Compensation – It’s important to get it right

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As lawyers, we know that compensation is heavily regulated. Employers need to understand the legal context before structuring compensation practices. This article provides a basic checklist of what employers should consider in creating a solid compensation model. It is simply not enough to be competitive.

The Basics

Every province has an extensive statutory regime that impacts compensation, including:

  • Minimum wage
  • Overtime and exemptions to overtime
  • Vacation pay

On the surface, the rules seem straightforward, but can be tricky to apply correctly. The exemptions from overtime, for example, are not consistent across the country. For example, a registered geologist would not be entitled to overtime in Alberta, but is in Ontario. Employers routinely calculate vacation pay on base salary, but forget that vacation pay is also payable on incentive or variable pay. The complex regulatory regime means that employers need to be extra vigilant to ensure basic payroll inputs and calculations are performed accurately.

Equity

Increasingly, Canadian jurisdictions are concerned about fairness in compensation.

All Canadian jurisdictions forbid discrimination in matters of employee compensation on the basis of a number of “protected grounds”, including, without limitation race, sex, national or ethnic origin, sexual orientation, gender expression or disability.

All Canadian jurisdictions require “equal pay for equal work.” For example, in Ontario, it is illegal to pay one sex at a rate of pay less than the rate paid to an employee of the other sex. The courts look at the underlying substance of the work performed by the employees in question.

Both Ontario and Quebec have private sector pay equity legislation. Depending on the size of the workforce, employers may have to:

  1. review the various types of jobs or “job classes”;
  2. determine whether the job class is predominantly male, predominantly female or neutral;
  3. review the job in terms of the skills (including education, experience), effort, responsibility, and working conditions;
  4. compare compensation for various job classes;
  5. identify any gaps and determine if the gaps are justifiable on the basis of a non-discriminatory factor, e.g. seniority or merit pay;
  6. close the gap by paying any individuals in female- dominated classes the difference or delta.

Future Trends

The previous Ontario government enacted the Pay Transparency Act, which will require employers to publish a salary range in job advertisements as well as forbid questions regarding past compensation. It will also make it illegal to prohibit discussions between employees about compensation. Salary disclosure reports will be required for larger employers starting in 2020. The legislation will come into effect on January 1, 2019.

Are you ready?

Obviously, compensation can become very complex. For any compensation or employment questions, contact any member of the Gowling WLG Employment, Labour and Equalities Team.


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P.A. Neena Gupta (Neena.gupta@gowlingwlg.com or 416.862.5700) is a partner of Gowling WLG (Canada) LLP and is on the board of directors of BioTalent Canada. Her broad employment practice includes advising employers of all sizes on compensation, pay equity and related matters. For more information, see gowlingwlg.com

Gowling WLG (Canada) LLP is a member of Gowling WLG, an international law firm that consists of independent and autonomous entities providing services across the world. For more information, see www.gowlingwlg.com/legal.