CPP: Time for Change

According to an often used saying, there are only two things that are certain: death and taxes.

The former usually comes as a result of aging. The latter comes as a result of working.

As Canadians, we live in a society that uses taxes or income deductions from those who are working in order to provide financial support for those who are aging and moving into retirement. Much has been written about the impact of the baby boomer generation (those that were born between the early 1950’s to the early 1960’s) on the economy. As the people from this age group start leaving the workforce, they will need to have saved earnings in order to support themselves financially.

Unfortunately, many Canadians do not have enough money set aside for this purpose, nor do all Canadian employers offer a pension plan that allows workers to save for their retirement. In order to supplement income for aging Canadians, the federal government provides financial support through Old Age Security (OAS) payments and the Canada Pension Plan (CPP). It is a known fact that the number of Canadians approaching retirement over the next ten to twenty years exceeds the amount of funding that is available to support them. These factors have all come into play and have resulted in significant changes to the Canada Pension Plan, which will require more funding in order to provide for ongoing financial support to our fellow aging Canadians.

The changes to the CPP are being implemented well into the mid 2020’s. As the payments for CPP are processed through employer payroll deductions, all Canadian companies and employees will be impacted. Canadian HR reporter provides us with an overview of the upcoming changes. The video clip below includes practical advice on how to prepare for tracking the financial impact on both the organization and its employees as follows:

[embedyt] https://www.youtube.com/watch?v=6JWLjskiFDc[/embedyt]

Even though the changes to the CPP program are intended to be gradual, both employers and employees will be impacted by the increased amounts that will, over time, appear to reduce the amount of an individual’s take-home pay. As such, another certainty will be the obligation of those responsible for compensation management, to ensure that all employees understand why these changes have been put into place.

Discussion Questions:

  1. As the Compensation Manager, prepare a brief communication to employees explaining how their pay will be impacted by changes to the CPP.
  2. How do the changes to the CPP benefit Canadian workers?
  3. In addition to the CPP, what types of pension or retirement plans would you advise an employer to put into place?
  4. Take a look at a recent pay stub from your current employer. How are the mandatory deductions identified? How are the CPP deductions calculated?

Paying the Price

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When is the last time you had to ask for a pay increase? For many Canadian workers, approaching their employer to ask for more money is not high on the list of job-related things they enjoy doing. While there are many valid reasons that an employee might have for requesting a pay increase, there is no guarantee that the response from the employer will be one that meets the needs of that request.

A recent study by the American-based PayScale compensation software firm, offers an uncomfortable set of findings based on a wide-reading survey exploring issues around pay raise requests.

Click here to access the summary of PayScale’s survey.

The results of this survey are analyzed in a corresponding article posted recently by Harvard Business Review.

Click here to read the article.

From a compensation management perspective, some key messages emerge about the connections between constructive/pro-active compensation strategies versus negative/negligent compensation approaches and their direct links to employee retention. Unsurprisingly, the survey provides statistical evidence showing that when an employee is denied a wage increase, there is a high probability that the employee will be on the path to exit from that employer.

While the survey and the results are based on American companies, they show an alarming connection between race, gender, and the denial of pay increases—this contrasts with much lower rates of pay-increase denial for white males. As Canadians and as pro-active Human Resources practitioners, we must take these statistical results seriously and consider them in relation to our own workplaces to ensure that our compensation practices, especially as they relate to race and gender, do not follow the same statistical paths.

Good compensation planning must be neutral, pro-active, and fair so that Canadian workers can focus on the things they do enjoy doing.

 

Discussion Questions:

  1. Based on your own experience as an employee, what would you do if your request for a pay increase was rejected by your employer?
  2. From the perspective of an HR professional, develop a script for supervisors/managers to use when telling employees why they will not be receiving the wage increase they have asked for.
  3. Identify three positive and three negative aspects of a differentiated compensation system (wage increases granted or denied based on individual requests).
  4. Identify and explain three key compensation methodologies that can be used to ensure an objective, fair, and pro-active approach to individual wage requests.

You Gotta Pay!

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Even lawyers get it wrong sometimes.

A recent case heard by the Alberta Court of Queen’s Bench provides an excellent summary of the critical importance of processing vacation and holiday pay in compliance with the law. In this case, law firm Stringer Delecky LLP was found to be liable for $19,746.32, representing two years of unpaid holiday pay, and $33,280.14 for unpaid vacation pay, to a former employee. The ex-employee, David Kusick, was a lawyer who resigned from the firm and subsequently filed a complaint under Alberta’s employment standards legislation for unpaid vacation and holiday pay.

Click here to read a summary of the case.

As noted in the case, Kusick had an employment contract which provided for the ‘inclusive’ payment of vacation and holiday pay. The employer argued that vacation and holiday pay were interchangeable which is, according to the law, wrong. Further, the employer did not keep accurate records for calculating vacation pay and holiday pay separately.

More importantly, it seems that the employer relied upon the fact that the original employment contract would be upheld because both the employer and the employee agreed to it and signed it.

What this case reinforces for us is the concept that employers, in the creation of the employment contract, cannot abdicate their responsibility to the law. When the employment contract is found to be incorrect or unlawful the statutory provisions, such as the relevant employment standards legislation, will prevail. Employment standards legislation typically provides for the minimum requirement that an employer must include vacation and holiday allocations when it pays its employees. The legislation also provides strict and prescriptive processes for tracking and maintaining compensation-related records. These factors are not negotiable, nor do they fall into an ‘opt-out’ category for an employer. An employer can provide a better benefit to its employees, such as vacation time or pay that is more than the minimum legislated requirement, but less than the minimum is not an option. The expensive and very public lesson Stringer Delecky LLP learned from this case, is that an employer cannot ignore the requirements of the law.

 

Discussion Questions:

  1. How many paid vacation days and statutory holidays do you earn in your current workplace?
  2. Looking at a pay stub/pay record from your employer, how is the information on it formatted? Does the pay stub clearly identify vacation pay as a separate item? What other information is included on the pay stub for record keeping purposes?
  3. If you were the compensation manager for the law firm noted in the article, how would you have processed the vacation and holiday pay differently?
  4. How would you use clear language in an employment contract that identifies entitlements for earned vacation (time or pay), holiday pay, and other paid or unpaid leaves of absence?

The HR Pressure Cooker is Heating Up

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Wages have always been at the forefront of any HR Department’s concerns, but it seems we are now approaching boiling point and that something may blow. Recruitment company Hays notes in its 2018 Salary Guide “a building pressure and awareness around compensation that [they] have not seen in previous years.” (Hays 2018 Salary Guide, p. 20.)

What does this mean for HR Departments? It is clear that they are feeling the pressure. Eighty-five percent say they want and need to improve their compensation plans in order to hire and retain top employees, but according to the Hays study, only 24% of HR Departments are allowed to offer more than a 3% compensation improvement.

Here is where the pressure is building for HR Departments — in recruitment. Compensation challenges and an inability to hire locally sourced talent is making it very difficult for HR departments.

The pressure is on, then, for HR to develop sophisticated, integrated strategies that address compensation levels, organization culture, and recruitment challenges. Perhaps HR professionals will increasingly need to show evidence-based research to convince senior leaders that they may have to increase their compensation budgets in the very near future.

 

Discussion Questions:

Research companies that lead the market with their compensation strategies. Identify why they have pursued these strategies.

Develop a 3-minute presentation to convince a Chief Financial Officer that an increase in the compensation budget is needed.

 

Pay Increase = Price Increase

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In the world of compensation strategy and design, some things are highly predictable. When an expense goes up, there must be a correlating financial adjustment in order to pay for that increased expense. This adjustment could be realized through one of a few options, which include the potential reduction of other expenses, or the increase of other revenue streams in order to cover increased costs.

With the implementation of minimum wage increases in Ontario, we are starting to see how the required cost adjustments are being achieved. According to numerous media reports, the restaurant industry is offsetting the increase in payroll expenses by raising product prices – a cost that is ultimately absorbed by the consumer.

Click here to read about the impact of minimum wage on consumer pricing.

As noted in the article, the increase in consumer price adjustments can be connected directly to minimum wage increases for employees. It is interesting to note, however, that the extent of the increase in employer expenses is significantly greater than expected. It seems that many employers in Ontario may not have taken into account some of the additional compensation-related cost increases that have resulted from legislation imposing a higher minimum wage.

This article provides us with a good example of how and why compensation planning must take into account more than just wage or salary increases.

No matter how the financial adjustment is realized, good compensation strategies will require careful planning and timing if they are to be implemented successfully – and this includes a broad range of compensation-related considerations.

Additional minimum wage increases are a known quantity for all businesses in Ontario. With this in mind, businesses need also to ensure that thoughtful compensation planning (taking all cost-related expenses into consideration) is a known quantity – one that feeds into rational and reasonable economic responses.

 

Discussion Questions:

  1. How would you design an affordable compensation strategy that supports on-going minimum wage increases over the next two years?
  2. What types of rewards or incentives could you offer to employees that are cost neutral?
  3. From your perspective, do restaurant owners have other options to pay for increased wages besides increasing menu prices? Explain your rationale.