Canada: Employer Alert: B.C. Introduces New Employer Health Tax And Legislation To Extend Employee Leaves

Last Updated: May 1 2018
Article by J. Geoffrey Howard

Extended ESA Leaves

The B.C. government announced on April 9, 2018 that it was introducing amendments to the Employment Standards Act to extend and expand statutory leaves as follows:

  • Parental leaves will extend to 61 weeks (for birth mother) or 62 weeks for other parents, with birth mothers thus able to take a combined 18 months of pregnancy and parental leave;
  • Compassionate Care Leave to care for a family member at risk of dying will be extended from 8 weeks to 27 weeks;
  • New leaves for parents whose child dies of up to 104 weeks and for parents whose child disappears as a result of suspected crime of 52 weeks will be created.

More details on these changes will be available when the legislation passes.

New Employer Health Tax

B.C.'s NDP government announced this March that it will be scrapping the old system of collecting individual MSP premiums to help finance health care and replacing it with an employer health tax (EHT) effective January, 2019, forcing medium and larger employers to make up most of the lost revenue. Larger employers will face the highest costs and have few ways to avoid them.

Under the old system, every person or family was responsible for paying MSP premiums which ranged from $11 per month for a low income single to $150 a month for a middle class family, with premiums depending on income level. Most, but far from all, employers pay the MSP premium for their employees and their families, but do so on a voluntary basis.

Under the NDP reforms, following a transition period of 2018 and 2019, only employers with a B.C. payroll of over $500K will have to pay the new EHT tax. Rates vary on a sliding scale starting at .98% and topping out at 1.95% for employers with a payroll exceeding $1.5M. During the transition period, MSP premiums are being reduced by 50%. Larger employers face a "double whammy" during the transition period as they have to continue paying MSP premiums (albeit at 50% of the previous rate) and the new employer health tax.

In effect, these changes transfer a substantial portion of the cost of the health care system from individuals and voluntarily participating employers to the estimated 15% of employers with a payroll over $500K. For the largest employers, who were usually paying MSP premiums, the result will likely be a slightly higher cost, primarily for those with higher earning staff. Businesses who had been paying MSP with payrolls of as much as approximately $1M will either pay no EHT and thus will see reduced costs, or pay less in EHT than they paid in MSP.

Practical Steps

Practically, there are few ways for the larger employers to avoid these higher costs. In future, expanding small businesses may want to carefully consider whether they can structure their affairs so their B.C. payroll remains at lower levels thus avoiding this tax or reducing the rate payable. The government is promising anti-avoidance rules that will prevent related businesses from claiming multiple lower payrolls to avoid the EHT. During the transition period, employers may wish to consider reducing or eliminating their coverage of MSP premiums to offset the new employer health tax, although those with union agreements will not be able to do so and others may not want to upset employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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