Decision #180/13 - Type: Workers Compensation

Preamble

The firm is in the business of providing cleaning services. Since it commenced filing with the Workers Compensation Board ("WCB") in 1992, the firm's operations have evolved. As the result of an audit conducted in 2008, the WCB made a number of adjustments to the firm's assessment. The firm disagreed with several of the WCB's decisions and filed appeals with the Appeal Commission.

Issue

  1. Whether or not the assessable earnings calculation should be based on 65% of the labour percentage rate;

  1. Whether or not the firm is responsible for reporting unregistered subcontractor earnings for assessment purposes;
  1. Whether or not payments made for matters including but not limited to bonuses, vacation time, sick time, travel time, mileage or gasoline allowance, etc., are considered assessable;
  1. Whether or not reported earnings for family members are assessable;
  1. Whether or not the employer is responsible for interest and penalties levied under the Act;
  1. Whether or not the audit should be extended for up to 5 years;
  1. Whether or not the employer is in a compulsory industry; and
  1. Whether or not the employer is correctly classified.

Decision

  1. That the assessable earnings calculation should be based on 65% of the labour percentage rate;

  1. That the firm is responsible for reporting unregistered subcontractor earnings for assessment purposes;
  1. That payments made for matters including but not limited to bonuses, vacation time, sick time, travel time, mileage or gasoline allowance, etc., are considered assessable;
  1. That reported earnings for family members are assessable;
  1. That the employer is responsible for interest and penalties levied under the Act;
  1. That the audit should be extended for up to 5 years;
  1. That the employer is in a compulsory industry; and
  1. That the employer is correctly classified.

Decision: Unanimous

Background

In November 2008, a WCB auditor attended the firm's premises to conduct an audit of its 2006 and 2007 workers earnings records and an industry investigation. The audit report dated December 16, 2008 stated that the firm was a commercial janitorial firm and they engaged payroll and contract workers. The audit determined that the firm was correctly classified under industry code 706-02, "Janitor Service". The audit also identified that the income of the subcontracted workers were reported via Canada Revenue Agency ("CRA") T4A forms from which it was concluded that some payroll and the labour portion of subcontractors had not been reported to the WCB. This resulted in additional assessments and penalties which amounted to $11,666.47 for 2006 and $10,317.83 for 2007. The auditor indicated that these adjustments would not be processed immediately as he was extending the audit period up to five years. The auditor further stated:

[the firm's owner] also expressed concern about the audit period extension. He did acknowledge he would be prepared to pay on behalf of unreported payrolled earnings. However, he felt it unreasonable to charge an assessment on his T4A'd subcontract janitorial staff retroactive as he was unaware of this coverage responsibility. In addition, he indicated that he had been audited by CRA three times and has structured his subcontract relationship based on that organizations contractor ruling. These T4A'd janitorial staff are considered independent contractors according to CRA, and his issuing them T4A's to them was a business choice, and not a CRA requirement.

An extensive file review revealed that this same issue was discussed with the former owner, [name], on May 26, 1995. At that time, our office confirmed that these subcontractors would be workers unless the subcontractor was registered. However, no formal letter was sent to the firm outlining this responsibility. [the firm's owner] indicated he was not made aware of this requirement.

On December 11, 2008, the firm's owner submitted that the WCB's decision was unfair as he was not aware that he was supposed to pay for the subcontractors he hired. He also felt that going back five years was unreasonable as it would hurt his company financially.

On January 27, 2009, the WCB's Assessment Committee determined that the audit and subsequent levies would be extended for up to five years based on WCB policy. It stated:

Board policy specifically permits the WCB to extend the period of an audit up to five years in any circumstance where the WCB finds that the misreporting of assessable workers' earnings is considerable, or where the misreporting is likely to have occurred for a more extensive number of years than those included in the basic or preliminary audit.

The January 27, 2009 decision that the audit and subsequent levies be extended for five years was appealed to the Appeal Commission and a hearing took place on June 24, 2009 to consider the matter.

At the hearing held on June 24, 2009, the firm's owner referred to a number of issues that had not been dealt with by the WCB and the June 24 hearing was adjourned sine die by the appeal panel to allow the firm the opportunity to pursue the other issues with the WCB's Assessment Branch.

On June 29, 2009, the WCB received an appeal from the firm with respect to the audited and assessable workers' earnings and sub-contractor (labour portion) earnings. In its first level decision, the auditor itemized the assessed amounts for the years 2006 and 2007 and denied the appeal on the following grounds:

Unregistered sub-contract labour is assessable for janitorial firms as per 02.02 of the audit procedure;

Resident member-of-family (RMF) earnings are assessable as per Bill 25 WC Act effective Jan 1 2006;

Bonuses for Christmas and other reasons and gasoline allowances (not reimbursement of expenses) are assessable and are included in Box 14 of the T-4 slips. These amounts can be viewed in Box 40 of the T-4 slip.

Applicable interest and penalties are are (sic) charged as per the WC Act.

On July 28, 2009, the Assessment Committee determined that the WCB correctly established the firm's assessable workers' earnings. The firm disagreed with the Assessment's Committee's decision and filed an appeal with the Appeal Commission. On March 22, 2011, a hearing was held before the Appeal Commission.

At the hearing, the firm requested an extension to allow its lawyer to correspond with the WCB. The request was granted and the hearing was adjourned.

Subsequent file records show that the firm's lawyer provided the WCB with the firm's 2007 and 2008 income tax returns to support the position that the 95% labour percentage assessed by the WCB should be reduced. In decisions dated August 15, 2011 and March 15, 2012, the Assessment Committee partially accepted the appeal. It stated: "The WCB will amend the labour percentage to 65%, and having met the criteria for a more extensive audit, the WCB will schedule a further review in respect of the years 2003, 2004 and 2005, as previously stated." The Assessment Committee indicated in its decision that it considered the information provided by the firm and concluded that a labour percentage of 65% was a reasonable representation for purposes of WCB assessment premiums.

In May 2012, the firm appealed the decisions made by the Assessment Committee and a hearing was convened at the Appeal Commission on November 6, 2012. Following the hearing, in a letter to the firm dated November 8, 2012, the appeal panel stated:

With respect to issue 5 regarding whether or not the employer is responsible for interest and penalties levied under the Act, this will confirm that at the hearing, you indicated that you did not want the panel to decide this issue unless the panel could also decide whether your firm is properly classified under Industry Code 706-02, Janitor Services. As the issue of industry classification has not previously been considered by the WCB Assessment Committee, the Appeal Commission does not have the jurisdiction to make a decision on that matter.

The appeal panel advised the firm that it would refrain from rendering a decision on issue 5 to allow the firm time to pursue an appeal regarding classification with the WCB. In response, the firm requested that the panel hold off from rendering a decision on any of the six issues until the classification issue could be heard. The appeal panel agreed.

In a submission to the WCB dated December 6, 2012, the firm advanced the position that its business activities were not included under compulsory provisions of the Act and therefore its business activities were incorrectly classified by the WCB.

On December 13, 2012, the WCB's Assessment Committee determined that the firm was in a compulsory industry and that the firm was correctly classified under Industry Code 706-02 "Janitorial Services." The Assessment Committee referred to the audit that was conducted by the WCB with respect to the firm's business activities and noted that the WCB auditor had made an initial determination that the employer was correctly classified under janitorial services.

The Assessment Committee commented that the fact that the firm's business name was registered as janitorial and maid services supported that its business operation was correctly classified for janitorial and maid services. The classification system was based on an employer's industry and did not focus on individual and varied occupational descriptions used within that industry. The Assessment Committee believed that the WCB's Classification Manual dated October 8, 1993 had remained consistent in its description of the business activities included under Industry Code 706-02 "Janitorial Services" and that the firm had not been affected by substantive changes in the years of his operations.

Given the firm's written submission as to his business activities and the fact that his statement was consistent with the findings of a WCB audit and the WCB classification manual, it was confirmed that the firm was in a compulsory industry and that the firm was correctly classified under Industry Code 706-02 "Janitorial Services."

The firm appealed the Assessment Committee's decision of December 14, 2012 to the Appeal Commission. On December 18, 2012, the firm was advised that the Appeal Commission would reconvene the hearing to decide his appeal of the December 14, 2012 Assessment Committee decision and would also decide on the other outstanding issues. The hearing reconvened on May 23, 2013. Following the hearing, the panel requested further information from the WCB regarding its classification policies. This information was shared with the firm and a further hearing was held on November 5, 2013.

Reasons

Applicable Legislation and Policy

The Appeal Commission and its panels are bound by The Workers Compensation Act (the “Act”), regulations and policies of the Board of Directors.

The issues appealed involve several WCB Policies and sections of the Act. The respective legislation and/or policy will be outlined under the individual issue headings.

Procedural fairness

This appeal has had an extraordinarily long course before the Appeal Commission. This is partially on account of imprecise framing of issues/shifting focus and partially on account of administrative oversight. When the matter first came before the panel on June 24, 2009, the only stated issue was whether or not the audit and subsequent levies could be extended for five years. It became apparent at the hearing that the firm disagreed with more than just the extension of the audit time period and therefore the matter was adjourned sine die to allow the firm to have the WCB reconsider a wider range of issues arising from the 2008 audit.

The panel next convened on March 22, 2011. At that time, there were six issues listed for appeal. At the hearing, the firm's owner advised that he had consulted with a lawyer but it had only been the day before the hearing. The lawyer's advice to the firm was to request an extension to allow the lawyer to correspond with the WCB as it was felt that there were some accounting and other issues to be discussed with the WCB. The panel granted the firm's request and the matter was adjourned.

The matter did not come back before the panel until November 6, 2012. On that date, the firm's owner appeared alone on behalf of the firm and made submissions to the panel on the six issues. There was some overlap between the issues. During the course of the firm's submissions, it became apparent to the panel that at the root of the firm's submissions was a general disagreement by the firm with the WCB's determination that the firm be classified under Industry Code 706-02, Janitorial Services. As the issue of industry classification had not previously been considered by the WCB, the panel did not have the jurisdiction to make a decision on that matter. The firm's owner was advised that he could pursue the firm's right of review with the WCB Assessment Committee and if he was dissatisfied with that decision, he could subsequently file another appeal with the Appeal Commission. The firm did, in fact, request the Assessment Committee to review the initial determination regarding classification. In a decision dated December 13, 2012, Assessment Committee determined that the firm was in a compulsory industry and that it was properly classified under Industry Code 706-02, Janitor Services. The firm appealed these decisions and a further hearing date was held on May 23, 2013.

At the next hearing on May 23, 2013, it came to light that the firm had not been provided with an updated copy of its WCB assessment file. It therefore did not have copies of some of the WCB policy documents relied upon by the Assessment Committee in making its decisions. Additionally, at the hearing, the firm's owner expressed frustration regarding his inability to obtain information regarding the classification policies applicable to the firm's operations at various points in time. After the hearing, the firm was provided with a complete copy of its file. The panel also requested from the WCB a complete summary of both the legislative and policy history relating to the classification of "Janitorial Services 706-02" and "Maid Services" from 1993 up to present. Following receipt of this information, the firm was afforded another opportunity to appear before the panel to speak to the new information.

On November 5, 2013, the final hearing date was held. At that time, the firm made its final submission regarding the application of the WCB classification policies to its operations. The panel is satisfied that the firm has now been given full and fair opportunity to consider and present its position on the WCB's assessment of its operations.

Analysis

In total there are eight issues which are before this panel. We will address each issue separately. As the last two issues regarding the firm's industry classification may impact the other appealed issues, we will address them first.

Issue: Whether or not the employer is in a compulsory industry; and

Whether or not the employer is correctly classified.

At the outset, it is important to understand the framework set out in the Act regarding classification of employers. Part I of the Act establishes the compensation system and the rights of workers and employers under the system. Section 2 of the Act provides that Part I applies to all employers and all workers in all industries in Manitoba except for those excluded by regulation. Thus the Act operates under an exclusionary coverage model which means that WCB coverage is mandatory, unless specifically excluded.

Manitoba Regulation 169/2008, Excluded Industries, Employers and Workers Regulation (formerly Man. Reg. 196/2005)(the “Regulation”) lists the industries, employers and workers which do not fall under the mandatory coverage. This may be contrasted to the situation pre-2006 where only covered industries listed in the regulations fell under the jurisdiction of the WCB. As the result of extensive legislative amendments which took effect January 1, 2006, changes to the Act were made.

With respect to classification of industries, section 79 of the Act gives the WCB the authority to assign each employer in an industry to an appropriate class, sub-class, group or sub-group, as determined by the WCB. To assist in this task, the WCB developed administrative guidelines, which include a classification manual. Industry descriptions within the classification manual establish the primary sector, industry and sub-groups to which a business enterprise may be assigned.

In response to a request from the panel, the WCB provided a summary of the industry classification for "Janitor Services" and "Maid Services" since 1993. The information provided by the WCB with respect to "Janitor Services" indicated as follows:

Effective date: July 28, 1992

Industry Description: Janitor Services (Sub-Group 706-02)

Activities: Employers in this industry may be involved in washing, waxing and polishing floors, washing walls, dusting, vacuuming, etc. A firm involved in the business of window cleaning would be found in class 911-02, "Window Cleaning".

Janitorial services are usually contracted to various businesses, buildings, institutions, where the work is done after hours or on weekends. An employer involved in a specific industry who would employ workers to clean his premises would be charged that specific industry rate, as the cleaning would be considered incidental to the main operation.

Also included in this class are the following:

1. Steam cleaning of carpets and/or upholstery for businesses or private homeowners.

2. Maid services (not to be confused with individuals doing work for private homeowners, which is found in class 706-03, "Domestics").

Effective October 8, 1993, the classification was amended slightly and paragraph 1 was changed to read: "Steam cleaning of carpets and/or upholstery for businesses or private homeowners, if the items are cleaned on the customers' premises." The rest of the classification wording remained the same.

Effective May 8, 2012, the format of the classification descriptions was changed. For Sub-Group 706-02, Janitor Services, the following activities were listed as included:

  • Janitorial/maid services, including incidental window cleaning.
  • On-site cleaning of carpets and/or upholstery.

The following activities were listed as similar but classified elsewhere:

  • Cleaning windows at height and/or on the exterior of buildings is found under 706-04 "Window Cleaning".
  • Private individuals hiring a janitor or maid to work in their own home for more than 24 hours per week are found under 706-03 "Domestics".
  • Renting carpet cleaners is found under 610-02 "Rental/Retail Services".
  • Area rug cleaning, where brought into the cleaning facility, is found under 701-02, "Dry Cleaning, Laundries."
  • Rental of mats and linens, including deliver, cleaning and pickup is found under 610-03 "Light Equipment Rental".

There is no classification for the term "Maid Services," but information was provided regarding the classification for "Domestics." The industry description, effective date July 28, 1992, indicated, inter alia:

Effective date: July 28, 1992

Industry Description: Domestics (Sub-Group 706-03)

Activities: This classification is intended to include such persons as maids (not a maid service which is found in class 706-02, "Janitor Services"), cleaning persons, chauffeurs, butlers, gardeners, and persons who mow lawns and perform the usual everyday duties that a person would perform himself if he did not employ domestics.

The individual must be usually and regularly employed by a particular household for more than 24 hours a week. As well, if a corporation or a partnership were to employ a domestic on behalf of one of the directors or partners of the firm, then the corporation or the partnership would have to register for the employment of a domestic.

The WCB further advised that: "Janitorial services and maid services, as an industry, were not specifically excluded by Regulation before or after January 2006." The panel understands this to mean that Industry Code 706-02, Janitor Services was listed as a covered industry pre-2006; post-2006, it was not specifically excluded from coverage by the Regulation and was therefore a compulsory industry.

Accordingly, in order for the firm's appeal on the first two issues to succeed, the panel must find that the firm was incorrectly classified in Industry Code 706-02, Janitor Services. We are not able to make that finding.

It is clear from the industry classification dating back to 1992 that the janitorial description includes both the non-domestic janitorial work plus the maid services provided by the firm. The firm's evidence at the May 23, 2013 hearing was that when the firm began its business operations, it primarily provided maid services and carpet cleaning to personal households. Over time, however, they developed wider connections and in addition to cleaning people's homes, they would also have contracts to clean people's businesses. This was how they started moving into janitorial services for commercial businesses. At the present time, the firm's operations exclusively involve commercial clients and they perform all janitorial tasks including cleaning, incidental carpet cleaning and incidental window cleaning. In his submission, the firm's owner made a distinction between the janitorial services it now provides and the maid services it previously provided to its clients.

The panel finds that despite the evolution in its business model over the years, all types of services provided by the firm since it began its operations in 1992 clearly fall within the Industry Code 706-02, Janitor Services classification. The firm's owner argued that the Industry Code 706-02 Janitorial classification should not include maid services, only the work done for commercial janitorial clients. We do not agree. The activities described as being part of Industry Code 706-02 clearly include the maid services for private households provided by the firm in its earlier days.

The panel has given consideration to whether the firm might properly fall under the classification for Industry Code 706-03 Domestics. We find that it does not. Domestics are service providers who are usually and regularly hired for more than 24 hours per week by a particular household. This was not the case with the firm's maid service workers. The firm's workers were retained by a number of different clients, and did not work exclusively for one household. The firm's evidence was that when it formerly provided maid services, it would usually send two workers to a household once a week. They would spend an hour or two cleaning, then leave to do the next client's household. The workers would attend to several homes each day.

We therefore find that the employer is correctly classified. As Industry Code 706-02, Janitor Services is a compulsory industry, we find the employer is in a compulsory industry.

The employer appeals on issues 7 and 8 are therefore dismissed.

We will now address the six issues which were initially appealed.

  1. Whether or not the assessable earnings calculation should be based on 65% of the labour percentage rate.

This issue concerns the proper labour percentage to be used when calculating the amount to be assessed as the earnings of subcontractors under Industry Code 706-02, Janitor Services who have been deemed to be workers for the purposes of the Act.

It is the panel's understanding that as a starting point, the labour percentage is derived from Appendix B of the Administrative Guidelines applicable to the Policy. Appendix B consists of a Labour Percentage Schedule which addresses a wide range of industries and identifies what typically constitutes the labour portion of the total contract in industry. For example, in the logging industry, there are two subcategories. In firms where the material supplied is a chain saw, the labour portion of a total contract is set at 85%. If the material supplied is major equipment, then the labour portion of the total contract is set at 25%. The labour percentage is meant to delineate how much of the cost of a contract goes to labour, and how much to materials. As it relates to Janitorial Service, the Labour Percentage Schedule provides that the labour portion of the total contract is set at 95%.

It is also the panel's understanding that the percentages were determined after extensive consultation with the various industries and are representative of a typical contract in that industry. It remains open, however, for a firm to assert that its contracts differ from the labour percentage set out in the Labour Percentage Schedule. In the present case, the WCB Assessment Committee accepted that the firm's percentage should differ from the scheduled 95% ratio and determined that a labour percentage of 65% was appropriate.

At the November 6, 2012 hearing, the firm's owner described its business relationship with the subcontractors. The firm would secure cleaning contracts which stipulated the work to be done, then the firm would subcontract the job to a subcontractor. The subcontractor was required to use its own supplies and equipment, which it could purchase or lease from the firm. The firm would not dictate shift schedules or required hours of work for the subcontractors but would specify the hours between which the work had to be completed. The subcontractor would then invoice the firm for the cleaning work performed. The subcontractor was responsible to make arrangements for its own insurance and the firm's practice was that it did not generally check up on these details. The firm had no control over the subcontractor and the subcontractor was free to enter into cleaning contracts with other clients.

With respect to supplies and equipment required to perform the work, the firm's evidence was that its subcontractors would be required to provide floor cleaning equipment such as a vacuum cleaner or floor polisher, depending on the size and nature of the premises. Material supplies included not only chemicals, waxes and cleaning type solvents, but for some contracts, garbage bags, toilet paper and washroom supplies were also required to be provided. Despite being asked several times for an approximate percentage, the firm's owner was not able to provide the panel with a specific percentage for the cost of materials. He stated it was variable depending on the subcontractor.

After considering the evidence before us, the panel sees no reason to interfere with the Assessment Committee's determination of a 65% labour percentage rate. The evidence does not support reducing the labour percentage further. While we agree that the evidence supports that the firm's subcontractors' out-of-pocket expenses are greater than the 5% originally assessed, we do not feel that the expenses exceed 35%. The types of expenses identified by the firm included capital costs for equipment, cleaning solvents and consumable supplies. We do not find that these costs would exceed 35% and in fact, we feel that a 35% materials percentage is generous. Nevertheless, we are prepared to accept the Assessment Committee's determination of 65% labour percentage and therefore the firm's appeal on this issue is dismissed.

  1. Whether or not the firm is responsible for reporting unregistered subcontractor earnings for assessment purposes.

Subsection 60(2.1) of the Act provides as follows:

60(2.1) Deemed worker and employer

Notwithstanding the other provisions of this Act, where a person who is not a worker under this Part performs work for the benefit of another person, the board may deem the first person to be a worker, and the second person to be the employer of the first person, within the meaning of this Act; and the board may determine an amount that shall be deemed to be the earnings of the first person, for the purpose of this Part.

WCB Policy 35.10.50, Status of Workers, Independent Contractors and Employers, (the "Deemed Worker Policy") explains how the WCB determines a person's status as a worker, employer or independent contractor for the purposes of the Act. It also describes the circumstances in which the WCB will deem one person to be the worker of another.

Pursuant to subsection 60(2.1), the WCB has deemed the firm to be an employer and its unregistered subcontractors as workers of the firm. The issue is whether or not the firm should be assessed for the earnings of these subcontractors.

The firm's position was that its subcontractors were in a different position than its regular employees. Pursuant to its agreements with subcontractors, the firm would set out details of the work to be performed, the subcontractor would do the work, then issue an invoice. The firm did not take much responsibility for the subcontractor. The firm did not take any deductions from their payroll, it could not control whom the subcontractors hired, and the subcontractors were responsible for buying their own equipment at their own expense. It was submitted that the subcontractors were running their own operations and they should be responsible for placing their own insurance, just as they were responsible for paying for all of the other aspects of their businesses.

The Deemed Worker Policy sets out detailed guidelines on how the WCB determines a person's status as a worker, employer or independent contractor. The Policy will apply regardless of the specific contractual terms reached between the firm and its subcontractors. Importantly, however, section 4 of the Deemed Worker Policy provides that if an independent contractor does not purchase voluntary WCB coverage, then a deeming will occur. Section 4 reads, in part, as follows:

4 - Independent contractors are entitled to purchase WCB coverage pursuant to section 75 of the Act. This coverage is voluntary. If an independent contractor has purchased voluntary coverage, the WCB will not deem him or her to be the worker of a principal.

In some cases, the relationship between the service provider and the principal exhibit some characteristics of a worker and some of the characteristics of an independent contractor. In those circumstances, if the service provider does not have voluntary coverage, the WCB will deem the service provider to be the worker of the principal and will deem the principal to be the employer.

It is the panel's understanding that this appealed issue applies only to those subcontractors who are not registered with the WCB. In other words, it applies only to those subcontractors who do not have voluntary coverage. In view of the clear wording of section 4 of the Deemed Worker Policy, the panel finds that those subcontractors were properly deemed to be workers of the firm.

Section 5 of the Deemed Worker Policy provides that: "Once a service provider is deemed to be a worker, the deemed employer has the same obligations to that worker as to any other worker. This includes paying WCB assessments on the assessable earnings of the deemed worker." In view of sections 4 and 5 of the Deemed Worker Policy, the panel finds that the firm is responsible for reporting unregistered subcontractor earnings for assessment purposes. The firm's appeal on this issue is dismissed.

  1. Whether or not payments made for matters including but not limited to bonuses, vacation time, sick time, travel time, mileage or gasoline allowance, etc., are considered assessable.

The firm's position on this issue was that amounts paid by the firm to its workers on account of gas expenses and employee bonuses which were reported in Box 40 of the CRA T4 forms ought not to be included in the assessed amounts. It was submitted that the amounts reported in Box 40 should be deducted from the gross income reported in the T4 form.

Subsection 81(1) gives the WCB the authority to make annual assessments on employers for the accident fund and provides, in part, as follows:

81(1) For the purpose of creating and maintaining an adequate accident fund, the board shall every year assess and levy upon and collect from the employers in each class by an assessment or by assessments made from time to time rated upon the payroll, or in such other manner as the board considers advisable or necessary, sufficient funds, according to an estimate to be made by the board in each year ….

WCB Policy 35.00, Reporting and Remittance of Assessments for the General Body of Employers (Employers in Class E) describes the various methods available to employers for reporting and paying assessments and the consequences of late reporting or payment. The opening paragraph under the Policy heading reads as follows:

Under The Workers Compensation Act (Act) employers are responsible for providing information on payroll to the WCB for the purpose of determining assessments. Payroll information includes things such as employment earnings, commission earnings, parental or sick leave, vacation pay, bonuses, the labour portion of sub-contract payments, pay in lieu of notice, per diem, vehicle and travel allowances, room and board and any other taxable allowances or benefits. Payroll information is to be submitted to the WCB using prescribed forms. Once this information is received, the WCB will notify the employer of the premium due for the up-coming year. Each year, the WCB sets the minimum and maximum annual earnings levels of assessment purposes.

Subsection 81(1) clearly gives the WCB the authority to determine the amounts which it considers advisable or necessary to be assessed. The Policy lists the types of payroll information to be included for the purpose of determining assessments, and explicitly identifies "bonuses," "vacation pay," "sick leave" and "vehicle and travel allowances." The panel therefore finds that payments made for matters including but not limited to bonuses, vacation, time, sick time, travel time, mileage or gasoline allowance, etc. are considered assessable. The firm's appeal on this issue is dismissed.

  1. Whether or not reported earnings for family members are assessable.

This issue concerns whether or not income paid to family members of the firm's owner are required to be reported and assessed. The firm's evidence was that since the start of the firm's operations, the owner's family members never actually worked in the business. The owner just divided some of the income with his wife (he was subsequently informed by CRA that this was not permissible) and he paid some money to his daughter to help support her through school. The firm's owner noted that although he was not previously aware of the specific provisions of the Act, he now knew that as a result of amendments to the Act effective January 1, 2006, if family members worked for the firm, those earnings had to be reported and assessments paid. It was acknowledged that as the income paid to his family members was reflected in the firm's financial records, the firm was required to comply with the provisions of the Act.

Prior to January 1, 2006, subsection 74(4) of the Act provided as follows:

74(4) Unless an application to come within the scope of this Part is approved by the board, compensation is not payable under this Part to

(a) an employer;

(b) a director of a corporation that is the employer, or

(c) a member of the family of an employer or director of a corporation who

i. is employed by the employer or the corporation, and

ii. lives with the employer or director as a member of his or her household.


Effective January 1, 2006, subparagraph (c) of the section was repealed. The restriction on payment of compensation was therefore only limited to an employer or a director of a corporation that is the employer.

In view of the firm's acknowledgement of the 2006 amendments to the Act, and specifically, the repeal of subsection 74(4)(c), the panel finds that from January 1, 2006 onwards, the reported earnings for family members are assessable. The firm's appeal on this issue is dismissed.

  1. Whether or not the employer is responsible for interest and penalties levied under the Act.

The firm's position on this issue was that it should not have to pay any interest or penalty. It was felt that the firm did everything it was supposed to do and it was only by virtue of the fact that the WCB assessed all of its operations as a janitorial company (as opposed to a janitorial company, which would be assessable, and a maid service, which should not be assessed) that the firm found itself in an arrears situation. The firm's owner stated that a former accountant had told him that as a maid service, he was not covered under the Act. Although the firm's operations were now focused on commercial janitorial work, the firm had formerly been involved with mostly maid service and house cleaning. As the firm felt that its maid service operations were not covered under the Act, it should not be charged penalties and interest for earnings which it did not believe it had to report. The firm's owner also noted that there was no specific provision for carpet cleaning as an industry under the Act, so it should not have to pay penalties and interest for failure to report its carpet cleaning operations either. It was submitted that the firm did not make a mistake and therefore should not be penalized.

In view of our earlier determination that the firm was properly classified in Industry Code 706-02, Janitor Services, it would appear that the firm was in fact in default for failing to properly report its payroll and is liable to pay interest and penalties under the Act pursuant to subsection 86(1) Penalty for failure to make returns and subsection 86(2) Penalty for failure to pay assessment.

The panel has considered whether or not the firm may be granted relief from penalties under certain subsections of the Act, which provide as follows:

86(3) Notwithstanding anything in this section, the board, if satisfied that the default was excusable, may in any case relieve the employer in whole or in part from liability under this section.

109.7(3) The board may, if it is satisfied that a person has a reasonable explanation for the contravention, relieve the person in whole or in part from the payment of a penalty under this section.

WCB Policy 35.40.10, Relief from Assessment Penalties and/or Interest Charges outlines criteria under which all or a portion of the penalty or interest charges may be relieved. The panel does not view the cause of the default in this case as being a matter beyond the control of the employer and we therefore find that the relief of payment should not be granted. We also note that the period of default has extended considerably beyond the timelines set out in the Policy. The panel therefore finds that the firm is responsible for interest and penalties levied under the Act. The firm's appeal on this issue is dismissed.

  1. Whether or not the audit should be extended for up to 5 years.

At the hearing, the firm's owner was forthright in stating that he had nothing to hide and would open his books for review. He did not oppose the fact of being audited, but did object to certain of the determinations made by the auditor. Those objections form the basis of the appealed issues being addressed in this decision.

The panel reviewed the Act and WCB policy to determine whether there was authority for the WCB to extend the scope of its audit back five years. The audit was conducted in 2008 and initially encompassed the years 2006 and 2007. The scope of the audit was subsequently expanded to include 2003, 2004 and 2005. After review of the applicable legislation and policy, the panel finds that the audit should be extended back five years to 2003.

WCB Policy 35.30, Audits and Investigations, (the "Audit Policy") sets out the procedures followed by the WCB with respect to measures undertaken to ensure that employer reporting of assessment-related information is consistent with the requirements of the Act, regulations and policies.

Section B(i) of the Audit Policy provides as follows:

Where an employer who comes within the scope of The Workers Compensation Act is selected for a payroll audit to determine compliance with the Act, Regulations and policy, the scope of the audit will normally cover the two most current complete fiscal years of the employer; however, the WCB may expand the audit period if the initial audit findings indicate that:

a) The employer was negligent in respect to the requirement to provide accurate earnings information on which to base the WCB assessment, or

b) The employer misrepresented earnings information, or

c) Substantial mis-reporting of earnings by the employer is suspected by the WCB to have occurred previously.

In the panel's opinion, subparagraph (c) is applicable. As the firm did not believe it had to report its maid service and subcontractor earnings, there has been a substantial under-reporting of earnings in the past. We find it is appropriate to expand the audit period based on the initial audit findings.

Based on the Administrative Guidelines to the Audit Policy, the panel finds that the audit period should be expanded to include the last five years before the 2008 audit, namely, the years 2003, 2004, 2005, 2006 and 2007. The Administrative Guidelines provide as follows:

1. Payroll Audits

…

(b) The audit period may be expanded to include up to the last five full years of operation, and the current year of operation, under the following circumstances;

· if, in the opinion of the WCB, the employer did not provide accurate earnings information or if the employer misrepresented earnings information, or

· if the audit findings of the first two years of operation indicate that substantial mis-reporting of earnings is suspected to have occurred previously.

In view of the panel's earlier finding that there has been a substantial mis-reporting of earnings, the Administrative Guidelines would suggest that the audit period be expanded to include up to the last five years of operation. We see no reason to vary from the guidelines. We therefore find that the audit should be extended for up to five years. The firm's appeal on this issue is dismissed.

Panel Members

L. Choy, Presiding Officer
A. Finkel, Commissioner
P. Walker, Commissioner

Recording Secretary, B. Kosc

L. Choy - Presiding Officer

Signed at Winnipeg this 30th day of December, 2013

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