Payment in Arrears - Questions and Answers

On April 23rd, 2014, the Government of Canada implemented payment in arrears, an industry standard payroll practice, which improved pay services to employees through timelier processing of changes in their pay, increased transparency and predictability in earnings. The questions and answers below explain payment in arrears and how it may impact you as an employee.

Question 1: What does payment in arrears mean?

Question1 - Answer 1:

Previously, employees received their pay on Wednesday for work completed up to and including that Wednesday end of day (i.e. the pay day). In other words, they were paid on a "current" basis. Employees’ pay was calculated and processed in advance of the work being performed and therefore the pay often did not reflect recent changes in the employees’ situation, such as leave without pay, or even salary increases.

Adopting payment in arrears means that employees are paid on Wednesday for the ten days worked (from a Thursday to a Wednesday) that concluded two weeks prior to the pay day. Employees’ pay now more accurately reflects the actual time worked. Overpayments, which must be recovered from employees, are avoided, resulting in a reduction in the number of adjustments to employee’s pay on subsequent payments.

Question 2: When did the Government of Canada make the change to payment in arrears?

Question2 - Answer 2:

The Government officially implemented payment in arrears on April 23rd, 2014.

Question 3: Why did the Government move to payment in arrears?

Question3 - Answer 3:

The Government of Canada (GC) is replacing the more than 40-year-old pay system with a modern pay solution (Phoenix) and streamlined, modern business processes. In doing so, it will revise long standing and costly pay processes and adopt industry standard payroll practices, which align with the Government’s agenda to modernize its common services and improve pay services to employees.

Question 4: Were there employees that were not affected by the move to payment in arrears?

Question4 - Answer 4:

The following employees were not affected by the transition to payment in arrears and did not receive the transition payment:

  • Employees paid once a month;
  • Employees already paid in arrears:
    • Those who submit "time sheets" to cover the hours/days worked
  • Employees paid monthly but who receive an interim payment in the middle of the month (e.g. teachers).
Question 5: How did payment in arrears affect existing employees?

Question5 - Answer 5:

No noticeable difference. Existing employees continue to be paid every two weeks. However, in moving to arrears, existing employees received a “transition payment” which will be recovered when the employee departs/leaves the government.

Question 6: Why couldn’t we introduce payment in arrears for new employees only?

Question6 - Answer 6:

It would not have been cost-effective to limit payment in arrears to new employees as we would have had some employees paid one way while others were paid differently. The Government of Canada wanted to modernize and improve pay services for all employees, therefore, payment in arrears is now the standard for all employees.

Question 7: What are the benefits of making these changes and how do these changes benefit employees?

Question7 - Answer 7:

By implementing industry standard payroll practices, the Government of Canada has improved pay services to employees through timelier processing of changes in their pay, consistent and efficient pay services, increased transparency and predictability in earnings. Our new pay system, Phoenix, did not require costly changes and updates given our switch to arrears.

Moving to payment in arrears generally reduces overpayments and increases the accuracy of payments; thus reducing hardship on employees from having to pay back the amounts they were inadvertently overpaid.

Question 8: Does payment in arrears have an impact on employees’ five consecutive years of highest paid service for pension purposes?

Question8 - Answer 8:

No, payment in arrears does not have any impact on the five consecutive years of highest paid service for pension purposes.

Question 9: What was the transition payment and who received this payment?

Question9 - Answer 9:

The transition payment was a one-time salary payment that was paid to all existing public servants that were paid every two weeks on a "current" basis. This included indeterminate, term, seasonal employees and those casuals and students not yet paid in arrears (varies by department/agency), regardless of group/level, employer (core public administration, separate employer or Crown) and union affiliation. The transition payment was made to avoid any financial hardship to employees as the Government transitioned to payment in arrears. This one-time payment was in the same amount as the "regular" pay (i.e. basic pay) received May 7th, 2014.

The following standard deductions were taken from the payment:

  • Income Tax (Federal and Provincial)
  • Canada Pension Plan/Quebec Pension Plan
  • Employment Insurance/Quebec Parental Insurance Plan
  • Pension Plan contributions
  • Disability Insurance/Long-term Disability Insurance
  • Supplementary Death Benefit

Other deductions, such as union dues, Canada Savings Bonds, Public Service Health Care Plan, Public Service Management Insurance Plan, Government of Canada Workplace Charitable Campaign etc., were also taken from the payment (if the deduction applied to the employee).

Question 10: Were there communications sent to employees regarding the transition payment?

Question10 - Answer 10:

Employees received an official notification of the transition payment, which occurred in May 2014.

Question 11: Did the transition payment create any negative impact on employees’ pensionable service?

Question11 - Answer 11:

No, the transition payment did not affect an employees’ pensionable service.

Question 12: Did employees receive two payments on May 21st, 2014 when the transition to payment in arrears occurred?

Question12 - Answer 12:

No, employees did not get a regular pay on May 21st, 2014. Instead, they received a one-time transition payment that was in the same amount as their regular pay, which will be recovered upon departure.

Question 13: Was the one-time transition payment deposited directly in the employee’s bank account?

Question13 - Answer 13:

The one-time transition payment was delivered in the same manner as the employee’s regular pay.

Question 14: Did employees have the option to opt out of the one-time transition payment?

Question14 - Answer 14:

No. All employees paid on a bi-weekly "current" basis received the transition payment.

Question 15: How did the transition payment affect employees’ 2014 income tax slips?

Question15 - Answer 15:

Employees received the same income they would have received if payment in arrears was not implemented. All money earned and all deductions taken during the 2014 calendar year was reported on their 2014 tax slips.

Question 16: If an employee had two part-time jobs in the same department, did they receive the transition payment in both positions?

Question16 - Answer 16:

The employee received one transition payment only, which covered the "regular" salary (i.e. basic pay) for both positions.

Question 17: If an employee had two part-time jobs in two different departments, did they receive the transition payment in both positions?

Question17 - Answer 17:

In this case, the employee received two transition payments – one from each department to cover the "regular" salary (i.e. basic pay) in each position.

Question 18: An employee was on leave with income averaging or pre-retirement transition leave when the transition to payment in arrears occurred on April 23rd,  2014. What impact did this have on the employee’s transition payment?

Question18 - Answer 18:

The employee received the transition payment in the amount of the reduced salary based on the approved leave with income averaging or pre-retirement agreement.

Question 19: Are employees entitled to receive the transition payment if they were on leave without pay at the time the transition payment was issued?

Question19 - Answer 19:

Employees who were on leave without pay at the time of the transition are also entitled to receive the transition payment, upon their return to work.

For example, if an employee was on leave without pay on May 21st, 2014 when the transition payment was issued and returned to work on November 23rd, 2015, they would expect to receive the transition payment within approximately 2 weeks of their return, or as of the date when the Compensation Advisor is notified of their return to work, whichever is later. When the compensation advisor completes the return to work pay action, this will trigger the pay system to automatically issue the transition payment.

Note: To process a return to work, compensation must be notified of the return date of the employee. The employee’s manager can notify compensation up to 2 weeks in advance, once they are aware of the return to work date of the employee. This notice should be provided to compensation no later than the day which the employee has returned to work. Otherwise there is a risk that the transition payment will not be received by the employee in a timely manner.

Question 20: How does payment in arrears affect new employees and when would new employees expect to receive their first payment?

Question20 - Answer 20:

All new employees who were not on the payroll on April 23rd, 2014 are now automatically placed on payment in arrears; with prompt receipt of proper documentation, a new employee would receive their first payment within 4 weeks of their starting date. For example: An employee who commences work on June 25th, 2015, and all documentation is submitted to compensation prior to July 7th, 2015, the employee could expect to receive their first pay (covering the 5 day period from June 25th, 2015 to July 1st, 2015) on July 15th, 2015. The employee’s first full pay would be received on July 29th, 2015, and payments would continue thereafter. (Employees hired on or after April 23rd, 2014 do not receive the transition payment as they are placed on payment in arrears when they are hired.)

Question 21: Are new employees entitled to an emergency salary advance if they are unable to wait up to four weeks for their first payment?

Question21 - Answer 21:

There is no change to the current policy on emergency salary advances. New or returning employees who do not receive a timely payment, can seek an emergency salary advance, consistent with the terms and conditions of employment.

Question 22: What happens when employees transfer, after the transition payment is received in May 2014, from the core public administration (where Treasury Board is the employer) to a separate employer (or vice versa) and both organizations are considered part of the Government of Canada and are paid by Public Services and Procurement Canada (PSPC)?

Question22 - Answer 22:

A change in employer from TB to a separate agency or vice versa does not constitute a departure for the purposes of payment in arrears. Therefore employees continue to be paid their "regular" salary (i.e. basic pay) every two weeks.

Question 23: Does implementing payment in arrears mean existing employees have to pay back any amounts?

Question23 - Answer 23:

Existing employees continue to be paid their "regular" salary every two weeks. When payment in arrears was implemented (April 23rd, 2014), Public Services and Procurement Canada (PSPC) made a one-time transition payment (May 21st, 2014) to existing employees and from that point forward employees’ salary statements indicated the period ending two weeks prior to the date the payment was received. Unlike new employees, existing employees did not have to wait four weeks to receive a salary payment when the transition to payment in arrears occurred. Existing employees continue to receive a salary payment every two weeks; therefore, they will not be entitled to a "regular" salary payment two weeks after they depart from the public service. Instead, a final payment will be made to them to cover only the difference between their current salary at departure and the transition payment issued back in May 2014. Employees hired after April 24th can expect to receive a regular last two weeks pay, two weeks after they have departed.

Question 24: What is determined to be a departure from the public service for the purposes of payment in arrears?

Question24 - Answer 24:

A departure means resignation, retirement, end of specified term, termination of employment, change in employer (including a Crown corporation), dismissal, rejection during probation, layoff or death. (Note that a change in employer from TB to a separate agency or vice versa does not constitute a departure for the purposes of payment in arrears.) Upon departure, the final payment will be based on the difference between the transition payment made in May 2014 and the final last two weeks of work salary payment.

Question 25: What happens when employees leave the public service and there is insufficient money to cover the adjustment for the transition payment?

Question25 - Answer 25:

In very rare cases, employees may earn less salary when they leave the public service than when the transition payment was issued in May 2014. For example, employees may work part-time prior to their departure or work less than 10 days in their final pay period, and therefore, may owe money to the Government. Departing employees, particularly those choosing retirement, may wish to make their last day of work a pay day to avoid any issues.

Otherwise, in these cases, the money will be taken from first available funds including the final salary payment, overtime, etc. or from their pension benefits or return of contributions (where they are entitled). Otherwise, employees must provide a money order or certified cheque payable to the Receiver General for Canada.

Question 26: When employees depart from the public service and the adjustment is made to the final salary payment, how will this affect their income tax slips?

Question26 - Answer 26:

All money that was earned and all deductions taken during the applicable calendar year will be reported on the income tax slips for that applicable calendar year, as normally occurs.