A TimeWork Web Policy Proposal for Canada We're listed on the Vancouver CommunityNet!

The following policy proposal was first posted in November 1996. Since that time reports affirming the job creation potential of the changes proposed here have been issued by Industry Canada (December 1996), the C.D. Howe Institute (April 1997) and the federal government Advisory Committee on the Changing Workplace (June 1997). The B.C. government's Jobs and Timber Accord (June 1997) contains provisions for Alternative Work Arrangements which, in effect, amount to a subsidy to offset the long hours incentive of federal payroll taxes.

Meanwhile, TimeWork Web has gone on to present a comprehensive analysis and policy prescription, Hours of Work: Moving Beyond Gridlock. The TimeWork Web continues to provide a wide variety of links to internet resources on work sharing.

How it all adds up:
  • Average number of hours Canadians work each week: 468 million. (Statistics Canada, 1996)
  • Share of overtime in total hours: 3.2%. (Statistics Canada, 1994)
  • Estimated total hours of overtime worked: 15 million.
  • Equivalent in full time jobs of overtime hours worked: 375,000.
  • Share of overtime that is "unpaid": 40%. (Advisory Group on Working Time and the Distribution of Work)
  • Equivalent in full time jobs of paid overtime hours worked: 225,000.
  • Share of additional overtime hours since 1991 attributed to increases in payroll taxes: 1/3. (Finance Canada economist)
  • Annual income ceiling for Canada/Quebec Pension Plan payroll tax: $35,400.
  • Annual income ceiling for Employment Insurance payroll tax: $39,000.
  • Employer's combined payroll tax contribution (CPP/QPP + EI) on annual earnings of $39,000: $2503.90. (Effective tax rate = 6.4%)
  • Employer's combined payroll tax contribution (CPP/QPP + EI) on annual earnings of $390,000: $2503.90. (Effective tax rate = .6%)
  • Ratio of employers' savings on payroll taxes for overtime work to standard overtime premium: 1/7.
Closing the Overtime Loophole
When questioned about the prospects for reducing work time and sharing the work, the standard response of business leaders is "We can't afford it." or "More government regulation? No thanks!" But what if we could put together a modest, easy-to-implement plan to enable employers to voluntarily reduce their use of overtime and create new jobs at no cost to the employer or the taxpayer? What if all the plan required us to do was to make the federal payroll tax system more fair by closing a tax loophole for overtime? What if the plan was so simple it could be stated in 25 words or less?

Here's the plan in "25 words or less":

REMOVE THE CEILING ON THE EMPLOYERS' PORTION OF FEDERAL PAYROLL TAXES (CPP/QPP AND EI). LOWER THE OVERALL RATE TO MAKE THE CHANGE REVENUE NEUTRAL.

Under the current system, employers pay no payroll taxes on earnings above $35,400 annually for CPP/QPP and $39,000 for EI. These payroll tax ceilings undermine the intent of overtime premiums mandated by provincial labour standards. For example, instead of paying "time and a half", employers effectively pay "time and two-fifths" for overtime. The difference is made up by employers' savings on federal payroll taxes -- making overtime a cheaper and more attractive option.

Thirty thousand (30,000) full time jobs could have been created in 1996 by closing this overtime loophole -- that is, by eliminating the annual income ceilings on employers' payroll tax contributions. (One-seventh of 225,000 = 30,000. This estimate excludes jobs that might have been created by converting "unpaid" overtime into new jobs. An "upper estimate" might assume that as much as 1/3 of all overtime could be converted, creating 125,000 jobs).

BUT... "Wouldn't changes to payroll taxes amount to a tax grab from middle income earners by the federal government?"

BUT... "Shouldn't contribution rates to social insurance programs be linked to benefits?"

BUT... "Not all overtime can be simply converted to new jobs -- there are other costs and considerations involved..."

30,000 jobs 30,000

For answers to the above objections (and more) follow this link.
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TimeWork Web is the official web page of the Shorter Worktime Network of Canada
Online: June 29, 1995. Latest Revision: July 23,1997
Please send suggestions and comments to: timework@vcn.bc.ca
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