retiring allowances.
• 18 – Comments
• 19 – Only complete if paid sick/maternity/parental leave or group wage loss indemnity payment after the last day worked

Blocks 15A – Total Insurable Hours, 15B – Total Insurable Earnings and 15C – Total Insurable Earnings by pay period are not available on this page. 15A and 15B are displayed on the preview and in the final ROE.
Block 15C is only completed if there has been an interruption in the employee’s earnings (a pay period with no hours or earnings).

ROE Status:

• ROE forms only become “official” when the payroll is submitted for processing; a serial number is issued at that point.
• Until a serial number is attached, the form is a ‘Draft’ copy used for previewing and validation.

Verification and Submission:

• Verify accuracy by running the payroll preview, and review the information on the ROE using the ROE Forms link.
• An electronic copy of the ROE will be submitted to Service Canada (client does not need to mail a copy).
• ROE forms are transmitted securely to Service Canada on the cheque date of the pay period.
• Two copies of the ROE form are sent with the payroll output reports. Employee does not need a paper copy.

Cancellations and Availability:

• Payroll cancellations prior to the cheque date: ROE forms are not sent and must be re-created.
• Cancellations after the cheque date: May require a replacement ROE form.
• Online electronic copies are available for 13 months (or seven years with online archiving).

Employee Insurable Earnings History

• The Insurable Earnings History page allows viewing/changing EI/QPIP history and correcting past errors.
• QPIP history is only available for Québec employees.
• The history is created from past hours and earnings (excluding the current pay period).
• Editable for a period based on pay period frequency (30 bi-weekly pay periods are available).

Uses:

• Moving insurable earnings and/or hours from one pay period to another.
• Editing insurable earnings and/or hours for a specific pay period.
• Viewing employee EI history for manual ROE completion.

Accessing the page:

• Payroll menu > ROE/Employee Status Change > Insurable Earnings Adjustments

Procedure:

1. Select the employee from the Employee List.
2. Choose an action from the “Action to be taken” list box:
   • Reallocate EI/QPIP Insurable Earnings and/or Insurable Hours from one pay period to another
   • Edit EI/QPIP Insurable Earnings and/or the Insurable Hours for a specific pay period
   • View Employee EI/QPIP History
3. Click Next.

Reallocate EI/QPIP Insurable Earnings and/or Insurable Hours:

• Used when earnings and hours need to be moved from one pay period to another.
• Common reason: employee paid for two pay periods in one and the earnings must be reallocated to the correct pay periods.

Edit EI/QPIP Insurable Earnings and/or the Insurable Hours for a specific pay period:

• The most common reason for editing insurable hours is when a salaried employee has been set up with the incorrect standard hours per pay.
• Normally there is no need to edit insurable earnings or hours.

View Employee EI/QPIP History:

• Provides a view of the employee’s Employment Insurance and Québec Parental Insurance Plan history for all available pay periods, with insurable hours and earnings listed by pay period.