Understanding the distinction between an employee's province of employment (POE) and their province of residence is crucial to Canadian payroll compliance. This differentiation impacts source deductions, year-end reporting, employer payroll taxes, employment/labour standards, pensions standards, the employee's personal income tax return, and worker's compensation legislation.
In this blog, we'll break down the difference between province of employment and province of residence to establish a clear picture of what each means and the impact it has on employers and employees when it comes to payroll.
Determining an Employee's Province of Employment
Determining an employee's province of employment (POE) serves as the foundation for calculating an individual's contributions to the Canadian Pension Plan, Québec Pension Plan, Employment Insurance, Québec Parental Insurance Plan, and/or income tax deductions.
It's important to note that employees with a POE in Québec have specific requirements, mandating the deduction of QPP and QPIP contributions, regardless of their province of residence.
An employee's province of employment is either the province where the employee physically reports to work at the employer's permanent or deemed establishment or the province where the business is located and from where the employer pays the employee's wages (when the employee does not physically report to the business establishment).
If an employee is not required to report for work to the employer's place of business, the employer must consider all relevant facts to determine if the employee can be reasonably deemed attached to an establishment of the employer. This attachment can be based on where the employee physically reports for work or is considered attached. A full-time remote work agreement between the employee and employer can establish this attachment.
It is important to note, the concept of a "place of business" is not limited to a permanent location but can also include temporary sites like a construction area.
Permanent or Deemed Business Establishment
The province of employment is determined by where the employee physically reports to work at the employer's permanent or deemed establishment. Definitions of "establishment" provided by both the Canada Revenue Agency (CRA) and Revenu Québec (RQ) for tax purposes may include the use of substantial machinery or equipment at a specific work site, making it qualify as an establishment.
If the employee does not physically report to a permanent or deemed establishment, their province of employment is determined by the province or territory where the employer's business is situated and from where the employee receives their wages.
If you are unsure, the CRA has an interactive tool to help determine an employee's province of employment (POE) which you can access by clicking here.
Workers' Compensation
Generally, employer premiums for workers' compensation are based on the province where the employee physically works. This means that regardless of where the company's headquarters are located or where the employee's paychecks are processed, the key factor is the actual location where the employee performs their job duties. Workers' compensation premiums are calculated to reflect the specific risks and regulatory requirements of the province in which the work takes place.
For instance, if you have an employee working on a construction site in Ontario, the workers' compensation premiums will be based on Ontario's regulations and risk assessments for the construction industry.
Employers must be diligent in identifying the correct province for workers' compensation purposes, as each province has its own regulations, rates, and requirements. Failure to comply can result in significant legal and financial repercussions, including fines and back payments for miscalculated premiums. This attention to detail not only ensures compliance but also protects employees by guaranteeing they receive appropriate coverage and benefits in case of a work-related injury or illness.
Ex. 1: Jasmin is physically reporting to work at her employer’s establishment in British Columbia (BC). In this case, she is covered under BC workers’ compensation legislation.
Ex. 2: Greta is working from her home in Saskatchewan but is being paid as an Alberta employee. Her employer's obligation would be to the Saskatchewan Workers' Compensation Board.
If the employee works out of two or more provinces, the employer should contact each of the workers' compensation boards since premiums may be pro-rated.
Health Tax Levies
In some cases, Ministry of Finance approval may be needed to determine if an employee's earnings are subject to health tax assessable remuneration.
There are five jurisdictions that impose employer paid health taxes on assessable remuneration paid to employees, including British Columbia, Manitoba, Newfoundland and Labrador, Ontario and Quebec.
Determining health tax jurisdiction can be complex in Newfoundland & Labrador, Ontario, and Manitoba, where legislation references employees “paid through” or “attached to a permanent establishment.” The province of employment for income tax purposes may not always align with the province where the employee is paid through or considered attached to.
If unsure, consult directly with the Ministry of Finance to clarify.
Employment & Labour Standards
When it comes to employment and labor standards (such as entitlements to vacation, statutory holidays, etc.), it's important to note that the employee is safeguarded under the laws of the jurisdiction where they perform their work, regardless of their province of employment or residence.
Ex. 1: Grace lives in Alberta, but physically reports to work at her employers establishment in British Columbia. She would be covered under British Columbia employment standards.
Ex. 2: David used to work at his employer's establishment in Ontario, but then moved to Manitoba for personal reasons. David's employer agreed to let him work from his home in Manitoba. David is now covered under Manitoba's labour standards, even thought his province of employment remains Ontario, as this is where payroll is processed from.
See table below for links to Employment Standards for each Canadian jurisdiction:
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