New CRA Administrative Policy Will Affect Payroll Administration for Fully Remote Work Arrangements
Date: October 26, 2023
In September 2023, the Canada Revenue Agency (CRA) published a new administrative policy that could impact the payroll deductions an employer must make in respect of employees who work fully remotely. The new policy will be effective January 1, 2024 and may require changes to the payroll tables applied to fully remote workers in 2024 and beyond.
In this FTR Now we consider this development and its implications for employers.
Current CRA Guidance
An employee’s payroll deductions are determined based on the employee’s province of employment, which in turn depends on where the employee physically reports for work.
For an employee who physically reports to their employer’s establishment, the employee’s province of employment is the one in which the establishment is located.
If an employee does not report to their employer’s establishment in person (e.g., the employee works 100% remotely from their home office), the employee’s province of employment is deemed to be the one from where the employee’s salary and wages are paid. This is normally the location of the employer’s payroll department or payroll records. By way of example, for a remote worker who resides and works from home in Calgary, Alberta and is paid from the employer’s head office in Toronto, Ontario, the province of employment is deemed to be Ontario and the Ontario payroll table is applied for purposes of determining applicable withholdings.
New Administrative Policy
Starting on January 1, 2024, in order to determine the province of employment of an employee who does not physically report for work at their employer’s establishment, employers will need to perform the new analysis set out below.
Applicable to “Full-time Remote Work Agreements”
The CRA’s new administrative policy will apply only to “full-time remote work agreements,” which are agreements between employers and employees with the following characteristics:
- the agreements can be either temporary or permanent
- the employer directs or allows employees to perform their employment duties full-time (100%) remotely (employers should be aware that the CRA states that the employer and the employee “must be able to justify” that a full-time remote work agreement was made)
- the employment duties are to be performed at one or more locations that are not establishments of the employer
Where there is a full-time work agreement, the employer must then determine if the employee is reasonably considered to be “attached to an establishment of the employer.” This is a new test.
Determining If an Employee Is Attached to an Establishment of Their Employer
The CRA has set out primary and secondary indicators to determine if an employee may reasonably be considered to be attached to an establishment of the employer. If the employee may reasonably be considered attached to an establishment of the employer, the employee will be considered to report for work at that establishment.
The primary indicator is whether the employee would physically come to work to carry out the functions related to their employment duties at an establishment of the employer if it were not for the full-time remote work agreement. For employees who physically reported to an establishment of the employer immediately before entering a full-time remote work agreement, that establishment is the one to which they would be reasonably considered to be attached, unless the employee’s circumstances or the nature of their duties have changed.
In addition, the following secondary indicators should generally be reviewed together in order to determine whether an employee is reasonably considered to be attached to an establishment of the employer:
- the establishment where the employee attends or would attend in-person meetings, through any type of communication
- the establishment where the employee receives or would receive work-related material or equipment or associated instructions and assistance
- the establishment where the employee comes or would come in person to receive instructions from their employer regarding their duties, through any type of communication
- the establishment that is responsible for or supervises the employee, as indicated in the contractual agreements between the employer and the employee
- the establishment to which the employee would report based on the nature of the duties performed by the employee
Using the earlier example, if the remote worker in Alberta who is paid from Ontario is determined, based on all indicators, to be attached to the Calgary office, the province of employment will now be Alberta rather than Ontario.
More Than One Establishment of the Employer
If, based on the indicators above, an employee can be reasonably considered to be attached to more than one establishment of the employer, the employer must determine which establishment the employee is more closely attached to.
Impact on Employers
The province of employment for employees who report for work physically at their employer’s establishment will continue to be the province in which the employer’s establishment is located.
However, under the CRA’s new administrative policy, employers will need to engage in the new analysis to determine the province of employment for employees who are subject to full-time remote work agreements as compared with the CRA’s existing guidance. An employer’s determination that an employee is attached to an establishment based on the indicators above “must be supported by the facts” of the employee’s employment situation. The CRA also states that the determination should not be used to avoid source deductions or employer contributions in a province.
In some cases, the new administrative policy may change the provincial payroll tables being applied to employees who are already on a full-time remote work agreement and whose province of employment is determined based on where they are paid from, if that differs from the establishment the employee is attached to based on the indicators identified by the CRA. Employers should examine their existing full-time remote work agreements before January 1, 2024 in light of the new administrative policy to determine whether such changes are necessary.
If you have any questions regarding the potential impact of the new administrative policy on remote work arrangements in your workplace, please contact your regular Hicks Morley lawyer or any member of the firm’s Pension, Benefits and Executive Compensation Group.
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