March 6, 2024 By: Kimberley Breckner
Canada Revenue Agency’s (“CRA”) new administrative policy (the “Policy”) for determining a remote employee’s province of employment (“POE”) became effective January 1, 2024. The Policy sets out how to determine an employee’s province of employment for the purpose of Canada Pension Plan (“CPP”), employment insurance (“EI”), and income tax payroll deductions.
Determining an employee’s place of employment depends on whether that employee has a connection to an employer’s establishment. An “establishment” of the employer is any place or premises in Canada that is owned, leased, or rented by this employer where employees report to work or from which employees are paid. This may be a temporary location, such as a field office.
If an employee physically reports to work at an employer’s establishment, the employee’s POE is the province in which the establishment is located. For employees under a full-time remote-work agreement, the Policy requires an analysis of whether the employee can be reasonably considered attached to an establishment of the employer.
Whether an employee can be reasonably considered attached to an establishment of the employer depends on the facts of the particular situation. The CRA sets out two sets of “indicators” to guide the analysis: the primary indicator and secondary indicators.
The primary indicator is whether the employee would physically come to work to carry out the functions related to their employment duties at that establishment if it was not for the full-time remote work agreement.
There are five secondary indicators which assist in determining the establishment of the employer where the employee, if it was not for the full-time remote work agreement, would physically come to work to carry out the functions related to their employment duties:
- 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.
For employees who are not party to a full-time remote work agreement, or who are party to a full-time remote work agreement but cannot be reasonably considered attached to an establishment of the employer, the POE is the province or territory where the establishment of the employer from which the employee’s salary is paid is located.
The Policy is helpful in filling a gap for employees who have transitioned to working remotely full-time but are still connected to their employer’s local office. Without the Policy, payroll deductions for CPP, EI, and income tax would be based on the location where payroll is issued, which may not necessarily be in the same province as the local office.
It is important to note that unlike POE for CPP, EI and income tax payroll deductions which is based on the location of the employer, an employee’s income tax payable is based on the employee’s province of residence. If the employee’s POE and province of residence differ, there may be too little or too much tax withholdings deducted. Employers and employees in this situation should consider applying to CRA for an increase or reduction of income taxes deducted with payroll.
Further, an employee’s POE is not necessarily determinative of the applicable jurisdiction for other employment rights and obligations, such as employment standards, human rights, worker’s compensation, and privacy legislation.
Disclaimer
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topics discussed in this article.