Employment standards: Risks of paying employees “under the table”
The Ontario Employment Standards Act (the “ESA”) is intended to be remedial legislation, designed to protect vulnerable employees. While employers cannot contract out of many of the provisions in the ESA, the practical reality is that not every employment relationship is 100 percent compliant. This non–compliance may come as a result of either the employer or employee being unaware of a particular requirement under the ESA or, in some cases, an employer may be aware of their non–compliance but feels that the cost of complying outweighs the risk of getting caught.
Following the logic of this latter reason for not complying, I felt it would be helpful to set out some of the areas of non–compliance (and some of the potential repercussions that follow) that may come as a result of paying a worker “under the table” (i.e. an employment relationship involving nothing more than the payment of cash in exchange for work performed) that would otherwise be covered by Employment Standards. That said, the main sources of liability will flow from:
- Not complying with employer withholding obligations regarding income tax and statutory benefit deductions (e.g. EI and CPP);
- Employee entitlement to common law reasonable notice of termination;
- Penalties and unexpected wage accruals from various employment standards; and
- Failing to register under the Workplace Safety and Insurance Act (the “WSIA”).
When hiring an employee, an employer has an obligation to obtain the employee’s Social Insurance Number (“SIN”). Along with providing evidence that the employee is legally entitled to work in Canada, it allows employers to carry out their additional obligations—i.e. deducting (and remitting to the government) from an employee’s income:
- Income tax;
- Canada Pension Plan Premiums; and
- Employment Insurance premiums.
Failure to obtain a SIN within three days of when the employee begins their employment could result in a fine of $100 plus $25 per day and up to a maximum of $2,500. Failure to deduct and remit the above–noted withholdings could result in not only a requirement to retroactively remit the proper amounts, but also interest and an additional penalty of up to 10 percent of the amount that was supposed to have been deducted.
Common law reasonable notice of termination
If/when an employer terminates an employee on a without–cause basis, an employee’s entitlement to notice of termination and severance will be triggered. As my colleague, Adrian Ishak, explains in greater detail in his blog post on notice of termination, an employee is entitled to reasonable notice of termination and severance at common law. However, an enforceable termination provision contained within a written employment agreement can limit such entitlement to as little as the statutory entitlement under the ESA (which, in many cases is much less than the common law entitlement).
Other Employment Standards
The ESA has certain protections around, among other things:
- Hours of work;
- Rest periods;
- Minimum wage;
- Overtime pay; and
- Holiday pay.
Issues may arise where an employer:
- Pays an employee a set amount per day, regardless of how long the employee works;
- Does not pay an employee because they are an “intern”;
- Does not properly track employee hours worked;
- Does not provide an employee enough time off;
- Does not accrue vacation or holiday pay; or
- Expects an employee to be on call.
While the above is not an exhaustive list, any of these scenarios may result in the accrual of what could be substantial unpaid wages. Furthermore, as I discussed in a blog earlier this year, the Ontario Ministry of Labour performs blitzes to proactively investigate compliance with the ESA. This could result in not only paying the employee the unpaid wages, but also penalties and fines.
Failing to register under the Workplace Safety and Insurance Act
The Workplace Safety and Insurance Act (the “WSIA”) creates an insurance scheme to cover certain liability flowing from workplace injuries that may otherwise be bourn directly by an employer. Schedule 1 and Schedule 2 of the WSIA sets out the industries within which employers must register under the WSIA and contribute to the insurance fund. Failing to register and contribute to the WSIA insurance fund could result in liability for:
- Unpaid premiums;
- Interest on the unpaid premiums;
- Non-compliance charge of 5 percent of the unpaid premiums; or
- An additional penalty for failure to register (or another enumerated offense under the WSIA).
Specifically: a fine not exceeding $25,000 or to imprisonment not exceeding six months or to both if the employer is an individual; or a fine not exceeding $500,000 if the employer is a corporation.
Even if an employer is not listed under Schedule 1 or Schedule 2 of the WSIA, it could be liable for workplace injury by way of a personal injury law suit or liability for a violation of the Occupiers Liability Act.
Before hiring your first employee, an employer needs to educate itself on the various requirements under the ESA (and other legislation such as the WSIA and Occupational Health and Safety Act) and the nuances associated with termination of an employee’s employment. Although there will be some upfront costs associated with record keeping, registering for insurance pursuant to the WSIA and learning about employment legislation, the benefits of such proactivity will pay off in the future when issues inevitably arise, even if you only have one or two employees.
By: David Witkowski
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