Deferral Programs

I worked for a company that decided to have a “summer workday” program (work 4 days in the summer), so employees got every Friday off all summer and then they were to work extra time each week in the September to December period to offset the hours they did not work in the summer. Sounded good on paper but it was a nightmare for HR and Payroll staff. This was in a company with over 1200 employees! If an employee left the company or went on Maternity or sick leave with EI, I had to recalculate every summer pay cheque, adjusting CPP, EI and taxes and then adjust their final pay, record of employment etc. I have not had specific experience with “salary deferrals” but the key is to ensure the rules of the program are clear up-front so everyone knows the consequences of choosing to defer salary.

At my previous Employer, there was a prescribed deferred salary program. The terms and conditions had to comply with the requirements of the Income Tax Act and Income Tax Regulations. A percentage of an employee’s annual gross salary could be deferred and there was a minimum and maximum leave period. The amount of salary deferred was not included in their income in the year it was earned, but rather when it was paid on their leave of absence.

This is a significant liability and requires a lot of admin work. There are chances of errors as well. We don’t provide this option in our company.

We offer a deferral program. Only 2 employees have taken advantage of it in 10 years. 20% of their salary, pre-tax, is put into a trust fund each month for 5 years. In the sixth year, they are paid 1/12th of what’s in the trust account, including interest. When we pay them the deferred amount, we take the source deductions.

I work in the education sector and salary deferral programs are in the Collective Agreements and we administer them. They are a lot of work and there is perhaps about 40% of those that start the program that subsequently cancel. There are a number of employers that charge an administrative fee to those that cancel, my employer does not. There are many taxing rules that require additional configuration such as the taxing, CPP and EI with respect to the deferral amount. Our Municipal Pension Plan requires its member to pay both shares of their pension while on this leave whereas the Teachers Pension Plan does not.