An employer is considering changing its payroll system to a payment-in-arrears system, so that employees will be paid for work that was done two weeks previously. The employer will pay existing employees a one-time transition payment (TP), at the date of conversion, instead of having a gap in pay. However, upon termination of employment, the employee generally would be required to make a payment to the employer (the employer may choose to take the money from a payment being made to the employee).
In concluding that the “TP would likely be considered a salary advance which should be included in the employees’ income in the year it is received,” the Directorate stated:
[W]here an employer makes a payment to an employee that is an advance on account of the employee’s future earnings, the amount received is generally not considered to be a loan to which subsection 80.4(1)… applies. …
Normally, an employee is not required to repay a salary advance as long as he or she continues to perform the services (i.e., remains employed). The fact that an employer is entitled to recover some part of the advance if an employee ceases employment before he or she has provided services in respect of which the advance was made, does not change the nature of the payment. Such advances are generally included in an employee’s income under subsection 5(1)… .