WORKPLACE SAFETY AND INSURANCE BOARD
APPEALS RESOLUTION OFFICER DECISION
DECISION NUMBER: 20090043
OBJECTION BY: Employer
WORKER: Not Participating
REPRESENTATIVE: Employer
HEARING DATE: July 06, 2009
ATTENDEES: Employer, Employer Representative
ISSUE
The employer requests that the application date of January 1^st^, 2007 used, in the auditor’s May 1^st^, 2007 decision, to adjust premiums be amended to January 1^st^, 2005. The employer also requests reimbursement of the premiums and interest incurred as a result of the date used to implement the auditors’ decision.
HOW THE ISSUE ARISES
On November 22, 2000 a routine audit was conducted and the auditor found that the firm was misclassified. The auditor added rate group (RG) 737-03 “Other Trade Work” to reflect the employers’ business activity (BA) of erecting and dismantling scaffolding.
The auditor’s letter dated April 02, 2001 advised the firm that premium adjustments were being made for the years 1998, 1999 and 2000 for the following reasons: a reporting error for the 1998 wages reported to Ontario Workplace Safety and Insurance Board (WSIB) and a classification change.
In the auditor’s letter, he advised the employer that the classification change to include RG 737 was effective January 1^st^, 2000 and that segregated payrolls or wage records based on labour time spent by workers in each operation must be maintained and reported for each classification unit.
The auditor explained that for this audit the 2000 wages would be segregated based on a preliminary estimation, using a 50/50 split between the two rates since actual wages for October were not yet remitted.
The auditor also advised that if this estimate of final wages was incorrect, it would be corrected when they filed the remittance for October or the yearly reconciliation.
A routine audit was again conducted on February 21^st^, 2007 at the firm’s Sarnia location and completed April 19^th^, 2007.
The auditor determined the firm was not correctly segregating wages over its two CUs as the firm calculated the hours worked in each CU and then calculated the percentage of work attributable to each CU based on these hours. These percentages were then applied to the net insurable earnings to allocate earnings into each CU.
The auditor found the method used by the employer acknowledges the requirement to report earnings for each CU, however it does not recognize the differences in individual employee earnings.
The method used by the employer resulted in RG 670 being overstated.
The firms’ earnings were recalculated by the auditor and were based on actual earnings. The carpenters, carpenters’ apprentices and labourers earnings were reallocated to RG 737 with the remaining earnings going to RG 670 except for the common earnings which were prorated over both CUs. The adjustment resulted in a debit to the firms’ account.
In the auditors’ correspondence of May 1, 2007 he explained his findings from the audit. These findings included the error in segregating payroll, the necessity to reallocate payroll into the appropriate CUs for 2005 and 2006 and an increase in excess earnings for 2006.
The firm was advised that the payroll reallocation was based on using actual earnings of each employee; a factor not included by the firm in calculating their segregated payroll since the firm was reclassified in 2000.
The auditor assured the employer that although the changes resulted in a significant movement of insurable earnings between CUs the new segregation method was accurate. Together these adjustments resulted in debit adjustment to their account.
The firm requested a reconsideration of the effective date used to segregate their payroll as the method they used for the years 2005 and 2006 were based on information provided from a previous audit (2000).
The firm feels they were misinformed by the auditor and request the effective date of January 1^st^, 2005 for implementing the correct method of segregating payroll or as it was referred to in the auditors’ May 1, 2007 letter as the “new segregation method” should be applied effective January 1, 2007, prospectively rather than retrospectively.
The auditor responded to the objection, in writing, on April 29^th^, 2009, denying the request and referred the matter to the Appeals Branch.
AUTHORITY
Legislation: Workplace Safety and Insurance Act (WSIA)
- Section 88
Operational Policy Manual (OPM) documents:
11-01-03 Merits and Justice
14-01-01 The Classification Scheme
14-01-03 Segregated Payrolls
14-02-06 Employer Premium Adjustments
RESOLUTION METHOD AND PROCESS
A hearing took place on July 6^th^, 2009, with oral testimony provided by the employer.
ASSESSMENT OF THE EVIDENCE
Employer’s Representatives (ER) Submissions
The ER contends the auditors’ letter of April 2^nd^, 2001, is the reason for the employer’s error in segregating payroll.
The ER states the employer relied on the auditor’s letter and this led them to understand that they were required to split their payroll based on labour time spent and adopt this process of splitting the assessable earnings on time spent per rate group.
The employer’s representative also specifically notes the following excerpts from the auditor’s letter of April 2^nd^, 2001 as cause for the employer’s misinterpretation:
- Your firm is eligible for separate CUs and segregated payrolls or wage records based on labour time spent by workers in each operation must be maintained and reported for each CU.
- The payroll of common or ancillary workers who support two or more of your operations must be prorated based on the direct labour reported in each CU.
- Your 2000 wages will be segregated based on a 50/50 split between these two rates. Based on 1999 numbers this may underestimate the actual wages for 737. As the year is not complete final wage segregation should be included on your 2000 year reconciliation, which will show the actual split and correct any variances from the 50/50 split used as a preliminary segregation.
The ER further submits the following WSIB legislation and policy as grounds for setting the effective date for implementing the correct method of calculating segregated payroll: Section 88 subsections 4 & 6 of the WSIA; OPM document 14-01-03 which states that segregation of payroll should be based on labour time; OPM document 14-02-06 which gives the decision maker the ability to choose the date the WSIB will retroactively assess the employer; OPM document 11-01-03 which provides for exceptions to relevant policies.
Firm File documentation
Auditor’s memo of December 18^th^, 2000.
Auditor’s letter of April 2^nd^, 2001 advising employer of the audit completed December 18^th^, 2000.
Auditor’s May1, 2001 correspondence to the AS regarding 2000 reconciliation.
Reconciliations for the year 2000 dated March 12, 2001 and April 26^th^, 2001.
Auditor’s letter of May 1, 2007 advising the employer of the finding from the audit completed on April 19^th^, 2007.
Auditor’s memo of April 19^th^, 2007.
Employer Testimony
The employer stated he attended both the 2000 and 2007 audits as the employer representative. The employer described the major outcome of the 2000 audit to be the change from one RG to two RGs and stated he was advised to keep track of time between the firms’ two business activities from then on.
The employer testified that he understood the auditor’s decision letter dated April 2^nd^, 2001 to say the firm should keep track of payroll based on time spent.
The employer described the employer’s tracking method as a union related system called Jonas software and also noted the staff is ninety nine percent unionized. The system tracks by department whether they are carpenters, apprentices or in the sales office. The majority are hourly workers and that is how they are paid. Everyone is in a department and he knows exactly how many hours they work by department, branch and overall. He used those hours to determine the percentage of time spent and then used the hours to determine payroll and then would calculate premiums. He used this method between 2000 and 2006 and never changed his method. As the firm keeps track of payroll hourly he could easily tell by department who spent time in which department by the hours of labour time spent in each business activity.
The employer maintains that there was no discussion on how to segregate payroll for two rate groups during the audit so when he looked for direction in this matter he referenced the auditors’ letter.
Relying on the auditor’s letter the employer calculated the total time based on the proportion of hours between the two CUs and then calculated the earnings for the month. He then would remit on a 50/50 or 60/40 split based on the proration of the earnings by branch.
The employer asserts he filed the firms’ reconciliation using the old method to meet the March 31, 2001 deadline. He states when he submitted the revised reconciliation form on April 26, 2001 he relied only on the auditors’ letter for direction on how to segregate the payroll for the dual rate.
The employer maintains he was not contacted by the WSIB after the Account Specialist (AS) and the auditor reviewed and confirmed the revised reconciliation form for 2000 and he did not hear from auditor until 2007.
The employer declares it was never his intention to under report, it was the method used that caused them to under report.
The employer states he interpreted the auditor’s statement regarding a 50/50 split as probably accurate due to the auditor’s familiarity with the business.
The employer felt he was segregating payroll properly until found out he was not doing it correctly.
The auditor has since given him the spreadsheet that he used to come up with his numbers and is now inputting wages by department and calculating common earnings correctly.
The employer testified that he interpreted the reference to wages in the auditor’s letter of April, 2^nd^, 2001 as T4 amounts.
The employer states as a result of the audit the business had to scramble to pay the debit created to avoid restricted clearances and to allow them to continue business as normal.
Appropriate Policy:
Workplace Safety and Insurance Act (WSIA) Section 88 states, in part:
(1) Every Schedule 1 employer shall calculate and pay premiums to the Board in accordance with the notice given under section 87.
(4) If the Board considers that an employer has incorrectly calculated the amount of the premiums payable and, as a result, has paid an insufficient amount, the Board may require the employer to pay additional premiums in an amount sufficient to rectify the error. The Board may fix the amount of the additional premiums to be paid.
(5) If an employer has incorrectly calculated the amount of premiums payable for a year and, as a result, has paid an insufficient amount, the employer shall pay additional premiums in an amount sufficient to rectify the error and, as a penalty, shall pay that amount again to the Board.
(6) The Board may relieve the employer from paying all or part of the penalty if the Board is satisfied that the incorrect calculation was not intentional and that the employer honestly desired to pay the correct amount. 1997, c. 16, Sched. A, s. 88.
OPM document 11-01-03 Merits and Justice states, in part:
Role of the Act
The WSIB is responsible for administering and implementing the Act. If there are specific directions within the Act that are relevant to the facts and circumstances of the case, decision-makers are legally bound to follow them with no exceptions (e.g., loss of earnings is to be compensated at 85% of net average earnings for accidents on or after January 1, 1998).
Exceptions to relevant policies
There may be rare cases where the application of a relevant policy would lead to an absurd or unfair result that the WSIB never intended. Therefore, a decision-maker may depart from a policy if it can be shown that the case has exceptional circumstances that justify doing so.
The decision-maker must clearly identify the exceptional circumstances and explain in the decision why the relevant policy is not applicable.
No relevant policies
If a decision-maker finds that the facts of the case are not covered by existing policy, the case must be decided on its particular facts, in accordance with the general provisions of the Act. The decision-maker cannot disregard the relevant provisions of the Act.
OPM document 14-01-01 The Classification Scheme states, in part:
Policy
Premiums are calculated and paid based on methods established by the WSIB.
Payroll and wage records
Once the WSIB has established that an employer is carrying on distinct business activities that are recognized as separate classifications (i.e., they are not ancillary or incidental activities as defined by the WSIB), the most important criterion for multiple classification is the status of the employer's payroll and wage records. These documents must record each worker's insurable (assessable) earnings, as defined by the WSIB.
The WSIB requires all employers engaged in multiple business activities that are classified in different CUs to maintain segregated payrolls and wage records for each business activity.
OPM document 14-01-03 Segregated Payroll states, in part:
Policy
If the WSIB classifies an employer's operation in more than one classification unit (CU), the employer must maintain documents supporting the segregation of wage records and payroll for each CU. To do so, the documents must provide proof of the direct labour or labour time expended on each CU.
Segregating payrolls
Employers segregating their payrolls must do so on the basis of the amount of labour (or "labour time") directly relating to each business activity. An employer is more likely to be able to maintain segregated payrolls when different workers are assigned to each activity exclusively.
However, if one worker engages in multiple business activities which the classification scheme includes under more than one CU (i.e., the worker's earnings are "intermingled"), the WSIB classifies the earnings under the relevant CUs provided that the worker's wage records for each activity are properly segregated.
Proof of segregation
In addition to keeping accurate wage records (see 14-01-02, Single Classification), an employer with multiple CUs must provide, upon request or on audit, the following types of documentation (as applicable) to support the segregation of the wage records of individual workers
Example: Multiple business activities, same rate group
The employer records the earnings of all the workers, including those with intermingled earnings, on wage records which are properly segregated.
OPM document 14-02-06 Employer Premium Adjustments states, in part:
Policy
The WSIB makes debit or credit premium adjustments to employer accounts
- from the notification date back to January 1 of the second prior year,
- from the notification date back to the actual date that the change giving rise to the adjustment took place if the change occurred after January 1 of the second prior year
The exceptions to the two-year rule are
- provisional premiums
- lack of full disclosure
- offences or fraud
- classification changes
Exception rules
Lack of full disclosure
At its discretion, where the WSIB is satisfied that there has been a lack of full disclosure in an employer’s account on any premium related issue requiring a correction, the WSIB may make premium debit adjustments only for up to five prior calendar years when employers
- provide incomplete or inaccurate information to the WSIB, or
- otherwise delay, withhold, or fail to fully disclose relevant information, or
- fail to act on information provided to them by the WSIB that directly affects their premium.
Analysis
The issue, before me, is not whether the method of calculating segregated payroll conducted by the auditor in the 2007 audit is correct, but when the method should be applied to the employer’s account.
Is the employer’s misunderstanding of the auditor’s letter reason to adjust the retroactive date of the premium adjustment?
The employer contends that the date of application should be January 1, 2007 as the firm was misled by the auditor’s letter regarding the December 18^th,^ 2000 audit when it advised the employer about the changes to the employers’ classification as a result of the audit.
The auditor’s April 2^nd^, 2001 letter advised the employer that: segregated payroll or wage records based on labour time spent must be maintained; payroll of common or ancillary workers must be prorated on direct labour reported in each CU and that their 2000 wages will be segregated on a 50/50 split between the two rates.
The employer testified that when he went to recalculate the 2000 reconciliation to include separate payroll for the two RGs, he referred only to the auditor’s 2001 letter to determine the method for calculating segregated payroll. That he understood the letter to say that he should calculate the number of hours worked and then determine the percentage of those hours that apply to each CU is not in dispute but is presented as a premise for changing the May 1^st^, 2007 decision to implement the correct method of segregating payroll from January 1^st^, 2005 to January 1^st^ 2007.
The ER relies on excerpts from the auditor’s letter of April 2^nd^, 2001 as cause for the employer’s misunderstanding on how to calculate segregated earnings. In this regard I note the auditor made specific reference to wage records based on labour time and advised the employer that the method he was implementing on a preliminary basis might underestimate the actual wages for rate 737.
The audit process exists to uncover mistakes and correct them. OPM document 14-02-06 Employer Premium Adjustments the WSIBs’ policy on retroactivity supports the WSIBs’ responsibility to maintain the insurance fund while recognizing that there must be reasonable limits on the periods of time during which a classification change will be applied retroactively.
It is understandable that the employer may have misinterpreted the auditor’s explanation for segregating payroll and it is the acceptance of this misinterpretation that resulted in no penalties being administered to the account.
As noted above it is the WSIB’s responsibility to rectify an error and apply the retroactive criteria set in policy. I find the date used to rectify the error as described in the policy on Employer Premium Adjustments to be applied correctly.
Is the auditor’s allowance of the revised reconciliation indicative of their approval of the employer’s method of calculating segregated payroll?
The ER states that the auditor should have reversed the amended reconciliation if it was completed in error but since he accepted it as a fair amount contends that this is grounds for changing the effective date used by the auditor to implement the correct method of segregating the firms’ payroll.
Firm file documentation confirms the two versions of reconciliations submitted to WSIB as described by the employer. Firm file record of the emails between the AS and auditor dated May 1, 2001 confirm that the AS and the auditor discussed the revised reconciliation. The auditor advised the AS that since he had advised the employer that he is required to support the new numbers at the time of the audit and since the firm was willing to pay on fair numbers, he recommended the reconciliation be processed as submitted. There is no record of WSIB contact with the employer regarding the revised reconciliation. I find this oversight by the auditor, who likely believed the employer was reporting correctly, to carry little weight in determining the outcome of this matter as he was not condoning the method used by the employer to calculate the payroll by accepting it.
Was Section 88 of the WSIA applied correctly?
The ER in her submission states that Section 88 subsections 4 and 6 of the WSIA provide the WSIB with the option of when to implement the correct method for segregating payroll. Section 4 allows the WSIB to rectify an error in calculating the amount of premiums and section 6 allows the WSIB to relieve the employer from paying all or part of a penalty.
In this matter the employer was charged the premiums required to correct the error which is not in dispute and no penalties were administrated. Thus, section 88 subsections 4 and 6 of the WSIA have been applied accordingly.
Did the policy on Segregated Payroll contribute to the misunderstanding?
The ER refers to the section of OPM document 14-01-03 Segregated Payroll which states “the segregation of payroll should be based on labour time rather than on direct earnings.” as confirmation of the employer’s understanding at the time of the audit. As it has been established that the employer’s method for segregating payroll was in error and the policy quoted was not referenced by the employer in determining how to segregate payroll, its use to confirm their understanding at the time of the audit is unclear and irrelevant to why the employer segregated the payroll incorrectly.
Should “lack of full disclosure” be applied?
The ER raises OPM document 14-02-06 Employer Premium Adjustments as an example of the discretion the WSIB decision maker has in implementing the date the WSIB will retroactively assess an employer. The employer’s representative specifically references the exception “lack of full disclosure” which allows the WSIB to go back up to five calendar years when it is satisfied there has been lack of disclosure on the part of the employer.
The use of this as an example of the discretion allowed possibly suggests this section of the policy may apply to this case. However, the employer has stated it was not his intention to provide inaccurate information and the five year rule was not applied by the auditor for lack of disclosure in this matter. I regard the raising of this section on the employers behalf as unhelpful in determining the outcome of the issue at hand.
Are the merits and justice of the case considered?
The ER further requests, in her submission that my decision consider the merits and justice of the case as outlined in OPM document 11-01-03 Merits and Justice. The employer’s representative requests the decision maker to identify the exceptional circumstances and why the relevant policies are not applicable.
I find that upon reviewing the WSIA and relevant policies that the date for rectifying an error in reporting premiums is clearly outlined in policy 14-02-06 Employer Premium Adjustments and do not find the application of the policy to lead to an unfair or absurd result, further the employers error in calculating segregated payroll does not meet the definition of an exceptional circumstance that would require a departure from this policy.
Summary
The WSIBs’ method for calculating segregated payroll is available to employers in several forms including annual correspondence and through services provided by the WSIB. The availability and transparency of the method for calculating segregated payroll prevents me from finding the employers’ reason for adjusting the date of implementing the correct method, compelling. As noted earlier the role of audit is to find and correct errors in such cases and the retroactive date applied was in keeping with policy.
CONCLUSION
I reviewed the firm file documentation in detail having regard for the employer’s testimony, submissions and argument tendered as well as the relevant WSIB legislation and policy. In my analysis, I concurred with the field auditor’s determination to retroactively apply the employer’s premium adjustment to January, 1^st^, 2005.
The objection is denied.
DATED July 29, 2009.
J. Williamsom Appeals Resolution Officer Appeals Branch