PEO CANADA

There’s a lot of discussion in the news about a Supplemental Pension Plan. Late last year the provinces of Alberta and British Columbia announced a pension plan initiative which would allow employees not currently part of a pension plan access to an alternative.

“Alberta/British Columbia Pension Plan (ABC Plan)

The ABC Plan will be a simple defined contribution design with matching employee and employer contribution rates, immediate vesting of contributions, and flexibility to accommodate unmatched employer or employee contributions. All employers and workers would be automatically enrolled in the plan, but would be able to opt out of participation. It is recommended that governance and administration of the ABC Plan be kept at arm’s length from government, with an independent board of governors overseeing the plan. Rather than permitting members and employers to direct investment of assets, the Report recommends that investment of assets be subject to policy direction from the board of governors.”(1)

Currently the Canada Pension Plan (CPP) aims to replace only 25% of earnings at retirement. CPP is funded by both the employee and employer based on a contribution of 4.95% of earnings up to the maximum pensionable earnings (there is an exemption on the first $3,500 of earnings per year). Each year CPP revises the maximum pensionable earnings; for 2009 the maximum is $46,300 – which means that for more than half the population the CPP payment at retirement is actually a lot less than 25%. The current maximum monthly benefit for 2009 payable at age 65 is only $908.75. Most employees do not know this. They may realize that the CPP only pays a small portion of their retirement income needs but ask someone exactly how much they will receive and the majority won’t have a clue.

Other programs such as the Guaranteed Income Supplement (GIS) and the Old Age Security (OAS) are even more confusing and complicated in their calculations and most individuals that have any other types of retirement savings probably won’t qualify for any monies at all.

Iris Evans, Alberta’s finance minister, says a national supplemental pension plan could be a reality in the next two to three years (2).  Union leaders believe that the supplemental pension plan is flawed and should be abandoned in favor of comprehensive reform of the Canada Pension Plan (CPP) and Old Age Security (OAS) (3)

What we haven’t heard in the news is exactly what employees and individual employers think. One would hope that any vehicle that gave employees the chance to save additional funds for retirement would be beneficial to all. Waiting for CPP and OAS reform? Most of us will probably retire before that happens to any significant degree. If a national supplemental plan was developed at least we would spread the risk – putting all our eggs in the CPP basket would definitely make me uncomfortable.

What do you think?

(1)       Mercer December 18, 2008 http://www.mercer.ca/referencecontent.htm?idContent=1331120

(2)       Pensions and Benefits Monitor, Daily Benefits and Pensions News Alerts, Monday, June 22, 2009 http://www.bpmmagazine.com/benefits_news.html#national_plan_could_seen_be_reality

(3)       Benefits Canada, Friday, June 19, 2009 http://www.benefitscanada.com/pension/governance/article.jsp?content=20090619_153335_6468

Today, many companies provide an automobile allowance to their employees, as they are required to use their own vehicle for business purposes. Since each company has different requirements from their employees, (the amount of driving they need to do) , the question that is always asked of the payroll specialist is – how much should I be giving my employee for car allowance?

CRA has guides as to what they consider “reasonable”. CRA says that ALL of the following must apply in order for a car allowance to be reasonable, which would make this a non-taxable allowance;

·         The allowance is based only on the number of business kilometres driven in a year;

·         The rate per kilometre is reasonable; and

·         You did not reimburse the employee for expenses related to the same use, except in situations where you reimburse an employee for toll or ferry charges or supplementary business insurance if you have determined the allowance without including these reimbursements.

In my 9 years here at PEO Canada, I have seen many variations of car allowance amounts; anywhere from $200.00 per month to $1000.00 per month. Employers must be careful when providing a non-taxable car allowance. If the amount is too low or too high, then it would be considered taxable.

The other option that most employers use is the flat rate allowance. This is a flat- rate paid to the employee, and is not related to the number of kilometers driven. This however, would be a taxable benefit and should be included in the employee’s income. This will also allow the employee to claim allowable expenses on their return. This becomes the responsibility of the employee to claim these allowable expenses and maintain record to support the claim. They will also have to keep track of the kilometers driven for business.

Each company has different expectations of their employees and the job description of that employee may determine how much time is spent behind the wheel. If the non- taxable allowance is too high or to low, the employee may face a bill from CRA at year end – if they are audited, which could also create a domino effect to a company audit. Getting advice is very important – everyone will be happy in the end!

Alternative views to staff cutting in economic downturns…by Diane Heavens

Given the current economic downturn, we have seen many of our clients taking a closer look at staffing levels as employee compensation has a direct affect on the company’s bottom line.  Many employers jump to the conclusion that the easiest and most effective method to reduce costs is to reduce the number of employees on staff.  Depending on your business and how you generate profit, there are many different cost cutting factors to consider before making any staffing decisions.  Often, employees will share the same initial reaction; cutting staff is a good idea because it will not have an effect on their total compensation.  These employees forget that they could be one of the employees let go, and if not, they may see an increase their work load.

Depending on tenure, age, position, salary, and how the employee was acquired, the cost of severing an employee can be very high, and is not as feasible for the company as initially thought.   Paying the minimum amounts as prescribed in Employment Standards legislation is often not considered enough by the employee.  In part this is because they realize that the hot job market of last year, in which they were able to walk across the street to find another job relatively easily and name their price, no longer exists.  

Due to the market changes, we have noticed that many employees are happy to have a job, even if it means taking a cut in pay or benefits. Depending on the demographics of your workforce, keeping a job with reduced pay and having a benefits plan is advantageous compared to having a collapse of their current lifestyle.  Employees have a better understanding that employers need to make some changes to total compensation in order to survive the tough times, and prosper in the years to come.   

Some alternatives to reducing your work force could include:

·         Reducing employee hours of work, thereby reducing pay;

·         Job sharing, employees working half time.

Both of these options would mean that the employee is still making an income higher than they would receive on Employment Insurance and allow them to remain eligible for benefits.

Other methods of decreasing expenses of the employer:

·     Reducing the employer amount of benefits cost split.

·     Allowing employees more freedom to take time off without pay if they are not busy, creating work life balance.  

·     Cutting other benefits that do not have a significant effect on take home pay but decrease their total compensation package

o       Decrease or suspend RSP contributions

o       Suspend or cancel Health Care Spending Accounts

o       Not paying for professional association memberships

o       Reduce or suspend vehicle allowances

Employees will be reasonable, for the most part, if their employer is open, honest, and equitable in their treatment of employees.  As always, you need to consult the employees’ offer letter and/ or employment agreement before making any changes.  Also review applicable Employment Standards.  If you do not review the actual and implied contracts that exist between yourself and your employees and make significant changes to compensation, or end employment, you could find yourself with unmitigated legal problems.