Minimum-wage payroll costs will jump under new legislation: MacLeod

December 23, 2019

By AdvocateDaily.com Staff

The Ontario government’s plan to increase the minimum wage to $15 an hour will likely have a major financial impact on employers who are heavily reliant on basic pay workers, says Toronto employment lawyer Doug MacLeod.

“Payroll costs will be going up significantly for people who rely on minimum-wage labour,” he says. “That’s going to be a major challenge to manage payroll costs for these employers.”

Retailers, service industry employers and non-profits will likely feel the brunt, he says.

The Liberal government has introduced the Fair Workplaces and Better Jobs legislation, which proposes a wide range of changes to employment law, including an increase in the minimum wage from $11.40 an hour to $14 by Jan. 1, 2018, and then to $15 on Jan. 1 2019, followed by annual increases tied to the rate of inflation.

The speed at which the $15 minimum wage will increase poses significant challenges for certain types of employers, like non-profits, that will have to absorb resulting payroll increases of up to 30 per cent in a relatively short period of time, says MacLeod, principal of MacLeod Law Firm.

This means that many social service agencies will likely have to cut services unless they get financial help, MacLeod says. The government may respond by paying non-profits two or three dollars an hour more per employee to make up the difference, MacLeod tells AdvocateDaily.com.

But the private sector is in a different situation, he says. Retailers, restaurants and other small businesses that can pass on their costs will charge consumers more for their products and services, he says, resulting in a small inflationary pressure. “I suspect what it’s going to mean is our coffee prices are going to go up,” he says.

“And for those businesses that cannot pass on the increase, they’re in trouble,” he adds. “And I think it’s going to mean that people who are thinking of setting up shop in Ontario – if theirs is a labour intensive business – may decline to make an investment in Ontario.”

The changes will play out differently sector by sector, he adds.

The government has announced that it intends to send the legislation for study at the committee level after first reading. MacLeod says it will be interesting to see whether employers in certain sectors will come to the committee hearings and convince the government to exempt the sector from the full increases in the minimum wage.

The increase in minimum wage was not one of the 173 recommendations tabled by a recently released government-commissioned study, The Changing Workplaces Review, authored by two special advisors who studied the issue of precarious work, MacLeod notes.

The government is, however, adopting the report’s recommendation to increase vacation pay to the national average by ensuring employees receive at least three weeks’ vacation after they work five years with the same employer. The current standard is two weeks vacation per year. This will result in an effective payroll cost increase of 2 per cent for some employees, MacLeod notes.

Another monetary issue of note is the government’s proposed expansion of employees’ personal emergency leave for illness, injury and other urgent matters. Currently, personal emergency leave, which allows employees up to 10 unpaid days off annually, is only mandated for workplaces with 50 or more employees, MacLeod notes.

The government will remove this small business exemption, allowing all employees 10 days of personal emergency leave a year, two of which are paid. “This is the first time that leaves have been paid,” MacLeod says. Interestingly, this was not recommended by the authors of The Changing Workplaces Review, MacLeod notes.

Another major change proposed in the legislation is requiring equal pay for temporary help agency employees doing the same job as permanent workers at the agencies’ client companies. This will almost certainly increase costs for employers using temporary agency staff, but it remains to be seen whether it will decrease demand for temp services, MacLeod says. However, the changes could be very expensive for employers who contract out in search of cheaper labour, he adds. “I think this proposed change could significantly impact the way these kind of employers manage their labour costs.”

Employers would be exempted from paying temp workers equal pay when the pay difference is based on seniority, merit, or systems that determine pay by quantity or quality of production. Taking advantage of these exemptions could be the subject of many complaints by temporary employees, MacLeod says. “Initially, lawyers may be retained to litigate in what circumstances these exemptions apply,” he says.

The government is also proposing measures to make sure that workers are not misclassified as independent contractors. It will do so, mainly, by obliging employers to prove they are not employees.“ This proposal includes a reverse onus clause,” MacLeod says. “Unless an employer can convince the government that it’s a true independent contractor relationship, then it’s assumed to be an employment relationship.”

This is going to be significant because, to enforce its changes and other provisions in the Employment Standards Act, the government has announced it will hire up to 175 more employment standards officers, MacLeod says. “So as part of their standard investigation, I think, Ministry of Labour officers are going to be asking, ‘Do you have any independent contractors,’“ he adds. “This could result in the number of employees going up and the number of independent contractors going down,” MacLeod says.

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