Like many organizations, you may make payments to employees after their employment ends and their final paycheque and Record of Employment (ROE) have been issued. These subsequent payments have EI implications that may affect both the employee and your organization. Here’s a look at the risks and how to manage them.
Subsequent Payments & EI Benefits
Of course, EI benefits are based on employment earnings. So, payments made subsequent to employment may impact the employee’s entitlement to not only future EI benefits but also past benefits already received. In the latter situation, the risk is that Service Canada will consider the previously paid EI benefits to be overpayments and seek to recover them. At a minimum, this will result in inconvenience. And if Service Canada believes the employee should have directly reported the subsequent payment to them, it may also lead to significant penalties and adversely affect the employee’s ability to collect future EI benefits for at least 5 years.
Implications for Employers
Although it’s the employee’s EI benefits that are on the line, these subsequent payment situations also have implications for employers and payroll. The potential consequences and attendant employer obligations vary depending on the circumstances under which subsequent payments are made.
Scenario 1: Subsequent Payments for Post-Employment Work
>Situation: The first scenario is where employees do subsequent work for their former employer, e.g., where the employer recalls an employee on lay-off for a short period to maintain its plant or equipment.
>Impact on Employer: After any such short period of employment, the employer must issue a new ROE—not a replacement ROE or amendment to the one issued after the initial lay-off, but an additional ROE showing the recall start and stop dates and insurable hours and earnings related to it.
Scenario 2: Subsequent Payments Associated Stemming from Termination
>Situation: The second scenario involve payments to a former employee not for subsequent work performed but obligations relating to the termination, e.g., amounts agreed to as part of a severance settlement with the former employee. Such settlements are fairly common, especially if a termination is likely to be contested. Typical pattern: The employer provides the minimum required for wages in lieu of notice under the applicable employment standards law and additional payments are negotiated as part of the settlement. But by the time the settlement is reached, it may take months from the initial termination before the employer makes and the former employee receives these additional payments.
>Impact on Employer: Under this scenario, employers have 2 obligations:
- Determine need to recover and remit retroactive overpayment: The first obligation is to contact Service Canada to find out if the subsequent payment results in a retroactive overpayment of EI benefits to the employee. If Service Canada confirms that an overpayment has occurred, the employer must recover it, at source, from any settlement amounts otherwise payable. This is true even where such settlement amounts wouldn’t themselves be insurable earnings for regular EI source deduction purposes or reportable on the ROE in Block 15B or C. In addition, the employer must be careful not to add the EI overpayment it recovers to regular CRA remittances. Instead, the employer should ask Service Canada for instructions on how such overpayment in EI benefits recovered from the former employee should be remitted.
- Amend the ROE: The second obligation of the employer is to amend any initial ROE that it issued upon termination. On this amended ROE, the employer must add the settlement amounts including any retiring allowances or other payments on termination to the amounts previously reported on the initial ROE. In effect, the full initial ROE must be reproduced unchanged other than for the subsequent amounts now being paid. The employer must also add the serial number of the initial ROE to Block 2 of the amended ROE.
One last loose end to tie up: What if the employer knows at the time of termination that subsequent payments will be made but doesn’t yet know what those amounts will be? In this situation, it may be advisable to briefly note the date that payments are expected to be made as a comment in ROE Block 18. This response will trigger a follow up request by Service Canada for the dollar amount of the payments once they’re determined. While this will delay processing of the employee’s claim, in this situation, a delay may be preferable to the employee than later having to make repayments for EI benefits already received.
Alan McEwen is a Vancouver Island-based HRIS/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, (250) 228-5280 or visit www.alanrmcewen.com for more information.