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Have SIN card changes been well thought out?

In its omnibus budget Bill C-38, the federal government is giving itself the ability to eliminate the use of physical Social Insurance Number cards. According to an article in the May 16 issue of the Globe and Mail, actual SIN cards will no longer be issued as of March 2014. Currently Employment Insurance and Canada Pension Plan legislation requires employers to ask to see the actual card. The budget changes, once implemented, will bring these into sync with the Income Tax Act, which only requires employers to ask employees for the number itself, without an actual requirement to see the card.

Asking to see the actual card provides employers with several things that just the number itself does not provide.

First, the SIN card also shows the employee’s name. Currently, employers are instructed in the T4 guide, RC4120, to ensure that employee names reported on T4 slips match those on employee SIN cards. It’s quite common for example, for people to go by names that are not their legal first names. For example, someone whose legal name is Walter Frank Harold Ames might just go by Frank Ames. Seeing the card helps ensure employers report the correct legal name on the T4. Among other things, this helps ensure that employee CPP contributions get recorded against the proper person. Years ago, there used to be millions of dollars in CPP contributions that could not be properly allocated from T4 slips when employees changed their names due to marriage or divorce, but did not bother to tell their employers.

Seeing the actual name on the SIN card also helps to prevent payroll fraud. In other words, seeing the actual card helps ensure that the SIN itself belongs to the employee being hired. Otherwise, how is an employer to know that the SIN offered actually belongs to that person? The T4127 guide, which provides software developers with the logic needed for income tax source deductions, also contains the logic to validate SINs. This logic is easily modified to generate random numbers that will pass the test for a valid SIN. For example, an unscrupulous payroll manager could thereby generate valid SINs and use them to populate a payroll with dead horses, in other words, non-existing employees. One technique to prevent this is to require a photocopy of employee SIN cards in employee files. Without a copy of the actual SIN card as a technique to reduce fraud, employers must rely on their payroll systems to detect multiple uses of the same SIN.

Some SIN cards, those whose number starts with the digit 9, also have an expiry date. Such expiry dates are used by Citizenship and Immigration Canada to manage employees who are in Canada with only limited authorization to work here. So far, there has been no information on how these expiry dates will otherwise be communicated to employers or whether SIN cards will still be issued to such employees. Eliminating the requirement for all employees to present an actual SIN card would presumably make it easier for employees to hide the fact that they may not be legally entitled to work for the employer.

Overall, the elimination of actual SIN cards might in the end prove to be a false economy.

Alan McEwen
arcmewen@cogeco.ca

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Alan McEwen

Payroll consultant at Alan McEwen & Associates
Alan R. McEwen‘s involvement in payroll spans over 20 years. As a practitioner, he has implemented and managed outsourced payroll operations for both large and small employers. As a consultant, he has worked with many organizations, public and private, on HR/payroll process re-engineering, strategic systems decisions and forensic payroll audits. Read more
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