Digest of Benefit Entitlement Principles Chapter 5 - Section 2
5.2.0 The determination of earnings under EIR 35
The Commission, with the approval of the Governor in Council, has the authority to make regulations that specify and clarify what constitutes earnings (EIA 54(s)). EIR 35 was made under that authority. Its purpose is to determine what moneys are or are not earnings for benefit purposes. The moneys concluded to be earnings are used in determining the amount to be deducted from EI benefits or whether an interruption of earnings has occurred. In some cases, they are also taken into account to determine the amount of benefits to be repaid to the Commission by the claimant, the employer, or a trustee in bankruptcy, under certain circumstances (EIR 35(2); EIA 45, EIA 46).
This authority is limited to include only those moneys or advantages that are earned by labour, or that resemble such (FCA A-178-86). Moneys or advantages are considered earned by labour, or resemble them, when they relate to, are attached to, or arise out of employment. The moneys must clearly demonstrate the character of a consideration given in return for work done by the recipient (FCA A-597-94, CUB 25472). This is not the case for moneys received from investment or capital, through chance, through charity, or through a personal relationship (Digest 5.3.1).
Generally, earnings are any moneys paid for wages, salary, pecuniary benefits and all other advantages, pecuniary or non-pecuniary, which are related to, attached to or arising out of employment (Digest 5.3.0). Any compensation for the loss of any of these types of income is also earnings for EI benefit purposes, including income replacement payments through a motor vehicle insurance plan.
Conversely, payments made for reasons unrelated to employment, such as alimony, lottery winnings and inheritances, are not earnings for benefit purposes. Similarly, any compensation for losses totally unrelated to employment is not earnings (FCA A-34-91, CUB 17395A). For example, settlements paid to address injury to a claimant's health or reputation or to compensate for pain or suffering resulting from an accident are not earnings (Digest 5.12.11; Digest 5.11.4; Digest 5.11.8).
The true nature of the payments must be established to determine whether they are advantages related to, attached to, or arising out of employment. Relying solely on what the parties call the moneys is sometimes insufficient, as the name given to a payment does not necessarily determine its true nature (FCA A-599-92, CUB 20965). When doubt exists about the true nature of a payment, the best way to clarify the issue is to examine the intentions of the parties, by reviewing all relevant documents and contacting all the parties involved. Although the onus of proof is on the claimant, the Commission may assist in providing or clarifying the evidence by contacting the employer or any other party.
When terms are not defined in the EI legislation, the meaning given individual words must be examined in the context in which they are used in the legislation. Dictionaries and jurisprudence may often provide further clarification.
The earnings to be taken into account are the gross earnings before any deductions such as income tax, CPP, QPP or EI premiums (CUB 79991). Amounts may be deducted from the gross earnings, such as legal fees incurred to receive those earnings (Digest 5.3.3), or deductions from self-employment (Digest 5.16.0). Earnings paid in foreign funds are converted to Canadian dollars at the rate of exchange in effect at the time the earnings were paid or payable.
5.2.1 Structure of EIR 35
Knowledge of the structure of EIR 35 and the purpose of each subsection will assist in the process of determining what constitutes earnings.
EIR 35(1) provides the meaning of the words income, employment and pension, for the purpose of this regulation.
(2) specifies:
- which moneys are earnings
- for what purposes these earnings must be taken into account
- that the entire income arising from any employment, including the types of earnings in paragraphs (a) through (f), will be taken into account for the following purposes:
(2)(a) to (f) includes specific moneys included as earnings.
(3) provides when payments from a provincial motor vehicle accident insurance plan are no longer treated as earnings.
(4), (5), and (6) exclude the following moneys from earnings for the purpose of determining an interruption of earnings: group sickness or disability wage-loss indemnity payments; worker's compensation payments, pensions, and moneys paid or payable by reason of a lay-off or separation.
(7)(a) to (f) specifically exclude moneys that may otherwise have been determined to be earnings.
(8) and (9) clarify what is not a group sickness or disability wage-loss indemnity plan.
(10) provides what is or is not included in the entire income arising out of any employment, depending whether the claimant is self-employed, self-employed in farming, or not self-employed.
(11) to (16) describes how to assign a value to board, living quarters and other benefits claimants receive in respect of their employment, and describe what is included in the terms "living quarters" and "income".
EIR 37 sets the conditions that must be met in order for payments under a supplementary unemployment benefit plan to not be considered earnings.
EIR 38 specifies that the portion of any payments made by reason of pregnancy, or for the care of a child or a seriously or critically ill family member, or any combination, is not earnings for the purposes referred to in EIA 23(1), EIA 23.1, EIA 23.2, EIA 23.3, if:
- when combined with the claimant's weekly rate of employment insurance benefits, the payment does not exceed the normal weekly earnings from the employment, and
- the payment does not reduce the claimant's accumulated sick leave, vacation leave, severance pay or any other accumulated credits from the employment
5.2.2 The determination process
In trying to determine whether a specific payment (pecuniary or non-pecuniary) is earnings for benefit purposes, it is necessary to obtain all relevant information regarding the nature of the payment, its origin and the reason for payment.
The information gathered is used to determine if this payment is an advantage related to, attached to, or arising out of employment. If so, then it must be determined whether it is specifically excluded from consideration as earnings (EIR 35(2)).
To make this determination, these steps are followed:
The determination process
- Gather information
- Ask:
- does the payment arise out of employment as per EIR 35(2)?
- is the payment specifically included as earnings under EIR 35(2)(a) to (f)?
- if so, does the payment meet the definition of an income?
- if the payment falls under EIR 35(2), is the payment specifically excluded from earnings under EIR 35(3) or 35(7))?
- if the payment is earnings under EIR 35(2) and is not excluded under EIR 35(7), is there any amount that should not be included in income under EIR 35(10)?
5.2.3 Questions in the determination process
The following are common questions that help when identifying whether the moneys or advantages are earnings for benefit purposes. Depending on the circumstances, other questions could be appropriate.
Once the answers to these questions, and others that may also be applicable, are known, EIR 35 can be applied to determine if the payment is earnings. In order for a payment to be earnings, there must be a link between the payment and the claimant’s employment.
5.2.3.1 What is the payment
What name is given to the payment? In most cases, the name given by the claimant or the employer establishes the nature of the payment. However, sometimes it is necessary to clarify if the term used is unfamiliar, or does not seem to reflect what it is claimed to be under the circumstances.
What is the amount or dollar value of the payment? The dollar amount is important, should the payment be earnings that requires allocation.
5.2.3.2 Who is making the payment
It must be established whether the employer is making the payment, or someone else. If it is someone other than the employer, it must be established whether there is a link with the employment, and what that link is.
5.2.3.3 Why is the payment made
Generally, the name given to the payment will give a clear indication of what the payment is and why it is being made. When the name given makes it difficult to determine what the nature of the payment is, or does not seem to reflect what the payment is actually for, the true nature of the payment must be established.
To accomplish this, it is sometimes necessary to ask why the money is being paid. Once the reason for the payment is established, it becomes clearer what the true nature of the payment is. In order to determine the intention of the parties, it is important to obtain as much information as possible from the parties involved and to carefully review any written agreement that gave rise to the payment. In these cases, it is the reason for which the moneys were paid, rather than the name given to the payment, which will govern the Commission's determination.
5.2.3.4 From where and to where is the payment going
There are some instances when it is important to know where the money comes from, such as whether money is being paid from a trust fund, general company revenues, or a pension fund. In other cases, it may also be important to know where the money is going, such as into another employer's pension plan, into a locked-in non-commutable RRSP, or directly to the claimant or the claimant's bank account.
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